What Is Fiduciary Duty?

What Is Fiduciary Duty?

What Is Fiduciary Duty?

When acting as a part of a business, either as a corporate officer, partner, or member of an LLC, you have a fiduciary duty to act in the best interest of the business. If you fail to act in the business’s best interest, or if intentionally violated, the fiduciary will face civil liability. A fiduciary duty is a serious responsibility and should be taken very seriously.

The loyalty owed by the fiduciary to the principal or entity is a fundamental element of agency law. The fiduciary’s duty of loyalty requires them to operate in the principal’s best interests. “All matters connected with the fiduciary relationship” are covered under the obligation of loyalty. As a result, fiduciaries are prohibited from profiting from others due to their fiduciary relationship. Their loyalty extends beyond financial matters.  This rule applies to all transactions in which the fiduciary is acting on behalf of the principal.

The fiduciary’s obligation extends to circumstances in which the principal is opposed by other parties. The fiduciary has an unequivocal obligation not to act against the principal’s interests, whether acting personally or on behalf of another party.  The fiduciary’s responsibilities continue through the length of the fiduciary’s connection with the principal, and in some cases, depending on contract terms, even after the principal’s relationship with the fiduciary has ended. Agency law, however, allows a fiduciary to plan and prepare to leave the principal, even if it is to then compete with them. Regardless, the fiduciary’s actions must not be in violation of any other responsibility due to the principal.

The fiduciary owes the principal certain obligations aside from the duty of loyalty. For example, they must not use the principal’s assets for the profit of another. The fiduciary may not misappropriate the principal’s customer lists or other intellectual property. Furthermore, the fiduciary is to conceal sensitive information about the principal from a third party. If a fiduciary exposes the principal’s trade secrets to a third party, the fiduciary is liable.

A fiduciary-principal relationship can arise in various business scenarios. Under California law, a fiduciary relationship begins when one participant in a business transaction discloses confidential information to another. If the receiving party accepts the responsibility, they must remain loyal to the principal. The responsibility goes above and beyond the standard etiquette of being fair to the parties involved in a transaction. A fiduciary duty is a moral duty to behave with complete allegiance for the good of the principal. Directors and executives of a company are fiduciaries, and they owe the corporation a duty of loyalty. The partners or members of a partnership or LLC owe each other the same.

 

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