If you’re an officer or director of a company, there are certain legal duties that the law expects you to comply with. Sometimes, another officer or a stockholder may perceive your actions as a breach of those duties, and they may sue you for it on behalf of the company. This will require you to go through the costly process of defending yourself in a lengthy lawsuit. In order to minimize your chances of this happening, it’s good to keep in mind who you owe fiduciary duties to, and what those fiduciary duties entail.
Who you owe fiduciary duties to
As an officer, your primary loyalty should be to the company itself. Your objective should be to put the company in the best financial situation possible for the benefit of the shareholders – since they are the owners of the company.
Thus, if shareholders perceive that you’ve done something in your capacity as an officer that hurts the business, they may have standing to bring a shareholder derivative action against you. This is when shareholders stand in the place of the company and bring a suit on its behalf.
What your fiduciary duties are
Your first fiduciary duty is the duty of care. This means that you must avoid doing anything unreasonably reckless with the company. As long as you are taking the same precautions that any reasonably prudent person would take in your position, you’re likely to prevail in any breach of fiduciary duty lawsuit.
You also have a duty of loyalty to the company. This essentially means that you won’t do anything to benefit yourself at the expense of the company. This duty often comes up in the context of corporate officers trying to take business opportunities for themselves rather than for the company.
Running a company is hard work, and there are many moving parts to keep track of. Ensuring that you know what the law expects of you in your position can help you to avoid provoking a lawsuit from disgruntled shareholders.
