4 factors in a breach of fiduciary duty claim
If your organization has shareholders, it is common that a dispute will arise. There are many complexities to making sure shareholders are happy, from making the minority feel seen and heard to creating a shared vision for the future of the company. A very common source of conflict is the breach of fiduciary duty.
Trust is a key part of any business relationship. There must be trust between a business and its shareholders that due diligence and informed decision making will be carried out. There may be times in which the shareholders, who have a financial stake in the company’s success, will feel as though their trust has been breached if a fiduciary duty is not honored. There are four common aspects when claiming a breach of fiduciary duty, which have been listed below.
- Was the fiduciary duty explicit? It is essential to be able to prove the existence of a financial obligation. This proof is usually specified in a contract or some sort of agreement.
- Did a breach occur? A breach is a violation of the terms of the agreement. This does not include an organization acting against the shareholder’s wishes unless there is a direct link to the agreement between them.
- Did the breach result in damages? While a breach may have occurred and ignited conflict, there must be proof of financial damages to qualify as a breach of fiduciary duties.
- Is there a link between the breach and damages? There must be a connection showing that the breach in fiduciary duty directly resulted in financial losses. A correlation is not enough, there must be a causal relationship.
Finances are a large and complex aspect of all business relationships. It is important to consult with a lawyer to make sure you are acting in the best interests of your business.
