What fiduciary duties does the CEO of a privately-held corporation have to the shareholders?
Santa Cruz, CA |
I am a shareholder in a privately-held corporation that is in negotiation for sale. The CEO refuses to reveal the details of any on-going negotiations, claiming they are confidential. Is he permitted to withhold this information?
Generally, corporate directors and officers have a fiduciary duty to the corporation's shareholders. That's very vague, and could mean that a CEO could be looking out for the best interests of the company's shareholders even without revealing on-going negotiations of the corporation's sale.
Presumably your corporation's Bylaws (and Shareholders Agreement, if you have one) provide that the directors and shareholders have the right to inspect the corporation's books on reasonable notice, and that the shareholders have to approve any sale of the corporation. That doesn't mean that your corporation's CEO has to tell you about sale negotiations. But maybe you can ask to see copies of documents relating to the negotiations.
Review your corporate Bylaws and shareholders Agreement, or consult the lawyer who organized your corporation if there was one, or hire a business lawyer now to help with this.
Disclaimer: Please note that this answer does not constitute legal advice, and should not be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue. This answer does not create an attorney-client relationship.
The CEO's fiduciary obligations are to perform his duties (a) in good faith and in a manner he believes to be in the best interests of the corporation and its shareholders and (b) with the care that a prudent person would exercise in similar circumstances.
He has no obligation to disclose information about negotiations to you; indeed, it is possible that doing so would jeopardize the negotiations and, thus, constitute a breach of his fiduciary obligations.
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.