In business, fiduciary duty is a legal responsibility that certain individuals or entities have to act in the best interests of the company.
A person owes fiduciary duty if they are in a position of trust. Hence, there is an expectation that they will make decisions that benefit the company and its stakeholders, not themselves.
When that person fails to act in the best interests of the company, they may be liable for breach of fiduciary duty. In many cases, this can lead to lawsuits, financial damages and reputational harm to the company.
If your business is facing this issue, below is some crucial information that can help you move forward.
When does a person breach their fiduciary duty?
An individual can commit a breach in several ways. These include but are not limited to:
- Using company resources or opportunities for personal gain
- Putting personal interests ahead of the company’s
- Failing to exercise proper care in decision-making
- Sharing confidential information without permission
- Not disclosing conflicts of interest
- Being negligent or incompetent
- Insider trading
- Mixing personal and company finances
Remember, the specific actions that constitute a breach can vary depending on the nature of the relationship.
Who owes this duty to your business?
For a breach to exist, the person must have a position of trust, and they are aware of that fact. In a company, for example, fiduciaries can be:
- Company directors and executives
- Board members
- Partners
- Trustees
- Investment advisors
These people owe a duty to your company’s shareholders, employees, creditors and other entities that have an interest in your business.
How can you address the breach?
If you suspect someone in your business has betrayed the company and your trust, act quickly. Gather evidence of the alleged breach, including relevant details like dates, actions, and parties involved. A thorough internal investigation may also be necessary.
Consider involving a business attorney in the process. They can help assess the situation and advise you on your legal options. For example, a minor breach may warrant suspension or termination. For severe cases, however, you may have to file a lawsuit to recover your damages.