Types of Breach of Fiduciary Duty

Understanding Fiduciary Duty

In the business world, various situations entail a fiduciary duty, where one party is obligated to act in the best interests of another. This responsibility is common among directors, officers, controlling shareholders, and other parties. A breach of this duty can lead to significant financial losses and damage to one's reputation. However, not all mistakes constitute a breach of fiduciary duty, as business matters can be complex.

Who Has a Fiduciary Duty?

Fiduciary duties arise in numerous business contexts. Controlling shareholders owe this duty to minority shareholders, business partners owe it to each other, and directors must act in the best interests of the corporation. Beyond corporate governance, fiduciary duties are also crucial for attorneys, financial advisors, real estate agents, stockbrokers, and trustees. A breach of this duty can have severe consequences, making it essential to have knowledgeable legal representation. Lubin Austermuehle provides reliable legal services for various business disputes, including breaches of fiduciary duty.

Common Breaches of Fiduciary Duty

Fiduciary duty represents the highest standard of legal care. Failing to meet this duty can result in significant financial impacts. In Illinois, fiduciary duty encompasses two main components: the duty of care and the duty of loyalty. The duty of care requires officers and directors to make decisions in good faith, while the duty of loyalty demands they act without personal conflict.

A breach of fiduciary duty happens when a party obligated to act in another's interest fails to do so. Examples of such breaches include:

  • Disclosing trade secrets
  • Neglecting reasonable care
  • Misusing company funds
  • Creating fake business expenses for another company owned by the fiduciary to syphon off monies.
  • Excessive Compensation
  • Failure to provide enough distributions to pay personal taxes for sub-chapter S profits
  • Supporting a competitor
  • Engaging in fraud, corruption, or embezzlement
  • Making decisions in bad faith
  • Failing to investigate adequately before making a decision
  • Acting on improper motives
  • Conflicts of interest
  • Insider trading
  • Misrepresenting or concealing information

Fiduciaries must avoid self-dealing and must not use corporate assets for personal gain. If a plaintiff proves the existence of a fiduciary relationship, a breach of duty, and resultant damages, they may receive compensation. This can include monetary losses, equitable relief, injunctions, and possibly punitive damages.

Preventing Breaches of Fiduciary Duty

To avoid breaches, it's crucial to always act in the best interests of those to whom you owe a duty. Implementing policies that prevent self-dealing and conflicts of interest is essential. Keeping detailed records of meetings and creating board resolutions for major decisions can also help. The business judgment rule offers protection by assuming that officers and directors made decisions in good faith, even if the outcomes were not favorable. Overcoming this presumption requires evidence of fraud, corruption, or bad faith.

Contact an Experienced Illinois Business Attorney

A breach of fiduciary duty is a serious issue that can result in extensive damages as well as punitive damages. Having an experienced attorney to guide you through the legal process is vital. Located in Oak Brook, Chicago and Highland Park, Lubin Austermuehle offers top-notch legal representation for a wide range of business disputes, including breaches of fiduciary duty. For a free consultation, contact us online or at (630) 333-0333 and learn how we can help protect your business interests.

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