Business owners have specific duties to the business such as the duty of care, the duty of loyalty, and the duty of good faith. These responsibilities are part of the Revised Model Business Corporation Act, which states such as Minnesota adopt in whole or in part to guide the drafting of their laws. While it is clear that these duties, unless specifically exempted, apply to current owners, even as the owner is phasing out of control, the question arises of how these standards of conduct apply to previous, no longer active corporate officers. After all, they’ve been privy to corporate strategy and confidential information and may still be in a position to influence decision making.
- Duty of Care: This is the obligation that owners and directors engage in their work with a reasonable level of care. They are expected to be competent and meet the appropriate standards of running the business in the industry they find themselves in. An outgoing director or officer is no longer involved in the active running of the company, but may still find himself involved in a situation where their advice is sought. This is especially true for a family business where the parents have retired and the children have taken over, but still look to their parents for guidance and insight as well as introducing them to customers.
- Duty of Loyalty: This obligation has owners and officers putting the interests of the corporation ahead of their own and limits self-dealing transactions without full disclosure and appropriate discussion. This can get complicated when an officer has left a job with one company and taken a job with another. Such situations should be identified, disclosed, and the officer can work with the board of their new company to prevent any sense of conflict.
- Duty of Good Faith: This obligation ensures that decisions made by the business are made in good faith and that owners and officers act in a fiduciary capacity when making decisions. While retired or former officers are no longer in a position where they’re making decisions, they should still interact with the company in a professional and ethical manner.
A business can close its doors and dissolve, but as long as the statute of limitations runs, the corporate officers could still be called up on a lawsuit and be deposed, questioned, and handed a judgement. In these situations, officers are encouraged to seek legal advice and assistance, even if they plan to comply with the court’s request, especially before turning over documents or other sensitive information.
For clarity in understanding your responsibilities or help handling a specific situation, reach out to Virtus Law Firm by calling us at 612.888.1000 or emailing us at firstname.lastname@example.org. We will help you find the best solution possible and give you advice, guidance, and support along the way.