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The fiduciary role in a business context

16 Jul 2014

Generally speaking, there are three characteristics to a fiduciary relationship. First, the fiduciary has the power to make choices. He or she must be able to exercise some discretion or power over another person. Second, the fiduciary must have the power to affect a beneficiary’s interests. The fiduciary can exercise such power unilaterally so as to affect the beneficiary’s practical interests. Third, the beneficiary is vulnerable to or is at the mercy of the fiduciary. A fiduciary relationship, thus, goes beyond mere duty of care or contractual liability; it is a relationship that is premised on power imbalance and trust.

Fiduciary relationships are recognized in law in numerous places. In business there are various occasions where a fiduciary relationship would be found. For instance, in addition to owing a duty of care – that is, in addition to performing adequately in the course of their duties - directors and officers are said to be fiduciaries to the corporation. The idea is that a corporation (via its various shareholders) is at the mercy of the directors and officers who are in charge of managing its day-to-day operations. Normally, directors and officers are fiduciaries to the corporation and not the corporation’s shareholders. However, the law allows shareholders to vindicate their rights and keep directors and officers in check.

The law regards business partners as fiduciaries as well. Partners must deal with each other and the partnership in the utmost good faith. Just like the directors and officers who should be acting in the best interests of the corporation, partners must act in the best interests of the partnership of which they form a part.

If you have been accused of breaching your fiduciary duty or if you or your organization has suffered harm as a result of questionable conduct of a partner, director or an officer, we invite you to contact us for a consultation.

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.