What are the duties of the Shareholders of a Closely Held Corporation?
Stockholders, other than stockholders in a “close” corporation may have no duty at all. For closely held corporation, in 1975, the Massachusetts Supreme Judicial Court in the Donahue v. Rodd Electrotype Company of New England, Inc. established a higher standard: Stockholders in a close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another, namely, a duty of the utmost good faith and loyalty. It defined a close corporation as “typified by: (1) a small number of stockholders; (2) no ready market for the corporate stock; and (3) substantial majority stockholder participation in the management, direction and operations of the corporation.
Stockholders, other than stockholders in a “close” corporation may have no duty at all. For closely held corporation, in 1975, the Massachusetts Supreme Judicial Court in the Donahue v. Rodd Electrotype Company of New England, Inc. established a higher standard: Stockholders in a close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another, namely, a duty of the utmost good faith and loyalty.
