What Minnesota Corporate Directors and Officers Actually Owe: § 302A.251, § 302A.361, and the Rule That Isn't in the Statute

Ask a Minnesota corporate director what protects a good-faith business decision and you will usually hear “the business judgment rule.” Then open Minn. Stat. § 302A.251 — the section titled STANDARD OF CONDUCT, the provision that governs every director of every Minnesota business corporation — and read it start to finish. The phrase “business judgment rule” does not appear. Not in subdivision 1, not anywhere in the section.

That is not an oversight, and it is not a trap. It is the most important structural fact about director liability in Minnesota, and it explains a great deal about how these cases are actually litigated. The legislature wrote a conduct standard. The courts supplied the deference. The two are not the same thing, they do not always move together, and a director who assumes the statute is doing work it does not do will make bad decisions about board minutes, about reliance on advisors, and about when to leave the room.

Compare the LLC act, which the legislature wrote three decades later. Minn. Stat. § 322C.0409, subd. 3, opens with the words “Subject to the business judgment rule” — express, codified, right in the text. The corporate act has no equivalent sentence. If you practice in both regimes, that difference is worth carrying around.

This article walks the actual text of the Minnesota director and officer duty provisions, the 2025 amendment that gave officers an exculpation provision for the first time, the conflict-of-interest procedure that most closely held boards do not follow, and the question that decides many of these cases before anyone reaches the merits: whose law governs at all.

What does § 302A.251 actually require of a director?

Three things, stated in a single sentence. Subdivision 1 provides:

A director shall discharge the duties of the position of director in good faith, in a manner the director reasonably believes to be in the best interests of the corporation, and with the care an ordinarily prudent person in a like position would exercise under similar circumstances. A person who so performs those duties is not liable by reason of being or having been a director of the corporation.

Minn. Stat. § 302A.251, subd. 1.

Read the second sentence again. It is a safe harbor, and it is phrased as one: a director who meets the standard “is not liable by reason of being or having been a director.” That is a statutory answer to the plaintiff who sues the whole board because the board is the board. It is not an answer to the plaintiff who alleges the standard was breached.

Note also what the standard measures. “The care an ordinarily prudent person in a like position would exercise under similar circumstances” is a contextual test, not a fixed one. A director of a two-shareholder manufacturing company and a director of a hospital system are not held to the same practical expectations, because the position and the circumstances are not alike.

The subdivision that does the most work is not subdivision 1

In practice, the provision that decides director cases is subdivision 2 — the reliance rule. It says a director “is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data,” when prepared or presented by:

(1) one or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;

(2) counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person’s professional or expert competence; or

(3) a committee of the board upon which the director does not serve, duly established in accordance with section 302A.241, as to matters within its designated authority, if the director reasonably believes the committee to merit confidence.

Minn. Stat. § 302A.251, subd. 2(a).

Two features of that text repay attention.

First, every clause is conditioned on the director’s reasonable belief — that the officer is reliable and competent, that the matter is within the professional’s expert competence, that the committee merits confidence. Reliance is not automatic. A board that routes a legal question to its accountant, or a valuation question to its litigation counsel, is relying on a person outside the stated competence, and the statute does not protect that.

Second, paragraph (b) is the off switch:

Paragraph (a) does not apply to a director who has knowledge concerning the matter in question that makes the reliance otherwise permitted by paragraph (a) unwarranted.

Minn. Stat. § 302A.251, subd. 2(b). A director who knows the CFO’s numbers are wrong cannot rely on the CFO’s numbers. This is the point at which a board’s own emails frequently become the case.

The nonprofit analogue is worded slightly differently and slightly more favorably to the director: Minn. Stat. § 317A.251, subd. 2(b), disables reliance only for a director who has “actual knowledge” making reliance unwarranted. The business corporation act omits the word “actual.” Whether that difference carries weight in a given case is a live question, but it is on the page, and it is the kind of one-word divergence worth flagging in a fiduciary-duty brief.

If you were in the room and said nothing, did you approve it?

Yes — by statutory presumption. Subdivision 3 provides that a director present at a board meeting when an action is approved by the affirmative vote of a majority of the directors present “is presumed to have assented to the action approved,” and it gives exactly three ways out:

(a) objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and does not participate thereafter in the meeting, in which case the director shall not be considered to be present at the meeting for any purpose of this chapter;

(b) votes against the action at the meeting; or

(c) is prohibited by section 302A.255 from voting on the action.

Minn. Stat. § 302A.251, subd. 3.

Notice what is not on the list. Abstaining is not on the list. Expressing reservations is not on the list. Leaving early — after the meeting has begun and after participating — is not on the list. In Minnesota, the director who “had concerns” but did not vote no has, as a matter of statute, assented.

The practical consequence runs straight into the minutes. If a director votes against a transaction and the minutes record the vote as unanimous, the director’s statutory escape hatch has been papered shut by someone else’s draft. Reviewing minutes for accuracy is not administrative housekeeping; it is liability management.

Can the articles eliminate a director’s liability?

Partly. Subdivision 4 permits the articles of incorporation to eliminate or limit a director’s personal liability to the corporation or its shareholders for monetary damages for breach of fiduciary duty. That is the standard exculpation clause, and most Minnesota corporations formed with competent counsel have one.

But the statute enumerates five things the articles “shall not eliminate or limit”:

(a) for any breach of the director’s duty of loyalty to the corporation or its shareholders;

(b) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

(c) under section 302A.559 or 80A.76;

(d) for any transaction from which the director derived an improper personal benefit; or

(e) for any act or omission occurring prior to the date when the provision in the articles eliminating or limiting liability becomes effective.

Minn. Stat. § 302A.251, subd. 4.

Read as a whole, the carve-outs tell you what exculpation is for. It covers care — the negligent decision, the inadequate process, the deal that should have been studied harder. It does not cover loyalty, bad faith, self-dealing, or the specific statutory liabilities cross-referenced in clause (c) (illegal distributions under § 302A.559 and the securities-liability provision at § 80A.76).

And clause (e) is the one that catches people: exculpation does not run backward. Amending the articles after a problem surfaces does nothing for the conduct that created the problem. If a client asks about adding an exculpation clause because of something that already happened, the answer is that the clause will not reach it.

Can a Minnesota director consider anything other than shareholder value?

Yes, and the statute says so expressly — which is not true everywhere. Subdivision 5 is Minnesota’s constituency provision:

In discharging the duties of the position of director, a director may, in considering the best interests of the corporation, consider the interests of the corporation’s employees, customers, suppliers, and creditors, the economy of the state and nation, community and societal considerations, and the long-term as well as short-term interests of the corporation and its shareholders including the possibility that these interests may be best served by the continued independence of the corporation.

Minn. Stat. § 302A.251, subd. 5.

This is permissive (“may”), not mandatory, and it is framed as a lens on “the best interests of the corporation” rather than a freestanding duty to other constituencies. But it matters. A Minnesota board that turns down a higher offer partly because of what an acquirer would do to a workforce or a supplier network is standing on statutory ground, including the final clause about “continued independence.” Directors of a Delaware corporation do not have that sentence available to them.

What do officers owe — and what changed in 2025?

Officers are governed by a parallel provision, Minn. Stat. § 302A.361, subd. 1, which imposes the same three-part standard: good faith, reasonable belief in the corporation’s best interests, and the care of an ordinarily prudent person in a like position under similar circumstances. It then sweeps in people who are not formally titled:

A person exercising the principal functions of an office or to whom some or all of the duties and powers of an office are delegated pursuant to section 302A.351 is deemed an officer for purposes of this section and sections 302A.467 and 302A.521.

Minn. Stat. § 302A.361, subd. 1. Function, not title. The person who actually runs the finance operation is an officer for duty purposes whether or not the board ever elected a CFO.

Delegation itself carries duty forward. Under § 302A.351, an officer who delegates duties and powers “is subject to the standard of conduct for an officer stated in section 302A.361 with respect to: (1) the act of delegation; and (2) the supervision of persons to whom those duties and powers are so delegated.” You can delegate the task. You cannot delegate the standard.

The 2025 change. Until recently, § 302A.361 consisted of a single unnumbered paragraph — there was no officer exculpation provision at all. The 2025 Legislature amended the section to add subdivision 2, permitting the articles to eliminate or limit an officer’s personal liability to shareholders for monetary damages for breach of fiduciary duty — but only “during the time the corporation is a publicly held corporation,” and subject to six carve-outs, including breach of the duty of loyalty, acts not in good faith or involving intentional misconduct or a knowing violation of law, liability under § 80A.76, any transaction producing an improper personal benefit, and — critically — liability “in any action by or in the right of the corporation.” Minn. Stat. § 302A.361, subd. 2(1)–(6).

That last carve-out is the one that matters most. Officer exculpation does not apply in a derivative suit. The change came in 2025 Minn. Laws ch. 11, § 17, an act relating to business organizations that carried no special effective-date clause, so it took effect on the default date supplied by Minn. Stat. § 645.02 — August 1 following final enactment. The bill was signed April 30, 2025, which puts the effective date at August 1, 2025.

For the overwhelming majority of Minnesota corporations — every closely held company, every family business, every startup that has not gone public — subdivision 2 is unavailable by its own terms. Officers of private Minnesota corporations still have no statutory exculpation.

There is one more asymmetry worth naming. Section 302A.361 has no reliance subdivision. Directors get the § 302A.251, subd. 2, reliance protections; officers, under the text of their own section, do not. An officer’s reliance on counsel or accountants is an ordinary evidentiary argument about reasonableness, not a statutory entitlement.

How do you transact with your own company without the deal being voidable?

Section 302A.255 is the conflict-of-interest procedure, and it is the provision closely held boards ignore most often and regret most expensively.

The section covers a contract or transaction between the corporation and one or more of its directors, or between the corporation and an organization in or of which a director is a director, officer, or legal representative or “ha[s] a material financial interest.” Such a transaction “is not void or voidable” solely because of the relationship or the director’s presence at the approving meeting — if one of four conditions is met:

• (a) Fairness, proved by the insider. The transaction was fair and reasonable to the corporation when authorized, and “the person asserting the validity of the contract or transaction sustains the burden of establishing” that it was. Minn. Stat. § 302A.255, subd. 1(a). Read the burden allocation carefully. This is not a route where the challenger must prove unfairness; it is a route where the defender must prove fairness. If you find yourself relying on clause (a), you have already lost the procedural high ground.
• (b) Shareholder approval after full disclosure. The material facts as to the transaction and the director’s interest are fully disclosed or known to the holders of all outstanding shares, whether or not entitled to vote, and the transaction is approved in good faith by either (1) holders of two-thirds of the voting power of shares owned by persons other than the interested director or directors, or (2) unanimous affirmative vote of all outstanding shares. Subd. 1(b).
• (c) Disinterested board approval after full disclosure. The material facts are fully disclosed or known to the board or a committee, which authorizes the transaction in good faith by a majority of directors or committee members “currently holding office” — and “the interested director or directors shall not be counted in determining the presence of a quorum and shall not vote.” Subd. 1(c).
• (d) A statutory distribution, merger, or exchange described in § 302A.551, subd. 1, or § 302A.601, subd. 1 or 2. Subd. 1(d).

Two definitional points in subdivision 2 catch people off guard.

Director compensation is carved out. A resolution fixing a director’s compensation, or fixing another director’s compensation as director, officer, employee, or agent, “is not void or voidable or considered to be a contract or other transaction between a corporation and one or more of its directors for purposes of this section,” even if the director being paid is present and voting, and even if the other directors voting are themselves compensated. Subd. 2(a). Boards do not need to run compensation resolutions through the conflict procedure.

Family interests are attributed. A director has a material financial interest in every organization in which the director, or “the spouse, parents, children and spouses of children, brothers and sisters and spouses of brothers and sisters, and the brothers and sisters of the spouse of the director,” or any combination of them, have a material financial interest — and a transaction with any of those family members “is considered to be a transaction between the corporation and the director.” Subd. 2(b). That list reaches further than most directors assume. A contract with a director’s brother-in-law’s company is a director conflict under this statute.

Finally, tie subdivision 1(c) of § 302A.255 back to the assent presumption. A director who is “prohibited by section 302A.255 from voting on the action” is expressly excluded from the presumption of assent under § 302A.251, subd. 3(c). Following the conflict procedure does not merely validate the transaction; it also removes the conflicted director from the deemed-approval rule.

Does the corporation have to pay your defense?

Often, yes — indemnification in Minnesota is mandatory, not permissive. Minn. Stat. § 302A.521, subd. 2(a), provides that, subject to subdivision 4, a corporation “shall indemnify” a person made or threatened to be made a party to a proceeding by reason of the person’s former or present official capacity, against judgments, penalties, fines, settlements, and reasonable expenses including attorneys’ fees, if the person: has not been indemnified by another organization for the same liability; acted in good faith; received no improper personal benefit and section 302A.255, if applicable, has been satisfied; in a criminal proceeding, had no reasonable cause to believe the conduct was unlawful; and reasonably believed the conduct was in (or, for outside service positions, not opposed to) the corporation’s best interests.

The third criterion is the hinge. If the conflict-of-interest procedure applied and was not followed, the mandatory indemnification criteria are not met. Skipping the § 302A.255 formalities does not just expose the transaction — it can strip the director of the right to have the company fund the defense of the resulting lawsuit.

Subdivision 2(b) adds that termination of a proceeding “by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent does not, of itself, establish” that the person failed the criteria. A settlement is not an admission for indemnification purposes.

Directors owe the corporation. Shareholders may owe each other.

The duty in § 302A.251 runs to the corporation. It is not the only fiduciary duty in the room.

In Berreman v. West Publishing Co., 615 N.W.2d 362 (Minn. Ct. App. 2000), the Court of Appeals restated the common-law rule that “the shareholders in a close corporation owe one another a fiduciary duty,” grounded in the observation that close corporations are in substance “partnership[s] in corporate guise.” Id. at 367. The court rejected the argument that the Business Corporation Act abrogated that common-law duty for companies falling outside the statutory definition, holding that “the common law definition of a close corporation continues to apply for purposes of determining fiduciary relationships.” Id. at 370. It also observed candidly that while the existence of the duty is well established, “the scope of the duty has never been well defined.” Id.

The statutory overlay is § 302A.751, subd. 3a, which directs a court deciding whether to order equitable relief, dissolution, or a buy-out to take into consideration “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 as they exist at the inception and develop during the course of the shareholders’ relationship.” “Closely held corporation” is defined at § 302A.011, subd. 6a, as a corporation with not more than 35 shareholders.

The practical upshot: in a small Minnesota corporation, a majority shareholder who is also a director faces two overlapping duty regimes at once — the § 302A.251 standard as a director and the Berreman / § 302A.751 duty as a shareholder. They are analyzed separately. We cover the oppression remedy in depth in shareholder oppression under § 302A.751.

Whose law governs the duty in the first place?

Not always Minnesota’s — and this question gets skipped constantly.

In Potter v. Pohlad, 560 N.W.2d 389 (Minn. Ct. App. 1997), a Minnesota court adjudicated fiduciary-duty claims against officers of a company headquartered in Minnesota and applied Delaware law throughout, because the entity was incorporated in Delaware. The court stated the rule plainly: “The fiduciary duties of a corporation’s officers and directors are generally governed by the law of the state of incorporation.” Id. at 391. It then analyzed the business judgment rule under Delaware authority, describing it as “a common law principle that functions as a presumption to insulate the directors and officers of a corporation from judicial evaluation of their corporate decisions,” and affirmed summary judgment for the officers. Id. at 391–92.

So before you brief § 302A.251, confirm the state of incorporation. A Minnesota-headquartered, Delaware-incorporated company with an all-Minnesota board is governed on internal-affairs questions by Delaware law, and the Minnesota provisions discussed here — the constituency clause in subdivision 5, the specific reliance list in subdivision 2, the assent presumption in subdivision 3 — are not the operative text.

Where does the business judgment rule come from in Minnesota?

From the courts, and Minnesota’s clearest appellate statement of it comes from a nonprofit case.

In Janssen v. Best & Flanagan, 662 N.W.2d 876 (Minn. 2003), the Minnesota Supreme Court described the rule’s origins — “developed by state and federal courts to protect boards of directors against shareholder claims that the board made unprofitable business decisions” — and its two rationales: that protecting directors’ reasonable risk-taking benefits the economy, and that “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.” Id. at 882. It held that “the boards of nonprofit corporations may receive the protection of the business judgment rule.” Id. at 883.

Janssen also supplies the rule’s limit in the special-litigation-committee context: the board must establish that the committee “acted in good faith and was sufficiently independent from the board of directors to dispassionately review the derivative lawsuit,” and “[a] mere advisory role of the special litigation committee fails to bestow a sufficient legitimacy to warrant deference to the committee’s decision.” Id. at 884, 888. On the record before it, the Court affirmed the court of appeals’ conclusion that the committee failed that threshold and the derivative suit could proceed. Deference is earned by process, and the process is reviewable.

How is this different from the LLC regime?

Materially different, in four ways that matter when a client is choosing an entity or when you inherit a dispute in the other form.

The LLC act also imposes an express contractual obligation of good faith and fair dealing — members and managers must discharge duties and exercise rights “consistently with the contractual obligation of good faith and fair dealing, including acting in a manner, in light of the operating agreement, that is honest, fair, and reasonable.” § 322C.0409, subd. 4. Chapter 302A has no parallel general provision; the closest analogue is the “honest, fair, and reasonable” language in § 302A.751, subd. 3a, which is a consideration for a court granting relief rather than a freestanding duty. For how far an operating agreement can push against these defaults, see LLC fiduciary duty vs. the operating agreement.

What this means for a board that wants to stay out of trouble

Six things follow from the text above, and none of them are expensive.

1. Vote no out loud, and read the minutes. Subdivision 3 offers three exits from the assent presumption and abstention is not one of them. A recorded “no” vote is the cheapest liability insurance a director will ever buy — and it only works if the minutes say so.
2. Match the advisor to the question. Subdivision 2 protects reliance on a professional “as to matters that the director reasonably believes are within the person’s professional or expert competence.” Reliance outside that lane is not statutory reliance.
3. Run conflicts through subdivision 1(b) or 1(c), never 1(a). Disclose the material facts, put the vote to disinterested directors or shareholders, and document it. Falling back on “it was fair” means carrying the burden of proving fairness — and jeopardizing mandatory indemnification under § 302A.521, subd. 2(a)(3).
4. Map the family tree. Section 302A.255, subd. 2(b), attributes the interests of spouses, parents, children and their spouses, siblings and their spouses, and the spouse’s siblings. Vendor relationships inside that circle are director conflicts.
5. Check the certificate of incorporation, not just the state you operate in. Potter applied Delaware law to a Minnesota-run company. The state of incorporation, not the office address, sets the duty framework.
6. Do not assume officers are covered by the director provisions. No reliance subdivision, and — outside publicly held corporations — no exculpation, even after the 2025 amendment.

Madgett Law, LLC

Madgett Law, LLC advises Minnesota directors, officers, and shareholders on governance and fiduciary-duty questions in closely held companies: conflict-of-interest procedure and board documentation, exculpation and indemnification provisions in articles and bylaws, demands for books and records, derivative and direct claims, and the shareholder disputes that grow out of all of the above. We litigate these cases and we also do the far cheaper work of preventing them. If a board decision in your company is heading toward a dispute, call 612-470-6529 or send us a message.

Related reading: shareholder control agreements under § 302A.457, dissenters’ rights under § 302A.471, piercing the corporate veil in Minnesota, and — for the nonprofit side of the same architecture — running a Minnesota nonprofit under chapter 317A.

Sources: Minn. Stat. § 302A.251, subd. 1 (director standard of conduct — good faith, reasonable belief in best interests, ordinary prudence; safe harbor sentence); subd. 2(a)(1)–(3) (reliance on officers/employees, counsel and public accountants, and board committees); subd. 2(b) (reliance unavailable to a director with knowledge making it unwarranted); subd. 3(a)–(c) (presumption of assent and the three exceptions); subd. 4(a)–(e) (limits on articles-based exculpation); subd. 5 (permissive consideration of employees, customers, suppliers, creditors, the economy, community and societal considerations, and continued independence). Minn. Stat. § 302A.255, subd. 1(a)–(d) (four routes to validate an interested-director transaction; burden on the person asserting validity under clause (a); quorum and voting exclusion under clause (c)); subd. 2(a) (director compensation resolutions excluded); subd. 2(b) (attribution of family members’ material financial interests). Minn. Stat. § 302A.361, subd. 1 (officer standard of conduct; person exercising principal functions of an office deemed an officer); subd. 2(1)–(6) (officer exculpation limited to periods when the corporation is publicly held, with carve-outs including any action by or in the right of the corporation), as added by 2025 Minn. Laws ch. 11, § 17. Minn. Stat. § 302A.351 (delegation; delegating officer remains subject to the § 302A.361 standard as to the act of delegation and supervision). Minn. Stat. § 302A.521, subd. 2(a)(1)–(5), (b) (mandatory indemnification criteria, including that § 302A.255 has been satisfied; termination of a proceeding not itself disqualifying). Minn. Stat. § 302A.751, subd. 3a (duty of shareholders in a closely held corporation to act in an honest, fair, and reasonable manner; reasonable expectations). Minn. Stat. § 302A.011, subd. 6a (closely held corporation defined as not more than 35 shareholders). Minn. Stat. § 317A.251, subd. 2(b) (nonprofit reliance rule; “actual knowledge”). Minn. Stat. § 322C.0409, subd. 2 (LLC duty of loyalty itemized); subd. 3 (LLC duty of care “[s]ubject to the business judgment rule”); subd. 4 (contractual obligation of good faith and fair dealing); subd. 5 (fairness defense); subd. 6 (authorization or ratification by all members); subd. 7(5) (member in a manager-managed LLC owes no fiduciary duty solely by reason of membership). Minn. Stat. § 645.02 (default effective date of August 1 next following final enactment absent a different date in the act). 2025 Minn. Laws ch. 11 (H.F. No. 747), § 17, signed April 30, 2025 (adding § 302A.361, subd. 2; no special effective-date clause). Janssen v. Best & Flanagan, 662 N.W.2d 876, 882 (Minn. 2003) (origins and rationales of the business judgment rule), 883 (nonprofit boards may receive its protection), 884, 888 (special litigation committee must act with good faith and independence; a merely advisory role does not warrant deference). Potter v. Pohlad, 560 N.W.2d 389, 391 (Minn. Ct. App. 1997) (fiduciary duties generally governed by the law of the state of incorporation; Delaware law applied), 391–92 (business judgment rule described as a common-law presumption insulating officers and directors from judicial evaluation of corporate decisions). Berreman v. West Publishing Co., 615 N.W.2d 362, 367 (Minn. Ct. App. 2000) (shareholders in a close corporation owe one another a fiduciary duty; “partnership[s] in corporate guise”), 370 (common-law close corporation definition survives the MBCA for fiduciary purposes; scope of the duty “has never been well defined”).

This article is general legal information about Minnesota law. It is not legal advice, it does not create an attorney–client relationship, and no particular outcome is promised or implied. Statutes and case law change; verify current authority before relying on anything here.