Question

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• This week, we evaluated the subjects that comprise business law activity and we examined how they influence the type of business organization that will be formed. Within this discussion, we also analyzed the legal concept of fiduciary duties, the breach of which can lead to civil litigation.
  
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• Compare and contrast the fiduciary responsibility of duty of care with that of duty of loyalty.
• Identify the purpose of each and explain the specific type of unethical conduct they are meant to prevent.
• Provide your opinion on whether the Business Judgment Rule can be used as a defense to allegations of the breach of the duty of care and the duty of loyalty.

Answer 1

A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other's best interests.

A fiduciary might be responsible for general well-being, but often the task involves finances—managing the assets of another person, or of a group of people, for example. Money managers, financial advisors, bankers, accountants, executors, board members, and corporate officers all have fiduciary responsibility.

Certain relationships create legal duties for individuals. For example, shareholders and executives of a company have an obligation to act in the best interests of their business. Because there are varying degrees of legal obligations which may be imposed depending upon the specific circumstances and the specific nature of relationships between people and businesses, there are different categories of obligations. The strongest duty under the law is called a fiduciary duty. When a fiduciary duty has been breached, those affected adversely by the breach can consult with a business litigation attorney about filing a lawsuit.

A fiduciary duty is imposed in situations where it is of paramount importance that an individual fulfill his obligation to act solely in another party’s interests. It is the highest duty imposed by the U.S. legal system. The party or parties who the duty is owed to are referred to as principals.

As the Legal Information Institute explains, fiduciaries may not profit from the relationship that they have with the principal, unless the fiduciary first gets the informed, express consent of the principal. A fiduciary has to avoid any conflicts of interest that may arise between his or her own interests and the interests of the principal, as well as avoiding any conflicts that may arise between different clients of the fiduciary.

A fiduciary relationship exists between lawyers and clients; between shareholders and directors; between business partners; and in many other business relationships. The first step in determining if you should sue when you believe the duty has been breached is to determine if the specific relationship in question actually created a fiduciary duty under the law.