17 What duties are owed by members of a corporation?

First, the board of directors has legal responsibility for the corporation. They owe a fiduciary duty to the corporation itself and to the corporation’s shareholders. If they violate the duty of loyalty by engaging in self-dealing (such as taking advantage of a deal that would have benefited the corporation) or violate the duty of care (failing to take due care in a decision affecting the corporation), they can be sued by the shareholders on an individual basis. This means they face personal liability for their actions! Note this aspect of the corporation carefully. Although we discussed the limited liability of the corporation previously, that liability shield applies to the shareholders of the corporation, not to the board.

Because shareholders have given their money to the corporation as part of a profit-generating investment, they are owed a duty for the corporation to try and make them money. This duty is not absolute, and will have many caveats, but it exists. For instance, consider a situation in which you invest in buying stock of a corporation, and the corporation decides to give away all the corporate assets to support a cause. While that might be just cause, the investor who expected a return to fund their retirement would likely feel upset (and have legal recourse), because the corporation has not managed their investment with care and loyalty.

As corporate employees, the officers owe the corporation a fiduciary duty of loyalty and care. The corporation, as their employer, owes them specific legal duties, such as to not discriminate against them in unlawful ways, but does not owe them a legal duty to maximize their pay, accede to their demands for support of social causes, and so on. We will consider the relationship of employer and employee in great detail later in the text.