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Breach of Fiduciary Duty: Protecting Your Business Interests

On Behalf of | Jul 1, 2024 | Business Law

Those who operate a business owe the business a fiduciary duty. This means that they’re required to put the financial interests of the business ahead of their own. When this duty is breached, the business’s finances can suffer and its reputation can be demolished.

You certainly don’t want that to happen, which is why it’s imperative that you gain a better understanding of what breach of the fiduciary duty looks like and develop ways to prevent and stop reckless behavior that puts your business at risk.

What does breach of the fiduciary duty look like?

When thinking about a breach of the fiduciary duty, a lot of people conjure images of embezzlement. While stealing money from the business certainly constitutes a breach of the fiduciary duty, it’s not the only way that this duty can be breached. A breach can also occur in any of the following situations:

  • An executive at the business deviates from existing corporate bylaws or they fail to adhere to their supervisor’s directions when they are related to protecting the business’ interests and finances.
  • An executive or member of the board engages in a business opportunity that provides themselves or their family with a financial advantage while disadvantaging your business.
  • Decision-makers in the business fail to fully inform themselves of the implications of their choices and thereby make reckless decisions that put the business at risk.
  • An executive or member of the board acts in a way that creates a conflict of interest without informing others in the business of the conflict.
  • Those who are responsible for managing the business’s assets exercise negligence that results in the business losing out financially.
  • Those who are responsible for recordkeeping fail to keep an accurate account of the business’s finances and other key information.

As you can see, the fiduciary duty can be breached in several ways. And this is just a few of the examples that you could see.

How do you prevent a breach of the fiduciary duty?

Fortunately, you have several options when it comes to protecting your business from a breach of the fiduciary duty. This includes each of the following:

  • Encourage transparency so that decisions are fully discussed, actions are understood and misunderstandings are avoided.
  • Train employees on their fiduciary duties so that they aren’t confused about their obligations when tricky situations arise.
  • Implement strong record-keeping practices and regularly audit them to ensure accuracy and thoroughness.
  • Educate on what constitutes reasonable care so that your company doesn’t fall victim to reckless behavior and decision-making.

If it’s too late to prevent a breach of the fiduciary duty, then you need to consider taking legal action. By doing so, you may be able to hold the negligent party responsible and recover compensation for the harm that’s been caused to your business. You may also be able to secure equitable remedies, which could include recision of a contract or an injunction.

Properly address the fiduciary duty to protect your business

The fiduciary duty is a key component to a successful business. As such, you have to guard it as much as possible. But for some, the fiduciary duty isn’t intuitive or at top of mind as they carry out their business duties. That’s why it’s on you to continuously educate and train your staff and take swift action when concerns arise. If that’s something that you need assistance with, then be sure to seek out the guidance that you may need to feel comfortable with the protection afforded to your business.