Business Isn’t Always Easily Mixed With Family or Friends

So you go into business with a respected colleague, friend, or family member and you become business partners. What happens when the other person you once trusted isn’t holding up their end of the bargain, and your business is suffering as a result?

Or, you trusted someone to take care of finances for a loved one, suspect their intentions aren’t pure, and wonder what legal recourse you may have.

You are not alone, and a breach of fiduciary duty can happen in many different aspects of life. Read on to learn more.

What is Fiduciary Duty?

As in other negligence aspects that boil down to one person having a realistic duty to another and ignoring it, a fiduciary duty simply means that a person has a special duty to another. Fiduciary, broken down, means trust. So, a person with a fiduciary duty has a responsibility to maintain the trust they once had, typically based on acting in the best interest of the business, the shareholders, and more.

A partnership agreement is typically created to explain what each party’s duties involve and what the expectations are. Each shareholder, partner, director, or other relative title will have a fiduciary duty to act in the best interest of the overall business.

What Four Elements Must Be Proven for Breach of Fiduciary Duties?

There are four elements that must be proven in order for a breach of fiduciary duties to exist. Simply put, those involved in the business who don’t have a relative part of the business’s overall success or have the ability to affect it may not have a fiduciary duty.

The first element is that the person must have a fiduciary duty, meaning a special duty to the other key players in the business and the business overall to make choices that are in the best interest of the overall health of the enterprise.

A breach takes place when it can be factually presented that the person with fiduciary duty breached that duty by intentionally making poor choices or choices that went against what a reasonable person in their position would do.

The third element is to prove what damages resulted from the choices made, and the final element is to prove that specific damages took place by making those poor choices.

Acting in Good Faith

It can be challenging to prove that those making business decisions are doing so out of negligence or poor intent. One of the ways to determine this is to prove that the person was not acting in good faith. Mistakes are imminent and happen to all of us across all aspects of our lives. Still, if there is a distinct pattern of poor choices, choices that aren’t in the best interest of the overall financial picture, the person may not be acting in good faith and, therefore, may be breaching their fiduciary duties.

Defense to Breach of Fiduciary Duty

As discussed above, there are four key elements that must be present to prove a fiduciary breach occurred. If any of those elements are not apparent, a breach may not be established.

The accused could also prove that though they were making poor choices, they acted in good faith, within the scope of expectations, and to the best of their ability.

If the defendant can prove that they were acting in good faith and with the best interest of the overall financial picture in mind, they may be able to avoid charges.

Another aspect to consider is that if it has been more than three years from the time the breach was discovered, the statute of limitations may have expired, making the case unrealistic, no matter how strong the evidence may be that a fiduciary breach occurred.

Damages in a Fiduciary Breach

To ensure a strong case, there is the element discussed above of proving that damages were suffered and they were a direct result of the breach. Proving this typically means facts presented showing the overall financial picture was handled poorly, losses were incurred, and a pattern can be established using financial documents. It must be proven that the losses were incurred as a direct result of poor choices, which can be challenging for some. An experienced business law attorney will know what to look for and what evidence to gather to prove that a fiduciary breach occurred and vigorously fight for what is suitable for the business.

Additionally, punitive damages may be awarded in extreme cases of fiduciary breach. Punitive damages are meant to punish the offender further, make an example of their situation to hinder others from making the same choices in their business, and more. Not all cases will be subject to punitive damages, but those where the offender intentionally hurt the business or were grossly negligent in their choices may have to pay.

Your Tireless Advocate

The earlier you contact an experienced attorney to help you navigate critical business matters, the better. If you suspect that a fiduciary breach is occurring, reach out immediately. Remember that the statute of limitations is three years in Colorado, and gathering a pattern of evidence can take time, so act quickly.

Contact our office at (303) 557-2011 to get started. With an array of business and legal experience, we are prepared to advocate for you and your business. We understand and respect your need to ensure that the financial landscape of your business is healthy and thriving. We can help to ensure that happens and continues that way.

We look forward to serving you.