Shareholders are Not Fiduciaries : A Positive and Normative Analysis of Kentucky Law

This article considers a seemingly simple question – is the statement “shareholders in a Kentucky business corporation stand in a fiduciary relationship with one another” an accurate statement of the law? In fact it is not. As is detailed herein, as a matter of positive law, (i) no Kentucky court has held there to be a fiduciary relationship among shareholders save in one narrow fact situation, and that decision may now be invalid consequent to intervening developments in the controlling statute, and (ii) in comparing the Business Corporation Act to other of Kentucky's business organization statutes, each addressing inter-owner fiduciary duties, the absence of a statutory inter-shareholder duty must evidence the absence of such obligations.Turning to a normative analysis, the absence of inter-shareholder fiduciary obligations is correct as: (i) the inter-shareholder relationship lacks the features of a fiduciary relationship; (ii) the imposition of fiduciary duties among shareholders does violence to the statutory construct of majority control of the corporate enterprise; (iii) the existence of such duties would do violence to a consistent form in which, by statute, fiduciary obligations are imposed upon only those charged with the day to day management of the venture; and (iv) there are a variety of alternative structures in which, if desired, inter-owner fiduciary duties do exist. This article concludes with a review of how perceived cases of oppression may be addressed through contractual (as contrasted with fiduciary) remedies