Fiduciary Duties Breach by Shareholders, Officers, Directors, or Partners

A fiduciary is a person required to act for the benefit of another within the scope of their relationship. A fiduciary owes a certain standard of loyalty or care toward another.

What are the Consequences of a Fiduciary Breaching a Duty to Another?

A fiduciary that breaches his or her fiduciary duty is liable for damages and may be subject to other equitable remedies. An equitable remedy is a remedy imposed based on fairness. Equitable remedies are often imposed when monetary damages are difficult to ascertain or do not adequately compensate for the loss.

The remedy for breaching a fiduciary duty varies depending on the facts and circumstances of the case.

Breaches by Officers and Directors of Corporations

Officers and directors have no right to divert corporate property for their own use. If an officer or director does, he or she is liable for a money judgment for the value of what was diverted, or the officer or director could be deemed to be simply holding the diverted assets or resulting profits in trust for the corporation.

Breaches by Majority Shareholders

When a majority shareholder breaches his or her fiduciary duty to a minority shareholder, the minority shareholder is entitled to the difference between the fair value of the minority shareholder’s shares and the amount offered to buy those shares.

Breaches by Partners in Partnerships

A constructive trust is established when there is a breach of a fiduciary relationship in a partnership based on notions of equity and good conscience.

A constructive trust means that the property, assets, or profit is deemed to belong to the partnership even though it is being held by the partner who violated a duty. That partner is simply considered to be holding that property, asset, or profit for the partnership.

For example, where one partner purchases real estate with partnership funds and takes the title in his own name, he will be deemed a trustee holding such title for the benefit of the partnership.

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