Shareholder, Member, and Partner Disputes
Duties of business managers
The directors and officers of a corporation are responsible for the management of the corporation's business. With regard to the corporation and its shareholders, the directors and officers have two primary duties. The first duty requires that directors and officers exercise good faith business judgment and that their actions are in the best interests of the corporation. The second duty obligates directors and officers to put the interests of the corporation and the shareholders ahead of their own interests, and not use their positions with the corporation to secure a personal advantage. The same duties apply when we speak of limited liability companies, and the obligations that managers have to the company's members.
Courts in Virginia operate under the presumption that directors and officers have acted with due regard for the corporation's best interests. In the absence of some evidence that the directors and officers have been disloyal or very negligent, a court will not punish (or even scrutinize) a bad business decision. In contrast, if a director or officer is accused of being disloyal to the corporation and its shareholders, the director or officer will have the burden of proving his or her loyalty. Violation of the duty of loyalty may expose the director or officer to individual liability and may invalidate the underlying transaction if the director or officer has misused his or her position.
The duties of care and loyalty, described above, between directors and shareholders (or managers and members, in the context of limited liability companies) do not run between the directors and individual shareholders, but between directors and the collected shareholders as a group. As between the shareholders, there are no such duties. By contrast, in a partnership, each of the partners owes the business and his or her co-partners the duties of care and loyalty.
Disagreement, distrust, dissent, dissolution
There are many reasons for shareholders in small corporations (or members of limited liability companies) to stop cooperating with one another. Whether it results from personal enmity, a struggle for control, or real differences of opinion over what is best for the company, shareholders in small businesses may find themselves owning a deadlocked company, or a company in which one group of owners is oppressing another group. The best time to address the problems associated with dissent and deadlock is prior to the business's formation, through provisions in the articles of incorporation or shareholder agreements. In the absence of pre-incorporation planning, there are a variety of negotiable solutions, such as stock redemption or sale of the business to a third party. As a final alternative, the Virginia Code provides for judicially supervised dissolution of the corporation in the event that a deadlock cannot otherwise be resolved.