Updated from 2:06 p.m. EST

Perhaps conceding to the inevitable, Martha Stewart resigned as an officer and director of her namesake company little more than a week after she was convicted of lying to prosecutors and obstructing their probe into a private stock sale.

However, the disgraced domestic diva will retain a role at Martha Stewart Living Omnimedia ( MSO), assuming 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 could well 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."

The market seemed to have little confidence that Stewart's resignations would improve the company's outlook. In recent trading, shares of Martha Stewart Living were off 27 cents, or 2.6%, to $10.06.

"This won't have any impact on whether the company works or not," said Dennis McAlpine, who covers Martha Stewart Living as the managing partner of McAlpine Associates. "The real question for the company is will advertisers come back or will they even stay, the ones that are still left. I don't think a lot of them will come back, and I think we'll see more leave."

McAlpine doesn't have a position in Martha Stewart Living shares and McAlpine Associates doesn't have any investment banking business with the company.

Martha Stewart Living has struggled since June 2002, when investigators first revealed that Stewart had sold about 4,000 shares of ImClone Systems ( IMCL) in December 2001, a day before a regulatory setback sent the drug company's stock plummeting. Prosecutors believe that Stewart, a friend of former ImClone CEO Sam Waksal, acted on insider information.

Earlier this month, a jury convicted Stewart and her stockbroker, Peter Bacanovic, of impeding the investigation into the trade. Stewart is scheduled to be sentenced June 17 on counts that theoretically carry a maximum sentence of 20 years, although sentencing guidelines indicate she likely will receive far less than that. Stewart still faces civil insider trading charges filed by the Securities and Exchange Commission.

Since the allegations first came to light, Martha Stewart Living has taken steps to distance itself from its namesake. The company has launched a new magazine, Everyday Food, the first in its portfolio that doesn't prominently display Stewart's name. The company also recently began a syndicated television show on pet ownership that doesn't feature Stewart.

Following Stewart's indictment last June, she resigned as the company's chairman and CEO. But she remained with the company as a director and chief creative officer. She resigned both of those roles on Monday.

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 hardworking people at this very special company," Stewart said. "I also thank our readers, viewers, customers, partners and advertisers for their steadfastness and loyalty."

"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's resignations were unsurprising, said Jamelah Leddy, who covers Martha Stewart Living for McAdams Wright Ragen. The SEC was likely to ask for similar moves in the civil trial against Stewart, she noted.

But the move may have little effect on Stewart's influence at the company, Leddy noted. Even though she will no longer be on the company's board, Stewart still owns some 61% of Martha Stewart Living's common stock and -- through her ownership of the company's preferred shares -- controls some 94% of the total voting power of the company.

"Her responsibility is not going to be at the same strategic level as a board member. She won't be reviewing press releases," Leddy said. "But you have to put a big asterisk by that because, as the biggest shareholder, she will be influential."

Leddy owns shares of Martha Stewart Living, but McAdams Wright Ragen does not have any investment banking business with Stewart's company.