Legal Updates

No personal compensation shall be granted to a shareholder for breach of fiduciary duties unless the ‎shareholder can prove independent damage

June 5, 2017

 A company and a shareholder filed a claim against the other shareholder whom, after ceasing to work as a manager in the company and commenced working at a competitor arguing, inter alia, that the shareholder exploited the reputation of the company to promote the activity of the competitor.

The Court held that fiduciary duties were indeed breach by the shareholder, who also served as an officer of the company, and is thus obligated to compensate the company.  However, the damage was caused to the company and the damage to the other shareholder is merely a reflection of the damage to the company.  Thus, unless the other shareholder can show a personal damage to him, he cannot file a personal claim.  Additionally, the Court rejected the contention of exploitation of company reputation and held that in a closely-held company based entirely on the activity of its employees, it is unclear whether the reputation accumulated is the company's or the employee's property.