Fiduciary duty is a legal term connecting two entities, often organizations and individuals. The individual may have a fiduciary duty to act in the best interests of someone else. The other entity may be the organization itself or the shareholders in general. As such, this duty can be applied to limited liability companies (LLCs), partnerships, corporations and the like.
For example, say that the CFO of a company spends business funds recklessly or takes on business debt that they do not disclose to the shareholders. This means that the company can no longer hit all of its production numbers, profits start to slip, and it becomes clear that the company is going to fail.
All of the shareholders who have invested in that business are going to lose a lot of money if this happens. They may decide to pursue legal action against the CFO because that person had a fiduciary duty to keep their best interests in mind.
Would the business have failed anyway?
This can be a somewhat complex scenario. After all, a fiduciary duty has not necessarily been breached just because a business fails or shareholders do not get back the money that they invested. That’s the risk of investing in the stock market.
The thing to look at, then, is if the person who is accused of breaching the fiduciary duty was negligent in some way – or even took intentional action to breach that duty. If the business would not have failed without the CFO’s negligent mistakes, for example, then they may be responsible for the financial fallout that occurs.
Do you believe that fiduciary duty has been broken and caused you financial harm? If so, be sure you know about all of the legal steps you can take and the options you have at your disposal. Feel free to contact us for a consultation.
