Explain the legal duties that Jeff and Joan, as majority shareholders, have to Henry and Martha as minority shareholders:What are their duties to Henry (an owner) as directors of the corporation?

Explain the legal duties that Jeff and Joan, as majority shareholders

Read the following scenario.

A family-owned business can have special complications. The line separating family relationships and legal responsibilities can be unclear. It is important for directors, officers, and owners of a family-owned business to be aware of the issues to avoid misunderstandings and unintended liability and to preserve familial relationships.

You are a consultant advising a “mom and pop” grocery store owned by Jeff and Joan, a married couple, and their two adult children, Martha and Henry. The grocery store operates under a subchapter S corporation. Jeff and Joan as a couple own 70% of the corporation’s shares, and Martha and Henry each own 15% of the shares. Jeff, Joan, and Martha are directors of the corporation, and Henry is the corporation’s chief executive officer (CEO).

Create a client memorandum (memo) addressing the following:

  • Explain the legal duties that Jeff and Joan, as majority shareholders, have to Henry and Martha as minority shareholders. What are their duties to Henry (an owner) as directors of the corporation?
  • Define the types of ethical duties Jeff, Joan, Martha, and Henry have to each other as owners of the company. What about as family members?
  • Provide suggested steps the family can take to abide by their legal duties as directors and officers, yet still preserve relationships between family members.

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