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2 ways for someone to breach their fiduciary duty to a business

2 ways for someone to breach their fiduciary duty to a business

On Behalf of | Jun 12, 2023 | Business Law |

A fiduciary duty is the highest level of responsibility that one party can lawfully have to another in the United States of America. That responsibility requires that the party with fiduciary duty put the other party’s interests first whenever making decisions. In the context of a business, fiduciary duty involves putting the business ahead of one’s personal wealth or success.

There are multiple parties who typically have a duty to a business. Owners, investors and executives frequently have a fiduciary duty to the organization that they developed or that employs them. This duty is often the consequence of signing a contract. Shareholders and business partners may need to consider initiating business litigation if they believe that another party has violated their fiduciary duty to an organization.

Self-dealing or nepotism

An attempt to directly profit from one’s position at a business can be a breach of fiduciary duty. Hiring one’s own side business to provide services at price point above market rate would be one example. Forms of nepotism that might divert resources or overcharge the business to benefit friends and family members could also constitute a type of self-dealing. Nepotism that leads to an incompetent person getting a job could also potentially harm the business. If someone with a fiduciary duty for a business puts their profit before the company’s, that could be an actionable breach.

Incompetent management

Perhaps an executive made multiple bad investment decisions back-to-back and significantly diminished the company’s resources. Perhaps they failed to respond to citations about alleged employment law violations which then snowballed into massive finds. When an executive, business partner or other professional causes direct harm to the organization through incompetence or negligence, that could also constitute a breach of their fiduciary duty.

Any scenario in which it appears that someone has failed to do their job, has engaged in corruption or has cost a business a significant amount of money could constitute a breach of fiduciary duty and lead to business litigation. Filing a civil lawsuit is often the most effective way of holding someone responsible for putting their own wants or needs ahead of what would be good for the business.

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