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How do you handle a breach of fiduciary duty in your business?

When you and your partners operate a business together, you all have a legal obligation to act in the company's best interests -- that's your fiduciary duty.

Unfortunately, some people treat a business as their personal fiefdom, to pillage for their own best interests at will. What's best for the business is clearly a secondary concern -- and the interests of their partners and clients are even further down the list in importance.

What types of actions constitute a breach of fiduciary duty? Consider these examples:

  • One of your partners gives his relatives inside information about deals that will affect your stocks so that they can maximize their profits by selling at the right time
  • A financial officer hides important information about the businesses assets, profits and losses from shareholders
  • One of your partners opens a secret side-business and promptly undercuts your bid to an important client to do the work -- and collect the profits -- alone
  • Your company president diverts business funds for his or her personal vacations and home renovations
  • One of your partners thinks up a great invention on company time -- then sells it to someone else privately because that would bring him or her greater personal wealth than letting the company develop the product

While these examples may sound extreme, they happen all the time.

When your trust has been violated by one of your partners, you can ask the court for compensation. In order to win a lawsuit regarding the breach of someone's fiduciary duty, you must demonstrate three essential things:

  1. There was a duty that the defendant owed you. That duty could range from an obligation to protect a company's intellectual property from misuse to a more general duty -- like loyalty.
  2. There was a breach of that duty by the defendant's action or inaction. Maybe the defendant revealed proprietary information to a competitor or maybe the defendant simply neglected his or her job responsibilities.
  3. You have suffered actual financial damages as the result of that breach.

It's often difficult to determine the actual losses a company or individual suffers -- which is one thing that makes these kinds of cases exceptionally complex. If you believe you've been harmed by a breach of a business partner's fiduciary duties, it might be wise to consider all possible legal remedies.

Source: FindLaw, "Breach of Fiduciary Duty," accessed April 27, 2018

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