Fiduciary Duties

A person owes another fiduciary duties when that person has control over a financial interest of the other. For example, the board of directors of a corporation organized under the laws of a US state such as Delaware owes stockholders of that corporation fiduciary duties because its decisions affect the value of the company’s stock.

Specifically, directors owe a duty of loyalty, which generally requires putting the interest of the company above self-interest when those interests conflict, and they owe a duty of care, which requires the directors to make decisions based on adequate information and the good-faith belief that the decisions are in the best interest of the company. Directors who do not fulfill their fiduciary duties may be open to personal liability, so they should be careful to follow processes that have been recognized as evidence of adequately fulfilling fiduciary duties in the past, including holding regular meetings, drafting clear minutes, performing due diligence before finalizing deals, disclosing conflicts and requiring disinterested consent when necessary, and engaging outside experts for advice.