{"id":4484,"date":"2016-05-06T15:15:15","date_gmt":"2016-05-06T20:15:15","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/business-laws-and-regulations\/breach-of-fiduciary-duty.html"},"modified":"2024-06-06T02:27:52","modified_gmt":"2024-06-06T07:27:52","slug":"breach-of-fiduciary-duty","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/business-laws-and-regulations\/breach-of-fiduciary-duty.html","title":{"rendered":"Breach of Fiduciary Duty"},"content":{"rendered":"\n
\n \n
\n

Breach of Fiduciary Duty<\/h1>\n
\n
\n By Jade Chounlamountry, Esq.<\/a> | Legally reviewed by Aviana Cooper, Esq.<\/a>\n | Last updated\n
\n

Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

A fiduciary duty is when someone must act in the best interest of another. A typical example is a corporate board member’s duty to the company’s shareholders. Suppose the party acts contrary to that duty. This is a breach of fiduciary duty and can give rise to legal action in civil court.<\/p>\r\n

Many types of fiduciary relationships exist, including attorney\/client, principal\/agent, and trustee\/beneficiary. This relationship creates a\u00a0legal duty<\/a>\u00a0similar in principle to an innkeeper’s legal duty to ensure the safety of their guests, for example.<\/p>\r\n

Breach of fiduciary duty is a\u00a0business tort.<\/a>\u00a0Business torts are a cause of action for a civil lawsuit discussed below, including elements of the tort and common remedies.<\/p>\r\n

Fiduciary Relationships: Overview<\/h2>\r\n

A fiduciary relationship happens when one person trusts another, and they both know about it. A fiduciary is a person who owes a duty to the other party in such a relationship. For instance, attorneys are the fiduciaries of their clients. But for this duty to be legally enforceable, the law or case law must have created the relationship.<\/p>\r\n

Fiduciary duties governed by statute include, for example, those owed by a business partner to their other partners or the duty of board members to represent the interests of the shareholders. Suppose the fiduciary relationship isn’t implied through statute. In that case, a contract could create the relationship (along with the specific duties owed).<\/p>\r\n

Small Business Fiduciary Duties<\/h2>\r\n

Since small-business owners typically do not have stockholders, the duties owed to the business are different. The two primary fiduciary duties of small businesses are the duty of loyalty and the duty of care.<\/p>\r\n

The duty of loyalty is a legal and ethical obligation that individuals owe to an organization or entity for which they work or represent. It generally refers to acting in the organization’s best interests. This means putting its interests above personal interests or the interests of others.<\/p>\r\n

Employees owe the duty of loyalty. This requires employees to act honestly and faithfully. Employees should not engage in activities that could harm the organization or compete with the company’s interests while employed. Employees should protect the organization’s confidential information, avoid conflicts of interest, and not use their position or resources for personal gain.<\/p>\r\n

The duty of care requires individuals to act like "reasonably prudent persons" in similar circumstances. This means taking reasonable steps to prevent harm or cut risks that could arise from one’s actions or omissions.<\/p>\r\n

Corporation Fiduciary Duties<\/h2>\r\n

Corporations owe a fiduciary responsibility toward their stakeholders, including shareholders, employees, and investors. This fiduciary duty is a commitment to act in good faith and prioritize the organization’s interests above personal gain. Majority shareholders need to make fair decisions to improve the company and protect smaller owners.<\/p>\r\n

One important rule is the\u00a0corporate opportunity doctrine<\/a>. This means that the bosses, like the board of directors and officers, can’t use their jobs to benefit themselves by taking good business chances away from the company. Finding a middle ground between using these opportunities and following the essential duties that come with business decisions is significant. It helps keep companies honest and trustworthy.<\/p>\r\n

What Does it Mean to Breach One’s Fiduciary Duty?<\/h2>\r\n

There are several ways a fiduciary can breach their duty, but it comes down to the following:<\/p>\r\n