A legal obligation to act in the best interest of another group or person is a fiduciary duty. In the corporate context, directors and officers owe a fiduciary duty to the corporation and its shareholders.
This duty requires them to act honestly, fairly, and in good faith.
Key duties of corporate fiduciaries
Key fiduciary duties of corporate directors and officers include:
Duty of loyalty: Corporate fiduciaries must prioritize the interests of the corporation above their own personal interests. This means avoiding conflicts of interest and self-dealing.
Duty of care: Fiduciaries must exercise reasonable care, diligence, and skill in their decision-making. This involves making informed decisions and acting in a prudent manner.
Duty to act in good faith: Fiduciaries must act honestly and in good faith, without malice or reckless disregard for the corporation’s interests.
These duties are expected and should be performed to the best of one’s ability.
Breach of Fiduciary Duty in Corporations
A breach of fiduciary duty occurs when a corporate director or officer fails to fulfill these obligations. Such breaches can take various forms, including self-dealing, which is engaging in transactions that benefit the fiduciary personally rather than benefitting the corporation.
Taking advantage of a business opportunity that rightfully belongs to the corporation is another type of breach.
Additional breaches involve failing to exercise reasonable care in managing the corporation’s affairs or using corporate assets for personal gain.
Remedies
If a shareholder believes a corporate fiduciary has breached their duty, they may seek legal remedies. These remedies can include monetary damages, equitable relief, removal from office, or derivative lawsuits.
The Importance of Fiduciary Duty
Fiduciary duty is a cornerstone of corporate governance. It ensures that corporate leaders act in the best interest of the corporation and its shareholders. By holding corporate leaders accountable to their fiduciary duties, shareholders can ensure that corporations operate ethically and responsibly.
