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Fiduciary Duties In A Corporate Law Environment


We know that if you sign a contract, you owe some kind of duty or obligation to the other side. The same holds true if there’s a law that says that there is a duty, such as the duties that attorneys or doctors may have to their patients or clients. But can you be liable for doing something wrong to someone or for giving bad information or bad advice, even if there is no contract or law? And what if your mistake was innocent?

Fiduciary Duties

Relationships between certain people can create what are known as fiduciary duties. A fiduciary duty arises where the following are present:

  1. One party has more expertise, knowledge, or experience in a given area than the other person. Think of financial advisors, realtors, architects, or accountants.
  2. The other party relies on the other’s expertise and knowledge or trusts the other side’s advice or counsel
  3. The “expert” or party with more knowledge, knows the other side is relying on him or her, and accepts that reliance
  4. The “expert” breaches his or her duty to the other party, causing damage, or harm

 Fiduciary Duties in Businesses

In corporate law, fiduciary duties can arise amongst shareholders, such as between majority and minority shareholders. Fiduciary duties can also arise between officers or directors, and shareholders to a company.

Certainly, an officer or director can make an innocent mistake. Business is uncertain, and not every business decision that ends up incorrect, is a breach of fiduciary duty. But let’s look at the following examples which would be breaches of fiduciary duties:

  1. An officer of a company uses his daughter’s marketing company, giving her a huge profit, even though it’s obvious her company cannot handle what the company needs
  2. A director of a company collects funds for the company, and keeps some of the money as “payment” for his services, even though the payment is unauthorized and unknown to the company
  3. A shareholder of a company starts giving his friend information about the company, knowing that the shareholder and his friend will be going into business together in the near future.
  4. An owner, knowing he is set financially for life, leaves his post, allowing the company to sink into debt, and leaving shareholders with worthless shares

Other Areas

Remember that fiduciary duties aren’t exclusive to corporate or business law. They can arise from any area of the law, such as guardianship, real estate or other professional services. Anytime you give advice to someone who is not experienced in your field, and that person is not at an “arm’s length” negotiation position, you should be aware of your fiduciary duties that may arise towards that person.

If you are someone who has gotten bad advice, which may have been given carelessly, or without your interests at heart, you may have a claim for breach of fiduciary duty.

Call the West Palm Beach business litigation lawyers at Pike & Lustig if you or your business is in any kind of legal trouble or has any kind of legal problem.



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