Fiduciary Duties Officers and Directors Owe a Minnesota Corporation

The Basic Duties of Officers and Directors

The duties you owe, especially in a closely held corporation, fall into two categories: the duty of loyalty and the duty of care. Director duties live in one statute (Minn. Stat. 302A.251) and officer duties in a separate one (Minn. Stat. 302A.361), but the standard of conduct each imposes is essentially identical.

Here is the payoff of meeting that standard. If you discharge your duties as the statute requires, you are “not liable by reason of being or having been” a director or officer. Minn. Stat. 302A.251, subd. 1; Minn. Stat. 302A.361, subd. 1. That protection is a shield, not blanket immunity: it holds only if you actually meet the standard. A director who breaches the duty of loyalty, acts in bad faith or with intentional misconduct, knowingly violates the law, or derives an improper personal benefit is not shielded. Minnesota draws similar lines in a separate provision: a corporation may eliminate or limit a director’s personal liability to the corporation or its shareholders for monetary damages in its articles, but it cannot eliminate liability for those same matters. Minn. Stat. 302A.251, subd. 4. You are also not expected to verify everything yourself: as a director you may in good faith rely on reports and financial statements from officers and employees you reasonably believe competent, from counsel and accountants within their professional competence, and from a board committee of which you are not a member and that you reasonably believe merits confidence, unless you have knowledge that makes the reliance unwarranted. Minn. Stat. 302A.251, subd. 2.

The Duty of Loyalty

The duty of loyalty requires you to deal honestly with the corporation and its shareholders. Minnesota courts recognize that shareholders in a closely held corporation owe one another a fiduciary duty of loyalty, which includes a duty to deal honestly and to disclose material information. Berreman v. West Publishing Co., 615 N.W.2d 362 (Minn. Ct. App. 2000). Good faith is part of the same statutory standard, and the Business Corporation Act defines it as “honesty in fact in the conduct of the act or transaction concerned.” Minn. Stat. 302A.011, subd. 13.

Disclosure of material information

Among your loyalty duties is a duty to disclose material information. Berreman v. West Publishing Co., 615 N.W.2d 362 (Minn. Ct. App. 2000). The clearest application is your own conflict of interest. If you have a material financial interest in a contract or transaction with the corporation, the material facts of both the transaction and your interest must be fully disclosed to (or already known by) the board (or a committee) or the shareholders. Absent that disclosure and approval, or proof that the transaction was fair and reasonable to the corporation, the transaction may be void or voidable. Minn. Stat. 302A.255, subd. 1.

The duty is bounded by materiality. In Berreman, the Court of Appeals held that a close corporation’s repurchase of a retiring shareholder’s stock, without disclosing early and speculative discussions about a possible sale of the company, was not a breach, because those preliminary discussions were not material. Berreman v. West Publishing Co., 615 N.W.2d 362 (Minn. Ct. App. 2000). Materiality is a question of both fact and law that turns on the circumstances of each case.

Self-dealing and the conflict-of-interest safe harbor

A central loyalty violation is self-dealing: putting personal interests ahead of the corporation. A common misunderstanding is that any transaction between you and your corporation is automatically void or a per se breach. It is not. Minnesota supplies a safe harbor. A transaction in which a director has an interest is not void or voidable if any one of the statutory conditions is met. Three are central to ordinary transactions:

1. Fairness. The transaction “was fair and reasonable as to the corporation” when authorized, approved, or ratified, and the person asserting its validity bears the burden of proving that fairness.
2. Disinterested shareholder approval. The material facts of the transaction and the director’s interest are fully disclosed to or known by the holders of all outstanding shares, and the transaction is approved in good faith by the holders of two-thirds of the voting power of the shares entitled to vote that are owned by persons other than the interested director, or by the unanimous affirmative vote of the holders of all outstanding shares.
3. Disinterested director approval. The material facts are fully disclosed to or known by the board or a committee, and the transaction is approved in good faith by a majority of the directors then currently holding office, with the interested director not counted toward a quorum and barred from voting.

Minn. Stat. 302A.255, subd. 1. The statute defines a director’s “material financial interest” to reach transactions involving the director’s spouse, parents, children and their spouses, siblings and their spouses, and the director’s spouse’s siblings, and it excludes resolutions fixing director compensation. Minn. Stat. 302A.255, subd. 2. The practical rule: either prove the transaction was fair and reasonable to the corporation, or fully disclose your interest and obtain disinterested approval. Either path lets you lawfully transact with your own corporation.

The Duty of Care

The duty of care requires you to discharge your duties in good faith, in a manner you reasonably believe to be in the corporation’s best interests, and with the care of an ordinarily prudent person in a like position. Minn. Stat. 302A.251, subd. 1; Minn. Stat. 302A.361, subd. 1. It does not require that your judgments turn out to be sound. Under the business judgment rule, the Minnesota Supreme Court holds that a disinterested director who makes “an informed business decision, in good faith, without an abuse of discretion” is not liable for resulting corporate losses, because “courts are ill-equipped to judge the wisdom of business ventures and have been reticent to replace a well-meaning decision by a corporate board with their own.” Janssen v. Best & Flanagan, 662 N.W.2d 876, 882 (Minn. 2003); accord In re UnitedHealth Group Inc. Shareholder Derivative Litigation, 754 N.W.2d 544 (Minn. 2008). The law protects your process, not the outcome: a decision that proves unprofitable does not expose you to liability if it was informed, made in good faith, and reasonably believed to serve the corporation.

Heightened Duties in a Closely Held Corporation

If your corporation is closely held, the duties above are not the whole picture. Minnesota imposes a heightened, partnership-like fiduciary duty among the people who own and control the company. By statute, a court deciding whether to order equitable relief, dissolution, or a buy-out must consider “the duty which all shareholders in a closely held corporation owe one another to act in an honest, fair, and reasonable manner in the operation of the corporation” and “the reasonable expectations of all shareholders.” Minn. Stat. 302A.751, subd. 3a. That relief is available to a shareholder who shows the directors or those in control acted “in a manner unfairly prejudicial.” Minn. Stat. 302A.751, subd. 1. The common law reinforces this: Minnesota courts treat closely held shareholders as analogous to partners, a partnership in corporate guise, and impose on them the highest duties of honesty, integrity, and good faith toward one another. Pedro v. Pedro, 463 N.W.2d 285 (Minn. Ct. App. 1990); Evans v. Blesi, 345 N.W.2d 775 (Minn. Ct. App. 1984).

A 2025 Update to the Officer Standard

The officer standard-of-conduct statute was amended in 2025. 2025 Minn. Laws ch. 11, sec. 17 (signed April 30, 2025). The amendment left the core standard of conduct unchanged as subdivision 1 of Minn. Stat. 302A.361, and added a new subdivision 2 permitting a corporation’s articles to limit an officer’s monetary-damages liability for breach of fiduciary duty, but only “during the time the corporation is a publicly held corporation,” subject to carve-outs (loyalty, bad faith, intentional misconduct, knowing violations of law, Minn. Stat. 80A.76, improper personal benefit, derivative actions, and pre-effective-date acts). Unlike the parallel director provision, this officer liability limitation is tied to public-company status. For the great majority of Minnesota businesses, which are privately held, the baseline duties described above continue to apply in full.

If you are weighing a transaction with your own corporation, a board decision that may later be questioned, or a dispute among the owners of a closely held company, these duties define the exposure you carry. Aaron Hall advises Minnesota officers, directors, and business owners on how to meet them and document compliance before a problem arises.