If you hold a position as an officer or director in a company, there are specific legal obligations that you must fulfill. It is possible for another officer or a shareholder to perceive your actions as a violation of these duties, leading to a lawsuit against you on behalf of the company. To minimize the risk of such lawsuits, it is important to understand who you owe fiduciary duties to and what those duties entail.
Who do you owe fiduciary duties to
As an officer, your primary loyalty should be to the company itself. Your goal should be to maximize the company’s financial well-being for the benefit of the shareholders, who are the owners of the company.
If shareholders believe that your actions as an officer have harmed the business, they may have the right to bring a shareholder derivative action against you. This occurs when shareholders act on behalf of the company and file a lawsuit.
What your fiduciary duties are
Your first fiduciary duty is the duty of care. This means that you must avoid engaging in unreasonably reckless behavior that could harm the company. As long as you exercise the same level of caution that any reasonable and prudent person in your position would, you are likely to succeed in defending against any breach of fiduciary duty claims.
You also have a duty of loyalty to the company. This means that you must not act in a way that benefits yourself at the expense of the company. This duty often arises when corporate officers attempt to pursue personal business opportunities instead of benefiting the company.
Running a company is a complex task, and there are numerous factors to consider. Understanding the legal expectations of your role can help you avoid legal disputes with dissatisfied shareholders.