May 9, 2022

Court Ruling Offers New Consideration for Corporate Officers, Directors and LLC Managers

A breach of these fiduciary duties can lead to a lawsuit and personal liability for directors, officers and LLC managers.

Frequently, lawsuits against corporate directors and officers and LLC managers are filed by the company in a derivative action brought by a corporate shareholder or LLC member. Recently, however, the Michigan Supreme Court in Murphy v. Inman held that lawsuits against corporate directors and officers (and by implication, managers of LLCs) may, in certain circumstances, be brought directly by a corporate shareholder (and by implication, by a member of an LLC). The Michigan Supreme Court further clarified that, in addition to statutory duties, corporate directors and officers must also abide by common law fiduciary duties. The same would be true for LLC managers.

This ruling may increase the risk of personal liability for corporate directors and officers and LLC managers. By expressly permitting individual shareholders who have suffered damages to file lawsuits directly against corporate directors and officers, the Michigan Supreme Court has increased the risk that corporate directors and officers (and by implication, LLC managers) may be held personally liable for breaches of fiduciary duties – including common law obligations.

In light of this recent ruling, corporate directors, officers and LLC managers will want to be sure they are protected. In addition to the obvious practice of acting in a reasonable and ethical manner to promote the best interests of the company, directors, officers and managers will want to secure a contractual promise from the company to indemnify the individual for any personal liability arising out of their role for the company. Directors, officers and managers will also want to insist that the company maintain robust Director and Officer insurance.

If you have questions relating to this or any other business law matters, please contact a Kerr Russell business and corporate law attorney.

About the author:

James CambridgeJames Cambridge has more than 30 years of experience in the areas of business law, finance, and real estate. He serves as counsel for a number of businesses and handles a variety of matters such as business formations, contracts, employment, lending relationships, restructurings, real estate, buying and selling businesses and resolving troubled business situations. He is experienced in advising closely-held businesses, as well as in advising US and foreign-based companies in establishing operations in both the US and abroad.

 

Shaun GraffShaun T. Graff is a corporate attorney who focuses his practice on tax, mergers and acquisitions, and general corporate matters. He assists clients with all manner of corporate transactions, including the purchase and sale of assets, stock and entire companies.

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