July 2012

The Intersection of Fiduciary Duties & Shareholder Rights

Wall Street Lawyer
Michael A. Grill | Michael J. Zdeb

Trusts frequently hold interests in closely held businesses. The interests may represent control positions but more often constitute minority interests. Trustees may also have beneficiaries who have direct interests in the same business.

The level of ownership in the business and the involvement by the trustee in the decisions regarding the business can raise issues regarding the trustee’s duties. On one hand, a trustee of a trust that holds all the equity of an enterprise would not need to consider any other equity-holding constituency in the trustee’s decisions. Such trustees could likely consider their decisions only by reference to the fiduciary duties owed to the trust beneficiaries. But often times, trustees with the ability to control the business— either outright or as part of a control group—will need to consider duties owed to the trust, to the business, and potentially other equity holders, even if they are not beneficiaries of the trust. And, in situations where the trustee has no control or a limited voice in the entity, the trust may nevertheless be embroiled in conflict.

The trust may find its interests directly affected, or may find that a beneficiary is being squeezed out or oppressed in an individual capacity. These are just a few points where trustees’ fiduciary duties intersect with the developing law regarding equity holders’ relations and duties in closely held businesses. In the following article, these intersections are viewed from two primary perspectives.

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