We recently wrote an article for Private Company Director on how disputes between shareholders may not be governed by fiduciary duties but could be covered by insurance.
Disputes regarding ownership interests often arise in the context of closely held corporations, particularly when directors, officers, or majority shareholders sell or acquire ownership interests in the company. These individuals owe fiduciary duties to act in the best interest of the company. Many minority shareholders are surprised to learn, however, that those obligations do not extend to them when they are negotiating the purchase or sale of their interests in the enterprise. Instead, both Delaware and California have treated such transactions as arms-length negotiations, which do not give rise to any fiduciary obligation on the part of the directors, officers, or majority shareholders on the other end of those transactions.
Even in the absence of liability, however, such disputes can be time-consuming and expensive. If the corporation carries directors and officers liability insurance, the attorney’s fees and costs might be covered under the policy. It is important for directors, officers, or majority shareholders to be aware of their rights and obligations under such policies in order to perfect their claim to coverage. We address one of the most common coverage issues that arise in disputes like this, which, if not avoided, can negatively impact available insurance.
Read the full article on our website here.