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What are fiduciary duties?

On Behalf of | Jun 16, 2022 | Business Litigation |

Business partners, key employees and shareholders all have certain obligations and requirements they owe to one another, and to a business. Basically, all of these individuals commit to making decisions that first and foremost benefit the company, without regard to the potential impact that it may have on them personally.

In short, this means that they are making decisions in the best interest of the business. If they are tasked with deciding the best option forward at a particular time, they must opt for the choice that they truly believe offers the most benefit to the company. While this may sound somewhat easy in practice, the fact is, not all interested parties act in a company’s best interest. There are countless decisions needing to be made each day, and sometimes, choices are made that cause a business substantial harm. The difficult part comes when allegations are made that one of the interested parties breached his or her fiduciary duties.  Fiduciary duties are duties of loyalty, good faith and fair dealing that managers and business leaders owe to the company.

Proving a breach of fiduciary duty can be difficult

Business owners, employees and shareholders know that the actions they take in an official business capacity can be scrutinized down the line. They may do their best to provide documentation to support their position, but again, hindsight can make it challenging to have this information accepted by other interested parties.

In these cases, it is often necessary to look at the act at the time it occurred. If there are factors that show that the decision was made in the best interests of a business, it is possible that the conduct was not a breach of the duties owed to one another. Understanding what conduct rises to the level of a breach is very important both when making a decision, and also when determining if a breach occurred. Strong internal operating agreements should detail what individuals must do when facing these types of situations.