What are Corporate Fiduciary Responsibilities?

By The Law Office of Yoel Molina.
 
 
Fiduciary obligations, also known as obligations of trust, are created when your company or nonprofit is organized as a corporation. Traditionally, corporate officials and directors bear fiduciary duties to the company and its stockholders. The boards of directors select corporate officials and provide their specific responsibilities in addition to setting company rules. Your for-profit or nonprofit corporation's daily activities are carried out by corporate officials, including a chief executive officer or president, chief financial officer or treasurer, and a corporate secretary.
 
In some cases, controlling stockholders who hold a majority stake in or exert control over corporate business operations may also be subject to fiduciary obligations in addition to other ordinary shareholders. A director, officer, or controlling shareholder who violates their fiduciary duty may be held personally liable. A person's fiduciary duties to a corporation may also be influenced by state statutes, court rulings, bylaws, and articles of incorporation of a corporation.
 
 
 
Fiduciary Obligation to Comply:
 
The fiduciary responsibility of obedience acknowledges that officials and directors in a corporation have various obligations. Officers and directors are responsible for carrying out this responsibility within the bounds of their legal authority and the applicable company governing documents.
 
For nonprofit businesses, where officers and directors are expected to carry out their responsibilities following the benevolent objectives of their organization, this responsibility may be of special significance. By disregarding pledge constraints imposed by donors or approving the use of nonprofit resources for reasons other than charitable ones, an office or director could transgress their duty of obedience.
 
 
Fiduciary Obligation to Be Loyal:
 
Directors and officers have a loyalty obligation to a company's shareholders. They must put the welfare and best interests of the company ahead of their own or other economic interests, according to expectations. Common manifestations of disloyalty include conflicts of interest attempt to compete with the company and generating covert profits from corporate transactions. Under the corporate opportunity doctrine, officers and directors are prohibited from surreptitiously using business opportunities for personal gain.
 
For instance, secret information about a profitable development opportunity being provided to their real estate corporation may reach the executives and directors. Officers and directors are not permitted to take advantage of this circumstance or use it in a way that is detrimental to the company's interests. In some states, if the company has waived its interest in such deals in its bylaws or the necessary prior disclosures have been made to the board of directors, officers or directors may take advantage of specific opportunities. Officers and directors who break this duty risk being sued and having to give the company their hidden gains.
 
 
 
Duty of Care Under Fiduciary Relationship:
 
In a business setting, it is standard practice for directors and executives to represent their corporation with the utmost care and concern. To serve the corporation's interests, they should act with reasonable caution when performing their obligations. If they do not take reasonable or common care given the circumstances, an officer or director could be personally held accountable. A lack of due care could be demonstrated, for instance, by an officer or director who neglects to conduct a reasonable investigation into a business concern, attend board meetings regularly, or adequately manage staff, all of which endanger the corporation.
 
A director or officer is not responsible under the business judgment rule for judgments made in good faith and with reasonable care that ends up hurting the interests of the company. Inaccurate business decisions will be upheld by the courts if the officers or directors did not act with egregious carelessness during the review and decision-making process. Without this regulation, many people could be reluctant to serve as officers and directors, and businesspeople might be reluctant to take risks that could be profitable for an organization in the long term.
 
 
Good Faith and Fair Dealing Fiduciary Duty:
 
The obligations of care, loyalty, and obedience are strongly related to this fiduciary duty. Officers and directors are obligated to manage corporate commitments honestly, in good faith, and fairly. This ongoing obligation permeates all of their daily activities and business operations.
 
 
Disclosing Fiduciary Duty:
For officers, directors, and shareholders to analyze significant risks and make wise decisions, it is crucial that open communication take place in company discussions. Before seeking board or investor approval of significant corporate business transactions, such as mergers with or acquisitions of other companies, full and fair disclosure of key facts is necessary. Officers and directors also have a responsibility to disclose any potential conflict of interest between their personal interests and those of the corporation as part of their fiduciary duty.
 
 
If you have any questions about this article or similar matters, please contact our office, the Law Office of Yoel Molina, P.A., at fd@molawoffice.com or 305-548-5020, option 1