A variety of different parties can have duties to each other in a business setting. For example, the owner or executives running a business generally have a fiduciary duty to the organization itself. A fiduciary duty is the highest standard of legal obligation enforced in the United States.
A party that has a fiduciary duty to another party must put the best interests of that other party above their own wishes. The fiduciary obligations of owners and executives mean that they should act to improve and strengthen the company, not enrich themselves at the organization’s expense.
There are several types of fiduciary duties that may apply to business operations. In addition to owners and executives having a duty to the organization, the organization and its leadership may have a fiduciary duty to its shareholders. When a business breaches its duty to shareholders, they may feel compelled to take legal action.
Understanding the obligations a business has to shareholders
There are several components to the fiduciary duty that a business has to its shareholders. The first and best known is the duty of care. Making informed, reasonable decisions that benefit the organization is crucial.
Organizations also have a duty of loyalty, which means acting in the best interests of shareholders. That manifests as an obligation to generate profit so that shareholders can receive dividends. Shareholders often have an interest in companies maximizing profit through any legal means necessary. Organizations are expected to put returns for shareholders above most other considerations.
The business’s fiduciary duty to shareholders also includes a duty of obedience. Shareholders have the right to vote at regular meetings regarding the leadership and direction of the company. The organization typically has to abide by the decisions made at shareholder meetings. There is also a duty to provide information about the company so shareholders can make informed decisions.
Breaches of fiduciary duty may mean that shareholders lose some of what they invested in the company. They could also damage the goodwill necessary between organizational leadership and investors.
Pursuing business litigation based on a breach of fiduciary duty is one of several options available to shareholders affected by a company’s questionable choices or activities. Shareholders who take legal action may be able to regain authority, overcome attempts at freezing them out and get the company back on the right track.