The officers and directors of a corporation don’t only have decision-making authority — they carry fiduciary duties. In the corporate arena, a fiduciary duty is a legal obligation officers and directors have to the shareholders. Specifically, they have a duty to act in the company’s best interests at all times. If a party who owes another a fiduciary duty fails to act accordingly, they may be in breach and held personally liable for any financial harm caused as a result.
Some fiduciary duties imposed on corporate officers and directors include the following:
The Duty of Care
The duty of care requires corporate officers and directors to make informed, deliberate, and reasonable decisions in good faith. This means they are required to gather all material information available before approving a major acquisition. They must also fully understand the implications of their decisions. Importantly, corporate officers and directors are expected to exercise diligence in overseeing company affairs and acting on behalf of the corporation.
Under the business judgment rule, corporate officers and directors are protected from making decisions that harmed the company’s interests — as long as their actions were in good faith. Although New York law allows a corporation to limit or eliminate the personal liability of directors and officers for breaching their duty of care, the fiduciary duties of loyalty and good faith cannot be waived.
The Duty of Loyalty
The duty of loyalty means a director or officer must place the interests of the company above their own personal interests. A corporate officer or director must:
- Avoid conflicts of interest that benefit themselves at the expense of the company
- Refrain from participating in transactions where they will personally benefit (self-dealing)
- Not usurp corporate opportunities for their own personal use
- Not misuse confidential corporate information for personal advantage
A director or officer who invests in a competitor while guiding the corporation with strategic decision-making may be in breach of their fiduciary duty of loyalty. Other examples of breaching this duty can include acting with a conflict of interest and misappropriating corporate assets.
The Duty of Good Faith
The duty of good faith focuses on the integrity of the actions of an officer or director. It requires officers and directors to act with the intent to serve the best interests of the corporation. Specifically, they must always act with honesty and fairness to the company — and not put their own interests above those of the company when facing competing interests. If an officer intentionally ignores signs of fraud or other misconduct because it might affect the price of stocks or implicate a colleague, they may be in breach of the duty of good faith.
The Duty of Disclosure
The fiduciary duty of disclosure requires a corporate officer or director to provide complete, accurate, and timely information when communicating with shareholders — especially when a decision must be voted on. This means disclosing all material facts that a reasonable shareholder would need to consider when making a decision and not omitting critical details. Shareholders must also be given an adequate amount of time to evaluate the information. Failure to adhere to the duty of disclosure can result in derivative actions, injunctions blocking a vote, and personal liability incurred by the officer or director in breach.
Contact an Experienced New York Business Attorney
If you’re facing a breach of fiduciary claim, a skillful business attorney can help protect your legal rights and financial interests. At Barnes & Barnes, P.C., we offer trusted legal services and reliable representation for a wide range of business matters, including those involving fiduciary duties. Contact us at (516) 673-0674 to schedule a consultation.
