Fiduciary duties exist in most business corporations, closely held corporations, partnerships, and LLCs. Corporate officers, directors, and controlling shareholders owe a fiduciary duty to the corporation and to the shareholders. Partners owe fiduciary duties to each other and to their partnership. LLC managers owe fiduciary duty to their members. Fiduciary duties also arise out of certain types of business relationships and transactions where one party has more knowledge or power over the other, and a relationship of trust and confidence exists.
Among the most common fiduciary duties owed are the duty of care, duty of loyalty, duty of candor, duty to account, duty of full disclosure, and the duty of confidentiality. Given these, there are many ways in which an officer, director, controlling shareholder, partner, or LLC manager may breach their fiduciary duty: self-dealing by way of business transactions in which there is a clear conflict of interest or resulting in personal gain; usurpation of a business or corporate opportunity from the company; misappropriation of corporate funds; failure to act in the company’s, shareholders’, or members’ best interest.
To successfully allege a breach of fiduciary duty claim, you must plead and then prove its elements: (1) the existence of a fiduciary relationship that gives rise to a fiduciary duty; (2) a breach of that duty; and (3) that the breach of the fiduciary duty caused damages.
The governing documents might explain, limit, or eliminate fiduciary duties. The effect of such provisions depends on which state incorporated the entity. Other defenses to a breach of fiduciary duty claim include in pari delicto (both parties are equally at fault); ratification; statute of limitations; release; estoppel and waiver.
To speak to one of our lawyers about these matters, get in touch with us at (312) 223-1699 or email Thomas E. Patterson at firstname.lastname@example.org for more advice and information.