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Breach of fiduciary duty

On Behalf of | Sep 14, 2017 | Business Litigation

Many companies in Texas rely upon external sources to provide counsel and help grow their business. These people, called fiduciaries, have a duty to the company to act in its best interests and assist in its success as much as possible. According to Cornell Law School, there are several areas in which a fiduciary is accountable to its beneficiary (the company whose well-being is entrusted to him or her). One duty is confidentiality. The fiduciary should be reasonably expected not to reveal sensitive information publicly. On the other hand, the duty of disclosure requires that the fiduciary share pertinent information with interested parties when appropriate, rather than attempting to hide certain facets of the company. Prudence and good faith dictate that the fiduciary act with the necessary attention to detail and upstanding ethics to promote the company’s overall healthy and growth.

Two of the most prominent aspects of fiduciary duty are loyalty and care. Duty of loyalty requires the fiduciary to further the company rather than pursue personal gain. A break of the duty of loyalty could involve embezzling from the company, or acting in such a way that deprives the company of potential earnings. The duty of care could have a broader spectrum of responsibility. According to this duty, the fiduciary must devote the necessary attention to the company in order to make wise decisions. This may involve extensive research and careful planning before decisions are made on the company’s behalf. Failure to research an option before pursuing it, resulting in harm to the company, could constitute a breach of the duty of care.

According to the American Bar, breach of fiduciary duty could involve action or the lack thereof. Behaving in an unethical manner, whether it be abuse of power, misappropriation of company funds or misuse of company information, could be considered a breach of duty. However, failure to act or maintain the appropriate amount of involvement in the company may also be a breach. Additionally, fiduciary relationships do not necessarily require a legal written document. It could be argued that a reasonably understood relationship of trust between the company and an individual constitutes a fiduciary relationship.