Thursday, May 24, 2012

Shareholder Fiduciary Duty

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Under the Ohio Supreme Court decision in Crosby v. Beam, majority shareholders have a fiduciary duty to minority shareholders.  When majority shareholders in a close corporation utilize their majority control to their own advantage, without providing minority shareholders an equal opportunity to benefit, such breach, absent legitimate business purpose is actionable.   

Ohio appellate courts have found that a minority shareholder in a close corporation is not an at-will employee who can be terminated at any time by the majority shareholder absent a legitimate business reason.  However, ohio appellate courts have reached a different decision where the minority shareholder signed an employment agreement that permitted termination without cause.  For example, in Cruz v. South Dayton Urological Associates Inc, the minority shareholder had signed an employment agreement that provided the minority shareholder-employee could be terminated without cause on 90 days written notice.  The court found that when the minority shareholder signed the employment agreement containing the without cause termination provision, he relieved the majority shareholders of any duty they owed him, and waived his right to argue that the majority shareholders needed a legitimate business reason to terminate him. 

So word to the wise, whether you are a majority or minority shareholder, review the provisions of your employment agreements and other legal documents with your attorney so you understand your rights and obligations.

AND ONE MORE THING. If you or a friend have invented a new product, or have improved an existing product, you need to be careful to preserve your rights as to such invention or improvement. To protect your rights, you can seek a provisional patent or a full utility patent. But you must make an application within one year after the first public disclosure of the invention.  A public disclosure is any disclosure of information about the invention that is made without restriction on the recipient’s right to disseminate such information. To avoid making a public disclosure, it is important to have every person or entity that will receive information about such invention sign a non-disclosure agreement. Call or email me if you need a non-disclosure agreement drafted. or 937-223-1130.

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