In a close corporation, a managing shareholder has a duty of care to which parties?

• A. The corporation only
• B. Other shareholders only
• C. The corporation and other shareholders
• D. No fiduciary duties apply to managing shareholders

Answer: (C)

In a close corporation, the controlling or managing shareholder is in a fiduciary role and must consider the interests of both the corporation and the other shareholders. The duty of care requires acting with the care that a reasonably prudent person would in similar circumstances—gathering information, making informed decisions, and avoiding reckless or grossly negligent conduct. Because control in a close corporation can affect minority holders, courts impose fiduciary duties that run to the corporation as a whole and to the other shareholders, not just to the entity itself. So the managing shareholder’s duty of care is owed to both the corporation and the other shareholders.