When someone has a fiduciary duty to another, it means they have to act in the best interests of that person or entity. They cannot always focus on their own best interests, as the fiduciary duty must come first.
This can often lead to conflicts in a business context. It can be quite a serious issue if someone is accused of breaching their fiduciary duty, as they may have caused harm to the other entity, leading to a long-term legal dispute. Below are two ways that this could happen.
Partnership disputes
First and foremost, when there are multiple business partners, they all have a fiduciary duty to the company. If one business partner acts in a way that prioritizes their own financial gain at the expense of the business, they may have violated that fiduciary duty. This can harm the business, which also causes harm to the other business partners.
An example could be if a business partner made a decision that had a financial benefit for them in the short term, but they knew that it would clearly cause long-term issues for the company.
Shareholder disputes
Additionally, executives or a board of directors generally have a fiduciary duty to the shareholders in a publicly traded business. They need to prioritize the business and the shareholders’ position over their own personal gain.
If the board acts in a way that benefits themselves but harms the value of the business, it is the shareholders who are losing money while those values drop. They may argue that the directors ignored their fiduciary duty or even actively breached it.
In both of these situations, the resulting litigation can be very complex. It is important for business owners, executives and other parties involved to know exactly what legal steps to take.