Minority Shareholder/Fiduciary Duty

It’s Hard to Fire the President . . .

by Lee Gesmer on November 20, 2005

Minority Shareholder/Fiduciary Duty.

. . . of your company, that is.

OK, here the facts, minus the legal jargon.

You’re a businessman with a successful company. You meet someone that wants to go into business with you in a related area. You start a new company, making sure that you hold a majority interest (52.5%). Your new “partner” gets 37.5%, and the rest of the stock goes to a couple of employees. Although your partner is a minority shareholder he’s running the business, so you make him president of the company.

Almost ten years go by, and although the company is making money you’re unhappy with your partner. He’s bad at finances, and tensions arise over bookkeeping and other business issues.

Eventually you reach your boiling point, and one morning you fire your minority partner.

Simple enough you think. After all, you own a majority of the company, what’s stopping you from doing this?… Read the full article “It’s Hard to Fire the President . . .”

Minority Shareholders/Fiduciary Duty. Massmanian v. Duboise, decided in September by Judge Ralph Gants in the Suffolk County Business Litigation Session, proves once again that when a party to litigation angers a judge, they can be forced to pay a high price.

In this case the plaintiff Massmanian was a 30% minority shareholder and employee in North/Win. After he filed suit accusing the majority shareholders of diverting North/Win’s profits and assets to another company (a serious breach of fiduciary duty, if true), North/Win terminated Massmanian for insubordination and neglecting his duties. Massmanian then asked the court to issue a preliminary injunction reinstating him. In opposing this motion, North/Win, and its lawyers made some serious strategic errors:

  • First, they demanded that all North/Win employees sign a Confidentiality Agreement which (among other things) barred employees from disclosing “matters related to the lawsuit Massmanian has filed against the company, even in a legal proceeding.” This Agreement was demanded upon pain of termination, and one employee was terminated for failing to sign it.
Read the full article “Employee Shareholder Gets Upper Hand In "Triple Freeze-Out" Case”