Directors, Officers and Breach of Fiduciary Duty

by Fred Abramson on November 18, 2010 · 2 comments

If you are an officer or director of a corporation, you stand in a special or fiduciary relationship with both the shareholders and to the corporation itself. This relationship is special because you are placed in a position of trust. If you are a majority shareholder of your company, you have probably the most about your company. You know the assets and liabilities of the company, the number of employees, etc.

With this trust comes a price. You are obligated to act in the best interest of the corporation rather yourself.

However, if you are an employee and don’t hold a position of corporate policy-making authority then you do not owe a fiduciary duty to the company.

Basically, officers and directors have the following 2 basic fiduciary duties:

  1. Diligence. This means that you should act in good faith.
  2. Loyalty. You owe loyalty to the company and not hurt your company for your own self-interest. Officers and directors are prohibited from
  • taking an opportunity away from the company.  If you are an officer of an advertising company, you cannot moonlight by providing search engine optimization services.
  • competition with the company. Can you imagine the CEO of Coke serving on the board of directors of Pepsi?
  • vote on transactions that you have a personal interest. You shouldn’t vote on moving corporate headquarters to a building that you own.
  • sell stock of the company illegally. You don’t need an insider trader action.

If you are a majority shareholder, you also owe a duty of loyalty to your minority shareholders. If you favor one group over the other, you are asking for trouble.  Be aware that if you are both a member of a corporation and a shareholder, you are placed with an even greater degree of fiduciary duty.

The Law Office of Frederic R. Abramson represents businesses in New York. If you have a question regarding breach of fiduciary duty, call me at 212-233-0666.

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