The shareholder’s breach of fiduciary duty suit is based on the principle that the shareholder acted outside the best interests of the corporation. This is despite being obligated to do so. A majority of these lawsuits are in the form of business torts and can result in compensation for the injured party.
You should consider working with an experienced and motivated business law attorney if you believe there has been a breach of fiduciary duty.
How does the Law Define Shareholders’ Fiduciary Duty?
Fiduciary duty refers to the legal obligation of acting in a certain way that benefits another entity or individual financially. The fiduciary owes the duty while the principal or the beneficiary is the one that benefits from the duty.
There are several state and federal laws touching on the subject of fiduciary duties. For instance, the Uniform Fiduciaries Act defines what a fiduciary and a fiduciary relationship mean.
In general, shareholders don’t owe any fiduciary duties to other shareholders in a corporation. Taking this into account, the situation may change in corporations where the shareholders serve as directors or officers.
The same holds true for closely held corporations as well. State law differs to the extent that the shareholders owe fiduciary duties to the corporation.
In certain circumstances, shareholders may owe fiduciary duties to other minority shareholders of the corporation. This occurs when a designated group of shareholders or a single shareholder owns a controlling interest in the corporation. The controlling shareholder, in such cases, may incur special duties to minority shareholders.
Elements to Prove a Shareholder’s Breach of Fiduciary Duty
Alabama Code Title 7. Commercial Code § 7-3-307 states that a corporation, partnership, principal, or any other beneficiary is owed a fiduciary duty from any director, officer, trustee, partner, or representative of the organization. The fiduciary agent is required to comply with certain rules and requirements. The agent is expected to do the following:
- Act loyally toward the company
- Be diligent while managing the financial affairs of the corporation
- Exercise sound and unbiased business judgment while making financial decisions on behalf of the company
- Avoid transactions that are self-dealing in which the assets or finances of the company are being used to benefit the individual instead of the corporation as a whole
- Avoid the diversion of lucrative business opportunities to another entity that is owned or controlled by the fiduciary agent
The shareholder can be charged with a breach of fiduciary duty if it comes to light that they violated any of the above duties or responsibilities. Shareholders with a fiduciary duty cannot spend all their time pursuing their self-interests and keeping them ahead of the corporation.
Consequences of a Fiduciary Breach
Any entity or individual that is the victim of a breach of fiduciary duty may end up suffering reputational damage. This can cost the shareholder future business. There are various legal remedies available for a fiduciary breach victim. Other shareholders can decide to go to court. There can be monetary penalties for both direct and indirect damages, as well as, legal costs.
Equitable relief may be available as well, such as through an injunction against the responsible party. It’s recommended that you work with a qualified Alabama commercial litigation attorney. Owner disputes often affect the normal running of a business. A skilled attorney will be able to help navigate the legal hurdles for a swift resolution.
Proving a Shareholder’s Breach of Fiduciary Duty
You would need to prove certain elements if you suspect a shareholder to have participated in a breach of fiduciary duty. You can file a claim against the guilty shareholder if you can prove the following:
- That the shareholder owed a fiduciary responsibility to other shareholders
- That the duty was breached
- That the breach entitles the victim to a remedy
- The breach caused financial damages
- The breach is the result of someone taking advantage of your trust
You may be able to pursue monetary and other remedies if you can prove these points to be true. The type of breach that occurred will determine the type of remedy that can be awarded. For instance, if a majority of shareholders diverted potentially lucrative business to one of their other businesses, then you may be able to claim monetary damages.
Breach of duty can be difficult to prove because of the various elements involved in it. An experienced business attorney in Alabama can help you determine whether there has been a breach of duty and advise on the next legal steps.
The burden of showing proof that a breach happened falls squarely on the claimant. You would need to prove that the shareholder took advantage of their position for benefiting at the expense of the company.
Legal Advice is Here from Knowledgeable Business Litigation Attorneys in Alabama
The seasoned business attorneys at the Birmingham Law Group can help you if you feel that you are the victim of a breach of fiduciary duty or are being accused of such a breach. We have helped numerous clients resolve such disputes in a timely and cost-effective manner. To set up an initial free case evaluation, call us at (205) 964-9764 or reach us online.