Fiduciary responsibility

Fiduciary responsibility

The highest quality of care under law or justice is a fiduciary duty. If fiduciaries breach their duty, they can be held liable for any losses. A fiduciary duty can be imposed by law or by contract. For example, directors and officers of a company have a fiduciary obligation to the company and its shareholders. 

Therefore, a fiduciary must not only act in good faith but also have the intention of benefiting the person to whom they owe a duty.  

What is fiduciary responsibility? 

A fiduciary is entrusted with caring for another person’s property or money. To serve in the best interests of the individual who has trusted you with their money or property is a fiduciary responsibility.  

This duty comprises a responsibility of care and devotion. The duty of loyalty requires you to act in the best interest of the person you represent and not to put your interests ahead of theirs. The duty of care requires you to exercise reasonable care in managing the property or money you have been entrusted with. 

Corporations and fiduciary responsibility 

Fiduciary duties, also known as responsibilities of trust, are created when your company or organization is organized as a corporation. Fiduciary duties are corporate officers’ and directors’ obligations to the company and its investors.  

The board of directors designates corporate officials and assigns them specific responsibilities in addition to setting business policies. Corporate officials carry out your for-profit or nonprofit firm’s everyday activities such as the president or chief executive officer, treasurer or chief financial officer, and corporate secretary. 

There is a fiduciary responsibility of corporations to their shareholders. This fiduciary responsibility includes making decisions in the best interests of shareholders and acting in good faith. This responsibility is a legal obligation and is enforceable by law. In several cases, shareholders have sued corporations for breach of fiduciary responsibility. 

Importance of fiduciary responsibility 

The fiduciary responsibility or duty is of utmost importance because it is the cornerstone of a trusting and successful relationship between a fiduciary and the person to whom they owe this duty.  

This duty requires the fiduciary to act in the best interests of the person they represent and to avoid any conflict of interest. A breach of this duty can have serious consequences, both legal and financial. 

What are the different fiduciary responsibilities? 

A stockholder who holds a majority stake in a business or has influence over its operations may occasionally be obligated to perform fiduciary responsibilities. Directors, officials, and the controlling shareholder may all be personally liable for a breach of fiduciary responsibility.  

There are six different types of fiduciary duties. 

• Duty of loyalty 

The fiduciary has a responsibility of loyalty to serve the interests of the beneficiaries above their own and to avoid clear conflicts of interest. This relates to always acting in the beneficiary’s best interest and prioritizing their well-being.   

• Duty of good faith 

This obligation entails acting in the beneficiary’s best interests while always abiding by the law. The fiduciary should never behave in a way that is not compliant with the law. 

• Duty of prudence/care 

Fiduciaries are required to handle situations and make judgments involving the interest of beneficiaries with the utmost professionalism, prudence, and critical risk awareness. 

• Duty of care 

According to the duty of care, the fiduciary must take reasonable care and act in the beneficiaries’ best interests. It can entail carefully weighing the pros and cons of several possibilities and making wise decisions. 

• Duty of confidentiality 

The fiduciary must keep all information about the beneficiary confidential and private. They must not misuse it in any way, whether said or written, for their benefit. 

• Duty of disclosure 

Fiduciaries are obliged to behave completely, honestly, and freely, providing any important facts that could affect their capacity to fulfill their fiduciary obligations and the success of a beneficiary’s interests. 

Breach of fiduciary responsibility 

A fiduciary must behave in the best interests of the person they are entrusted with representing, not for their own benefit. 

If fiduciaries breach their responsibility or duty, they could be held liable for any losses the person they were representing suffers. This could include financial losses and any emotional distress that may have been caused. In some cases, a fiduciary may also be required to pay damages. 

Frequently Asked Questions