How to Avoid Committing Fraud When Selling Shares

When selling shares of your company, you have a fiduciary duty to your shareholders. When one party has a fiduciary duty to another party, they are expected to be loyal, fair, act in good faith, and act in complete fidelity. Officers and directors are expected to serve the company and not simply themselves. Here are some things you should keep in mind when selling shares.

Don't Profit Off Your Company

As the majority shareholder, you will not be able to take a business opportunity or investment opportunity that should belong to your business as a whole. You are also not allowed to take money from your corporation to give yourself an excessive salary. Whenever you take money or assets from your company, you must properly disclose it.

You are not allowed to buy out a minority shareholder at a discounted price unless you inform the minority shareholder. When a minority shareholder purchases or sells a stock, you must keep the shareholder informed so they can make a proper decision. Both yourself and the minority shareholder have the right to pursue your own interests, but you must not enter into the agreement through fraud or misrepresentation. 

Don't Misrepresent Your Company

To commit misrepresentation, you must either misrepresent a fact or make a false promise. The misrepresentation must be material and false. You must be aware that it was false at the time and the goal of the misrepresentation must be to get the minority shareholder to act. Finally, the misrepresentation must cause harm to the minority shareholder.

You must not misrepresent financial information, especially if doing so would cause the minority shareholder to overpay and if the minority shareholder would not have invested if they had known the trust. However, in the early stage of forming a business, minority shareholders are either involved in starting the company or are investors who are not concerned about financial information due to the lack of past financial performance metrics.

Avoiding Unintentional Fraudulent Activity

If you are not sure about what you are allowed to do as a controlling shareholder, it's essential to hire a corporate lawyer to assist you. Inform your lawyer about the actions that you are planning on taking so he can advise for or against it. Even after consulting with a lawyer, you should also ask yourself whether you think your actions are in the best interest of the company under all circumstances. For more information about legal representation, visit websites like to contact a corporate lawyer.