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D N A E R A C E TH F O G N I D E FE OLDERS

H E K A T S AL G E L R U O Y ) U MEET (HOW YO S TO YOUR MOTHER DUTIE DEFOE B R IA N B . Y B N E T W R IT

ws er state la posed und im s e ti re u a d w n the e Dela primarily o cluding th will focus rations, in o n the rp io o s m c s o u f fr c o ons erived This dis the operati nd laws d a to w g a n L ti n la o t. re orporati oration Ac General C iness Corp n a prior article, Model Bus I discussed the — tap family and friends for their ways that smaller spirits capital needs. But even for those that businesses can solicit and receive rely exclusively on unrelated third parties equity investments from third parties to fund their startup and growth, the relationship by selling shares of company stock or limited liability between investor and entrepreneur is essentially the same as the company membership interests. If the cash is received from a business relationship between our hypothetical mother and son. traditionally friendly party — the distiller’s mother, for example By accepting the investor’s cash, the entrepreneur will take on — then the business may be pleased to get more favorable terms obligations which are directed to the company and — by extension than might be available if the investment were obtained in a truly — the investor. So before he thanks his mother and endorses her arm’s-length transaction from someone who doesn’t necessarily check over to the purveyor of a shiny new dephlegmator, let’s spend care about the distiller’s well-being (let alone the possibility that if a few moments thinking about those new obligations, how our the new venture fails the distiller will end up moving back in with distiller will need to behave once his mother is a shareholder in his the investor). business and — more generally — the proper care and feeding of But even if the investment was received from his sweet and loving corporate stakeholders. mother, as soon as our hypothetical distiller deposits mom’s check Generally speaking, directors and officers of a corporation owe into the business’ account, his relationship with her has changed. “fiduciary” duties to the corporation itself. Fiduciary is a special For as soon as the funds clear she is no longer simply his mother. word, connoting a special kind of obligation. In fact, a fiduciary duty She is now a shareholder in his corporation, a member in his LLC, is generally the highest level of obligation imposed under principles or a creditor of his business. In a very real sense, she is now his of corporate or agency law. Over centuries of jurisprudence, the boss. This may represent a fundamental shift in the character of specific obligations owed by directors and officers have been broadly their interactions. categorized in the U.S. as falling within two basic categories of Of course not all small businesses — let alone small distilleries fiduciary duty: the duty of care and the duty of loyalty.

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Artisan Spirit: Fall 2017  

The magazine for craft distillers and their fans.