Some terms are used in a number of situations, with nuanced differences in application. As a business owner, you might have heard the terms “fiduciary” and “fiduciary duty.” These terms often apply to your relationship with a financial advisor or other professional. In fact, breach of fiduciary duty is serious. Therefore, it’s critical to understand what duties are required and how to avoid breaching them.
Defining the Terms, Including Breach of Fiduciary Duty
Before we dig deeper, let’s define specific terms we will be using:
- “fiduciary” is the person or entity that must act in the best interests of another person or entity.
- “fiduciary duty” refers to the duties required of the fiduciary.
- “breach of fiduciary duty” occurs when a fiduciary fails to act in the best interests of the individual or entity to whom they owe the duty.
Fiduciary literally relates to trust or something being held in trust. However, the term does not always relate to financial matters.
Fiduciary Duty, Business Owners, and Corporate Directors
As a business owner, you might owe a fiduciary duty to individual clients. But this typically relates to businesses that offer professional advice to clients. However, business partners and co-owners might owe a fiduciary duty to each other. Sometimes owners or CEOs owe fiduciary duties to employees under the Employee Retirement Income Security Act of 1974 (ERISA). However, we will explore breach of fiduciary duty related to corporate directors, officers, and business partners.
Duties Owed in a Fiduciary Relationship
The two primary duties are:
- Duty of Loyalty. Corporate directors and officers are expected to act on behalf of the company, putting their own interests aside.
- Duty of Care. Directors and officers are also expected to take reasonable steps to make sure they make sound business decisions.
Other duties require fiduciaries to avoid violating the law, protect the company’s confidential information.
Examples of Breach of Fiduciary Duty
The following scenarios provide snapshots of a breach of fiduciary duty:
- A corporate director owns stock in a competitor and bases some business decisions on the other company’s needs. A director who puts his or her personal business interests above the corporation’s interests has breached the duty of loyalty.
- A business partner divulges proprietary information to a number of people. The partner has violated the fiduciary duty to his or her other partners.
- Officers who fail to perform due diligence before agreeing to a deal could be breaching their fiduciary duty to make good decisions.
If you are in doubt about your fiduciary duties, discuss your concerns with your corporate counsel or business lawyer.
Breach of Fiduciary Duty Is Serious
Failing to perform your duties could harm your company and your own reputation. Also, shareholders or business partners have filed lawsuits based on breach of fiduciary duty.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.