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If you’ve made it to the end of this discussion, you may well be asking why you need to comply. What benefit do you get if you meet your fiduciary duties? The short answer is that it becomes more difficult for one of your shareholders to sue you for something you’ve done. So if you’re certain that none of your shareholders are going to sue you (e.g., you’re the only shareholder or you sold shares to your mom but you’re convinced she won’t hire a lawyer), then you may be thinking you’ve wasted your time. Perhaps you’re right. But then again, considering that your business’ creditors can effectively step into the shoes of your shareholders if you breach your fiduciary duties and the corporation happens to be insolvent — perhaps you’re mistaken. By fulfilling their fiduciary duties to a corporation, directors get the benefit of one of the greatest features of our corporate law: the business judgment rule. Broadly stated, the business judgment rule holds that so long as the directors have fulfilled their fiduciary duties and a challenged decision by the board does not involve conflicts of interest, improper personal benefit or other obviously troubling impropriety, the court will not substitute its judgment for the judgment of the board. In other words, the court will respect the business judgment of the board. This means that you can be dead wrong in your corporate decision-making and, so long as you fulfilled your duty, you are unlikely to find legal liability. That’s a good thing. Of course, if you really are dead wrong in your decisionmaking and your mom loses her investment, it is possible that she will not follow this longstanding legal precedent and will indeed criticize your judgment. I can’t help you with that one. You’re going to need to sort that out on your own.
Brian B. DeFoe is a business lawyer at Lane Powell, where he focuses his practice on helping companies in the customer-facing industries of hospitality and retail. Brian can be reached at firstname.lastname@example.org, via phone at (206) 223-7948, or on Twitter @BrianBDeFoe. Visit www.hoochlaw.com for more thoughts on spirits and the laws that govern them. This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers. 72
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