Quick Answer
A fiduciary duty is a legal obligation to act in another's best interest. In business, partners, officers, directors, and majority owners often owe these duties to the company and other owners. A breach — self-dealing, misusing assets, or putting personal interests first — can give rise to a serious legal claim.
Some of the most serious business disputes arise not from outsiders, but from the people who were supposed to be looking out for the company.
Within a business, certain people are trusted to act in the interest of the company and its owners rather than themselves — and the law backs that trust with what are called fiduciary duties. Partners, corporate officers and directors, and sometimes majority owners can owe these duties, which generally include obligations of loyalty and care. When someone in such a position puts their own interests ahead of the company's — diverting opportunities, misusing assets, or self-dealing — they may breach a fiduciary duty, and the resulting claim is among the more serious in business law. Understanding what these duties are, what a breach looks like, and what can be done about it is important whether you suspect a breach or want to avoid committing one. This guide explains the essentials.
We help businesses get this right from the start. This is general information, not advice on a specific situation.
Betrayal from the inside
Someone who owes a duty to the company puts their own interests first.
Recognize the duty and the breach
Understand who owes fiduciary duties, what breaches look like, and what claims arise.
Accountability and protection
You hold a breaching party accountable — or avoid breaching duties yourself.
Fiduciary duty is the law backing trust with obligation.
What a fiduciary duty is
A fiduciary duty is a legal obligation requiring a person to act in the best interest of another, putting that interest ahead of their own in the relevant context. In business, these duties commonly include a duty of loyalty — not putting personal interests ahead of the company's — and a duty of care — acting with reasonable diligence and prudence. Cornell Law School's overview of fiduciary duty describes the concept and its scope. These duties exist because certain roles involve trust and control over others' interests, and the law holds those in such roles to a higher standard. Understanding the duty is the foundation for recognizing a breach.
Loyalty and care are the core duties.
Who owes fiduciary duties in a business
Not everyone in a business owes fiduciary duties, but several common roles often do. Business partners typically owe duties to one another and to the partnership; corporate officers and directors generally owe duties to the corporation and its shareholders; and in some circumstances majority or controlling owners owe duties to minority owners. The precise duties and who owes them depend on the type of entity, the role, and the governing law and documents. Recognizing whether a particular person owes fiduciary duties is the first step in evaluating whether their conduct could constitute a breach. The existence of the duty is what makes certain conduct actionable.
What a breach looks like
A breach of fiduciary duty occurs when someone who owes such a duty violates it — typically by putting personal interests ahead of the company's or failing to act with the required care. Common examples include self-dealing, diverting business opportunities to oneself, misusing or misappropriating company assets, competing against the company improperly, or making decisions tainted by undisclosed conflicts of interest. Not every poor business decision is a breach; the question is whether the person violated the loyalty or care owed in their role. Identifying a breach requires examining the conduct against the specific duties involved. These claims are serious precisely because they involve a violation of trust and legal obligation.
What can be done about a breach
When a fiduciary breaches their duty, the company or affected owners may have legal claims and potential remedies, which can include recovering losses caused by the breach and, in some cases, requiring the fiduciary to give up improper gains. The right response depends on the facts, the entity, and the governing law, and may begin with internal demands or investigation before escalating to formal action. Because these matters are serious and can be time-sensitive, consulting an attorney promptly is important, both to protect the company and to act within any applicable deadlines. On the other side, those who owe fiduciary duties should understand them to avoid inadvertently breaching them. Either way, these claims warrant careful, informed handling.
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Book Your Free Legal-Strategy CallFrequently asked questions
What is a fiduciary duty?
Who owes fiduciary duties in a business?
What counts as a breach of fiduciary duty?
What can I recover for a breach of fiduciary duty?
How do I prove a breach of fiduciary duty?
How can I avoid breaching my own fiduciary duties?
How can Clark Meyers help with a breach of fiduciary duty claim?
Sources
- Legal Information Institute, Cornell Law — Fiduciary Duty. law.cornell.edu
- Legal Information Institute, Cornell Law — Partnership. law.cornell.edu