Fiduciary Duties

Directors in a corporation and partners in a business have what are called fiduciary duties to each other and to their companies. These primarily consist of the duty of care and the duty of loyalty. A Chicago commercial litigation attorney can advise you if you believe that one of these duties may have been breached.

Corporations

As part of the duty of care, corporate directors are required to discharge their duties: (1) in good faith, (2) with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, and (3) in a manner the director reasonably believes to be in the best interests of the corporation. This includes a duty not to waste corporate assets by overpaying for property or services.

Directors who meet this standard generally will not be liable for decisions that later result in negative consequences to the company. At common law, this was known as the “business judgment” rule.

A director also owes a duty of loyalty to the corporation and is not allowed to profit at its expense. He or she may not have a personal interest in a financial transaction that gives rise to a conflict of interest with the corporation, nor engage in a business that directly competes with the company.

Directors’ duty of loyalty also prohibits them from taking personal advantage of a business opportunity in which their company has an interest without first giving the company an opportunity to act. As the commercial litigation lawyers at our Chicago firm understand, this is sometimes known as a “usurpation of a corporate opportunity.”

The directors also have a duty to disclose material corporate information to other members of the board.

Partnerships

The fiduciary duties of partners in a general partnership are slightly different from those of corporate officers. Under the Revised Uniform Partnership Act, a partner’s duty of loyalty is threefold: (1) to account for profits, property, opportunities, or other benefits derived by the partner; (2) to refrain from dealing with the partnership as or on behalf of a party having an adverse interest to the partnership; and (3) to refrain from competing with the partnership. Our commercial litigation attorneys can guide Chicago clients in investigating whether a partner may have violated this duty.

A partner’s duty of care to the partnership and the other partners is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.

A partner must also provide complete and accurate information concerning the partnership.

Duty of Obedience

A third duty of partners under R.U.P.A. is known as the duty of obedience. A partner is considered an agent of the partnership and has a duty to obey all reasonable directions of the partnership. A partner must refrain from acting outside the scope of his or her actual authority (for example, making purchases the partner was instructed not to make). A partner is liable to the partnership for breaches of the duty to obey. Our Chicago commercial litigation lawyers can help you bring or defend against a claim on this basis.

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