What are the fiduciary duties of board members?

On Behalf of Dunlap Fiore, LLC |

When business relationships are formed in Louisiana and elsewhere, certain duties are required to be met by the parties or members of a business. Failing to meet such duties does not only hurt the business relationship formed but could also impact the overall function of a business.

One such duty is known as a fiduciary duty and, in simplified terms, means that the named fiduciary is bound by law to act in the interest of the other party. In sum, a fiduciary must act in such a way to ensure that they provide the greatest benefit to the other party. Moreover, the fiduciary is also required to avoid certain circumstance where their interests may be in conflict with those of the other party.

What are the fiduciary duties of board members? In a company, the board of directors owes a fiduciary duty to both the company and the company’s shareholders. This relationship creates the responsibility of the board to oversee the business’ operations and ensuring that it generates adequate returns of investors.

What if there is a breach of fiduciary duty? A fiduciary duty provides a duty of care, a duty of good faith and a duty of loyalty in a business relationship. If it is determined that a member of a board of directors is in breach of his or her fiduciary duty, that member could be held liable by the company itself or its shareholders for the damages arising from the breach.

Depending on the circumstances and the type of breach, a suit could be filed for actual damages if it can be shown that actual loss resulted from the director’s actions. Additionally, punitive damages could be sought if the party in breach acted in malice or attempted to defraud the company or its shareholders.

A breach in fiduciary duty could have a major, minor or no impact on a business. However, such a situation could result in a dispute and litigation. If you are dealing with this or any other business law issue, it is important to understand ways to resolve the matter whether it means negotiation or moving forward with business litigation.

Source: Investopedia.com, “What are the fiduciary responsibilities of board members?” Claire Boyte-White, Accessed on Aug. 1, 2016