Updated from 11:47 a.m. EST

Martha Stewart resigned as chief creative officer of Martha Stewart Living ( MSO) and will leave the company's board. The onetime CEO, who was convicted of obstructing a probe into a private stock sale earlier this month, will assume the newly created post of "founding editorial director" with the company.

The arrangement is a compromise that balances the company's need to distance itself from a founder who is likely to do prison time with her role as its largest stockholder. Martha Stewart Living said a committee of the board, with Stewart's input, will nominate "a qualified person" as her replacement as director.

"I am taking this action today because it is in the best interests of MSO and because I think it's the right thing to do," Stewart said in a statement. "I am heartsick about my personal legal situation -- and deeply sorry for the pain and difficulties it has caused our employees."

In her new role, Stewart will "provide creative inspiration for new product design and development," the company said. She'll also complete the writing of two pending books, "undertake contributing editor and television assignments," and "provide input on the continuing evolution of Martha Stewart Living" on strategic issues.

"I look forward to continuing to collaborate on a wide range of creative ideas with the amazing, talented and hard-working people at this very special company," Stewart said. "I also thank our readers, viewers, customers, partners and advertisers for their steadfastness and loyalty."

The company's shares, which fell precipitously in the wake of Stewart's conviction, were recently down 38 cents, or 3.7%, to $9.95.

"Everyone at MSO recognizes the seriousness of Martha's situation and is deeply saddened," said Sharon Patrick, the company's CEO. "However, all of us also believe that the company and our constituencies benefit most if we are able to continue to take advantage of Martha's creative inspiration and capitalize on her prodigious skills and experience in the domestic arts -- from cooking, to gardening, to crafts, to homekeeping."

Stewart is scheduled to be sentenced June 17 on counts that carry a maximum sentence of 20 years, although she is likely to receive far less than that. She and her former Merrill Lynch broker, Peter Bacanovic, were convicted of making false statements and impeding an investigation of Stewart's sale of about 4,000 shares of ImClone Systems ( IMCL) in December 2001.

If you liked this article you might like

Spain to Play Netherlands for World Cup

Spain to Play Netherlands for World Cup

Wal-Mart: Analysts' Upgrades, Downgrades

Wal-Mart: Analysts' Upgrades, Downgrades

Netherlands Advances to World Cup Final

Netherlands Advances to World Cup Final

Apple: Analysts' Upgrades, Downgrades

Apple: Analysts' Upgrades, Downgrades

World Markets Mostly Lower Monday

World Markets Mostly Lower Monday