Two owners of a Virginia restaurant breached their fiduciary duty to the corporation they managed by paying
themselves exorbitant management fees and by making improper loans and
distributions to themselves, a Fairfax
County judge has found.
"Fiduciary duty" in this context generally
refers to the duty of loyalty owed by officers, directors, and other employees
to each other or to the corporation they work for. Fiduciary duties include
things like acting at all times with the corporation's best interests in mind,
refraining from usurping business opportunities for yourself, and
refraining from actively competing with the company. In general, the law in
Virginia and elsewhere holds that people in a position of trust vis-à-vis a
closely held corporation must perform their duties without self-dealing or
conflict of interest.
According to the opinion, the basic facts were as follows. As of 1993,
Michael Magill, Thomas Dinsmore, and Raymond Clatworthy each owned 33 percent
of the shares of DPR, Inc., a Virginia corporation that operated a restaurant.
The restaurant's primary business was preparing buffet lunches for sightseeing
school groups visiting the Washington, D.C., area. Magill, who lived in the
D.C. area, set up Magill Enterprises, Ltd., which operated the restaurant as an
independent contractor of DPR and charged it a management fee. The other two
owners did not live in the D.C. area. DPR was organized as an S corporation.
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