Fiduciary duties within the framework of companies law are fundamental obligations owed by company directors and officers to the corporation and its shareholders.[2] The core principle is to act in the best interests of the company, placing those interests above any personal gain or conflicting interest.[2]
The main fiduciary duties established under the companies acts and recognized in corporate governance include:
- Duty of Care: Directors and officers must use due diligence to inform themselves adequately before making business decisions. This involves acting with the care that a reasonably prudent person would exercise in a similar position and under comparable circumstances.[5] The duty of care protects the company by ensuring decisions are made responsibly, based on sound information and judgment.[2]
- Duty of Loyalty: This essential duty requires directors and officers to act honestly and in the best interests of the company, not for their own benefit. Directors must avoid conflicts of interest and self-dealing, and must not make unauthorized profits.[2] Directors are expected to treat all shareholders equally, regardless of shareholding size.[2]
- Duty of Good Faith: Directors must act honestly, responsibly, and in accordance with the company’s constitution and applicable laws, always seeking to advance the company’s interests.[2][3]
- Duty of Obedience: Directors are responsible for ensuring company activities comply with the law, internal policies, and financial reporting requirements. They must not exceed powers granted by the company’s constitutional documents.[2]
- Duty of Confidentiality: Directors must keep company information confidential and refrain from using such information for personal gain.[2]
- Duty of Disclosure: Directors must fully disclose relevant information to shareholders and stakeholders, and any potential conflicts of interest.[2]
- Duty of Prudence: Directors need to employ the highest degree of care and professional skill, particularly with regard to risk management.[2]
Breach of these fiduciary duties can result in legal action against directors, including the potential for beneficiaries to claim damages if they suffer losses due to the breach.[5] The business judgment rule generally protects directors from personal liability for decisions made in good faith and with due care, even if the outcome is unsuccessful, but does not apply in cases involving bad faith, negligence, or conflicts of interest.[6]
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