Fiduciary duty refers to someone’s obligation to act in the best interest of another. This duty is fundamental in business relationships, where trust and loyalty are paramount.

A breach of that duty occurs when a fiduciary acts contrary to these obligations, leading to potential legal actions. Understanding the elements and implications of fiduciary duty breaches can help businesses navigate these complex issues.

Elements of fiduciary duty

Attorney-client, trustee-beneficiary, and corporate board member-shareholder relationships are examples of relationships between business fiduciaries. These fiduciaries are bound by specific duties, including:

• Duty of loyalty: Fiduciaries are required to act in the beneficiary’s best interests, avoiding conflicts of interest and self-dealing.
• Duty of care: Fiduciaries are required to act with the same level of care that a prudent person would exercise in similar situations.
• Duty of good faith and fair dealing: Fiduciaries are required to act honestly and fairly in all dealings with the beneficiary.

A breach occurs when the fiduciary fails to fulfill these duties. This can involve actions like misappropriation of funds, self-dealing or negligence.

How breaches happen in business

Breach of fiduciary duty can occur in both large and small businesses. Here are some common scenarios:

• Large businesses: In corporations, board members and executives have fiduciary duties to the shareholders. A breach may happen if an executive engages in insider trading, misuses company assets or fails to disclose conflicts of interest. For instance, if a CEO benefits a friend at the company’s expense, this could constitute a breach.
• Small businesses: In smaller enterprises, fiduciary duties often exist among business partners, employers, and employees. Breaches can occur through self-dealing, misuse of company funds or failure to act in the business’s best interest. For example, if a partner diverts a lucrative business opportunity to a competing entity they own, this would be a breach.

If a breach of fiduciary duty occurs in a large or small business, it is crucial to seek legal advice. Consulting an attorney is essential to understanding your rights, the consequences and how to address the situation effectively.

Consequences of breach of fiduciary duty

A breach of fiduciary duty can have significant consequences for a business, including the possibility of a civil lawsuit. To win, the plaintiff must prove that a fiduciary duty existed and was breached, resulting in damages. Courts can impose certain reliefs such as:

• Monetary damages
• Injunctions

Breaches of fiduciary duty can severely damage a business’s reputation. Trust is a crucial component of business relationships, and a breach can erode this trust, affecting relationships with stakeholders, customers and partners.