A fiduciary duty is a legal or ethical relationship of trust where one party, known as the fiduciary, is obligated to act in the best interests of another party, typically called the principal or beneficiary. Fiduciaries are expected to prioritize the beneficiary’s interests above their own, managing assets, decision-making, or responsibilities with utmost loyalty, good faith, and care[3].
Fiduciary duties are most common in business, nonprofit boards, legal, and financial contexts. Examples include directors and officers of corporations acting for shareholders, trustees for beneficiaries, or partners acting for each other[1].
The main types of fiduciary duties include:
- Duty of Care: Requires the fiduciary to act with diligence and prudence, gather sufficient information before making decisions, attend relevant meetings, and make informed choices as any reasonable person would[1][4].
- Duty of Loyalty: Demands that the fiduciary puts the beneficiary’s interests first, avoids conflicts of interest, does not use the position for personal gain, and fully discloses any real or potential conflicts[1][4].
- Duty of Good Faith: Obligates the fiduciary to act honestly and with honorable intentions in all dealings for the benefit of the beneficiary[5].
- Duty of Confidentiality: Requires the fiduciary to keep sensitive information private, not disclosing or misusing information related to the beneficiary for personal advantage[1]([5]).
- Duty of Prudence: Expects the fiduciary to exercise careful and cautious judgment, especially regarding the management and oversight of assets or resources[1][5].
- Duty of Obedience: Expects the fiduciary to ensure the organization or entity follows applicable laws, regulations, and governing documents (such as bylaws or articles of incorporation), and fulfills its stated mission or business purpose[2][4].
- Duty to Disclose: Requires the fiduciary to communicate any relevant information that could affect the beneficiary’s interests or impact decisions, especially regarding possible conflicts of interest[1][2][5].
When fiduciaries breach their duties, beneficiaries may be entitled to legal remedies, including compensation for damages[6].
References
- [1] Understanding Fiduciary Duty: Definition, Types, and Examples
- [2] Fiduciary Responsibilities of a Nonprofit Board of Directors
- [3] Fiduciary – Wikipedia
- [4] Fiduciary duty 101: Definitions, breaches, and prevention tips
- [5] Understand Your Fiduciary Duties — And How to Protect Yourself
- [6] What does fiduciary duty mean? – The Corporate Governance Institute
Leave a Reply