The Controlling Shareholder’s General Duty of Care: A Dogma That Should Be Abandoned

Abstract

It is a frequently repeated dogma in corporate law that controlling shareholders have a general fiduciary duty of care towards the corporation. This Essay, however, argues that the case for such a duty is exceedingly weak.

Given that controlling shareholders are heavily invested in the controlled corporation, they already have a strong financial incentive to make well-informed decisions. Accordingly, there is no need for a general duty of care. In fact, the general duty of care for corporate controllers owes its existence to little more than poor doctrinal reasoning: courts have suggested that, in order to protect minority shareholders, corporate controllers who direct the actions of the corporation must assume the fiduciary duties of corporate directors.

This argument, however, is flawed for many reasons. In particular, it overlooks the fact that controlling shareholders and corporate directors face vastly different incentives. It is time, therefore, to abandon this line of reasoning and, with it, the idea of a general duty of care for corporate controllers.