MBE Rules · Business Associations
Controlling Shareholder Duties
Jones v. H.F. Ahmanson
The rule
Controlling shareholders owe fiduciary duties of good faith and inherent fairness to the minority; using control to obtain advantages not shared proportionally — squeeze-outs, exclusive market access — is actionable.
In plain English
Controlling shareholders have a responsibility to act in good faith and fairly towards minority shareholders. If they use their control to gain benefits that are not shared with minority shareholders, such as through squeeze-outs or exclusive deals, they can be held liable for breaching their fiduciary duties.
Worked example
In a corporation where Shareholder A owns 70% of the shares, they decide to sell a valuable asset to a company they own, leaving minority Shareholder B with no opportunity to participate in the deal. Shareholder B can sue Shareholder A for breaching their fiduciary duty of fairness. The court finds in favor of Shareholder B, ruling that Shareholder A acted unfairly.
Memory hook
Controlling shareholders must play fair or face the consequences.
The trap
Exams may present scenarios where the controlling shareholder's actions seem beneficial to the company, leading students to overlook the fairness owed to minority shareholders. Students must remember that benefits to the company do not excuse unfair treatment of minority interests.
How examiners test it
Questions often involve fact patterns where controlling shareholders make decisions that appear advantageous but may violate fiduciary duties, requiring candidates to analyze the fairness of those actions.
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