Page 71 - Microsoft Word - Updated Book Draft 2 23 2017 (1)

compensate key employees at market rates, and offers

equity interests as part of the compensation package.

What many of these businesses fail to appreciate is

that the law imposes a fiduciary duty on fellow

shareholders in closely held (i.e. not publicly traded)

companies. A fiduciary duty means each shareholder

owes to the others a duty of “utmost good faith and fair

dealing.” This is a higher duty than an employer

generally owes to an employee. It does not replace the

idea of “at-will” employment, but certainly can

complicate it. If, for example, a majority shareholder

wants to terminate an employee who also holds a

minority interest, he or she will have to demonstrate a

legitimate business reason for the termination, or else

may face a claim that the minority shareholder was

67| Rules of the Road