A Quick Guide To Understanding Breaches Of Fiduciary Duty
  • October 21, 2020
  • brk_admin

Breaches of fiduciary duty occur when someone or a group fails in their duty to act in the best interests of someone else (or group) specifically. As an example, a breach of fiduciary duty may have been performed if a member of a Board fails to uphold their duty to a company's shareholders. Litigation is common following breaches such as this. In these situations, a corporate lawyer can be of assistance. However, if the basics of the fiduciary duty held by particular individuals or members is better understood ahead of time, it can be extremely beneficial.

Fiduciary Duty Claim Elements

In breach of fiduciary claims, four elements must be satisfied. They are as follows:

  • Causation – This element establishes that, associated with a board member breach, damages were incurred by a plaintiff.
  • Damages – It must be established that, as a direct result of a breach, the shareholder experienced specific damages. There won't be any basis for case building if this element can't be shown.
  • Breach – The fiduciary duty must have been breached – or broken – by a board member. Frequently, self-serving decisions made by board members can be the cause for a fiduciary breach. Although, depending on the case, to establish a breach, exact required evidence varies.
  • Duty – This means that, between two parties, a duty must exist. As an example, to shareholders, a fiduciary duty is held by board members.

Basic Fiduciary Duty Types

The benefit of shareholders should be the focus where the manner in which a board member conducts himself is concerned. This means that they are acting in a fiduciary capacity. There are three primary types of fiduciary duty, which are as follows:

  • Duty of loyalty – The needs of the shareholders must be placed first by a board member. If a decision places a shareholder at a disadvantage, the board member should not make that decision. When making decisions that will impact shareholders, board members must act with morality, fairness, and in good faith.
  • Duty of good faith – When making decisions, board members must always act in good faith. That means not fraudulently sharing possibly harmful details with shareholders or concealing them.
  • Duty of care – When it comes to making financial investments, caution must be used when a board member acts. In the best interest of a shareholder, decisions must be made by the board member.

Most Common Fiduciary Duty Breach Types

Breaches can occur in several ways when board member's breach fiduciary duties to shareholders. The two most common breach types are as follows:

  • Misappropriating business opportunities – If, before the needs of the shareholders, the individual needs of a member are placed in a business transaction, the decision should never be made by board members. This also means that, regarding potential business offers to shareholders, board members must fully disclose any and all details.
  • Engaging in "interested" transactions – Board members are tasked with protecting and managing shareholder assets. This means that board members should not be engaging in self-serving deals or "interested" transactions.

Weltz Law and Fiduciary Duty Breaches

At Weltz Law, we can be of assistance regarding the representation of someone who feels they have been the victim of fiduciary duty breach.

Contact us today for a free consultation in matters such as this and in reference to other financial legal concerns.