Legal Question in Business Law in Minnesota

Shareholder's Duty
Using the circumstances below would a shareholder be breaking his or her fiduciary duty if he or she performed work for customer�s that would be in direct competition of a closely held Minnesota Corporation, or for actual customers of the Corporation? What rights does that shareholder have to be able to make a living?

1) The shareholder is not a board member of the corporation but had been taken off the board 45 days earlier. 2) Shareholder had been vice president 9 months prior but was removed. 2) The shareholder has never had a non-compete agreement with the corporation. 3) The shareholder no longer works for the corporation.

Asked on 2/12/09, 2:04 pm

1 Answer from Attorneys

Steven Vatndal Law Office of Steven J. Vatndal

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Re: Shareholder's Duty

There's no simple test to answer this: it is a case-by-case examination.

First, if the person is using any trade secrets (as that term is defined by statute), he will be liable (though perhaps not on a fiduciary claim). Even if there is no problem with fiduciary duty, trade secrets may be a problem.

I infer that the person was previously employed by the company. If he left that employment involuntarily (i.e. was fired) this will be a great help in avoiding the fiduciary duty issue. However, even if he was involuntarily removed as VP and director, if he voluntarily left employment, this will create a problem.

A detailed history is needed of how the company was formed and operated: was it like a smallpartnership that just happened to be incorporated or more like a corporation with some shareholders not active in the business? Was the possibility of competing with the company discussed during formation?

A definite answer exists only after a court decides this particular case. If such a problem is anticipated, it is probably in the interest of both sides to work this out informally (perhaps with mediation, and the guidance of attorneys). The certainty, speed and economics of this approach are often superior to the wait-and-see-if-they-sue approach.

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Answered on 2/12/09, 4:46 pm

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