To understand how serious a breach of fiduciary duty is, it’s important to first fully understand what fiduciary duty is. Fiduciary duty is the legal responsibility a party has to do what’s in the best interest of one or more parties.
For example, it is the responsibility of board members to do what’s best for a company’s shareholders, investors and employees – not what might be most profitable for them personally.
Business partners have a fiduciary duty to one another and their partnership. Even in sole proprietorships, business owners have a fiduciary duty to act in the best interests of the business.
Types of breaches in the business world
Examples of breaches of fiduciary duty in business include:
- Misuse of company assets or confidential information
- Self-dealing (when someone acts for their own benefit instead of the company’s)
- Insider trading
- Negligence
- Failing to disclose conflicts of interest
- Diverting (usurping) a business opportunity
The fiduciary and the party to whom they have a duty to must have a relationship recognized under the law or established by a contract. If their relationship does not fulfill either requirement, it may not be possible to take action for a breach of fiduciary duty.
Note, however, that a breach of fiduciary duty is not the same as a breach of contract. It’s considered more serious because it’s a breach of a relationship rather than a failure to fulfill the terms of a contract.
What to do if a breach is suspected or found
If a business owner, board of directors or other party believes that someone has breached their fiduciary duty, it’s critical to gather evidence. However, to take legal action, they also must show that the suspected party had a fiduciary duty in the first place. They also need to show that the duty was within the scope of the relationship between the parties.
Basically, as with any other business tort, or wrongful action, a plaintiff needs to show that:
- There was a duty.
- The duty was breached.
- The plaintiff suffered harm (damages) as a result.
It’s important to act quickly if you discover a breach of fiduciary duty. Even though it may take some time to recover financial losses, you can seek an injunction to stop any wrongful activity and prevent further harm from being done. Seeking legal guidance can help you to recover from a breach of fiduciary duty and hold those responsible accountable.