What are the duties of a shareholder?

Executive summary: same duties as everyone, but with a more punitive enforcement

In a recent post on the Oxford Business Law Blog Birkmose (Aarhus) and Möslein (Marburg) try to map shareholders’ duties:

“The mapping of shareholders’ duties shows that shareholders’ duties are not a rare and exotic phenomenon in European company and capital market law. On a closer look, there are indeed many examples, and they form fully integrated parts of the legal system instead of being rate exceptions.”

Elsewhere  (p. 70-72 – in Dutch) we have restated the Belgian law on the duties of a shareholder towards third parties (such as company creditors) as follows:

  1. There are no implied shareholders’ duties towards third parties beyond the explicit duties imposed by the legislator. Such implied duties would undercut the benefits of limited liability. The interests of third parties are covered by directors’ liability.
  2. The previous point implies that the quality of shareholder does not trigger a higher duty under the general duty of care (the “good house-father” or “bonus pater familias” of tort law). This is surprising:  the normal rule of tort law is that a specific role entails specific duties under the general duty of care.
  3. The previous points also apply to a controlling shareholder.
  4. That does not imply that a shareholder can never be liable under the general duty of care. Obviously, he can like any other person violate the general duty of care.
  5. If, however, a controlling shareholder is held to have been in violation of a duty, he will be punished harsher than a wrongdoer at arms’ length. Damages imposed on a shareholder have a punitive side. This is justified : a controlling shareholder can make sure that the ‘victim’ of his wrongdoing does not use the normal legal actions to go after him. In addition, a controlling shareholder has an exceptional opportunity to cover up his wrongdoings and their consequence.

Joeri Vananroye

Author: Joeri Vananroye

Professor of economic analysis of law (KU Leuven), attorney (Quinz)

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