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Corporate structure and fiduciary duty

On Behalf of | Jul 28, 2020 | Business formation

Entrepreneurs often don’t have a business or legal background. What they have is an idea. One thing, done well can be the foundation for a business empire. As businesses scale up, they become more complex. What started out as a sole proprietorship or partnership can quickly become a corporation. Delaware’s business people should be aware of some common terms related to business leadership.

One of the most important underpinnings of American business law is the idea of fiduciary duty. This concept sounds complicated, but it’s actually fairly simple. Fiduciary duty in the corporate context means that people sitting on a company’s board have a duty to the company’s shareholders. They’re meant to act in the shareholders’ best interests, not their own. Other fiduciaries include lawyers. Their duty is to the clients they represent, not to themselves or stakeholders in their firms.

When fiduciary duties are breached, it’s a serious breach of ethics. It’s also the basis for civil lawsuits. In a case like this, the plaintiff first needs to show that a fiduciary duty exists. Next, they must show that there’s a breach. Finally, they must show that they suffered damages of some kind.

Examples of a board’s breach of fiduciary duties could include pursuing mergers and acquisitions that don’t benefit shareholders. Many prominent business law firms become famous for investing these kinds of allegations. They often craft press releases to make sure all shareholders know about the investigation, and to ask for their input. An experienced team of business law attorneys will be able to discern if a fiduciary breach occurred. Lawyers with experience could also know how to best structure the lawsuit for a chance of success.