Do Fiduciary Duties Apply Between Equal, 50/50 Shareholders?

SealIAFiduciary duties are often described as the highest duties recognized under the law.  Their application, however, is often challenged by litigants in court.  In a recent case before Iowa’s Business Courtthe Honorable Judge John Telleen was tasked with determining whether equal, 50/50 shareholders in a corporation are charged with exercising fiduciary duties in their dealings with each other.

Judge Telleen began the June 4, 2015 opinion by explaining Iowa’s long history of applying fiduciary duties: (1) by directors and officers of a corporation to the corporation and its shareholders; (2) between a majority shareholder and a minority shareholder; (3) between joint venturers through the life of a venture and its dissolution; (4) between partners in a partnership; and (5) between shareholders in closely held corporations.  After reviewing and explaining Iowa’s well-established history of applying fiduciary duties in numerous business settings, Judge Telleen concluded, “[e]qual shareholders owe each other a fiduciary duty” (emphasis added).  In support of this holding, the court explained

[i]f equal partners, joint venturers and shareholders in closely held corporations owe each other [sic] fiduciary duties, the Court sees little reason why those same duties should not be required of equal shareholders.

Idat 13.  Based upon the holding in this June 2015 opinion, 50/50 shareholders in Iowa corporations should consider exercising caution in their dealings with one another consistent with the fiduciary duty concepts adopted and imposed upon Iowa shareholders.

Click here to learn more about the who, what, when, where, and why of fiduciary duties.

Download a copy of the June 4, 2015 Opinion.  A special thank you to Ben Weston, of Lederer, Weston, and Craig for providing a copy of the Opinion.  

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About Matthew McKinney

Attorney focused on civil and commercial litigation.
This entry was posted in Litigation and tagged , , , , , , , , . Bookmark the permalink.

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