Fiduciary Duty (Corporate)
What does "Fiduciary Duty (Corporate)" mean in law?
Fiduciary duty in the corporate context refers to the legal obligations that directors, officers, and controlling shareholders owe to the corporation and its shareholders, encompassing primarily the duty of care and the duty of loyalty. These duties require fiduciaries to act in good faith, with the care of a reasonably prudent person, and in the best interest of the corporation rather than for personal benefit. The concept traces to partnership law and was famously articulated by Judge Cardozo in Meinhard v. Salmon, establishing that fiduciaries are held to a standard 'stricter than the morals of the marketplace.' Breach of fiduciary duty is the most common basis for holding directors and officers personally liable in corporate litigation.
Definition
Fiduciary duty in the corporate context refers to the legal obligations that directors, officers, and controlling shareholders owe to the corporation and its shareholders, encompassing primarily the duty of care and the duty of loyalty. These duties require fiduciaries to act in good faith, with the care of a reasonably prudent person, and in the best interest of the corporation rather than for personal benefit. The concept traces to partnership law and was famously articulated by Judge Cardozo in Meinhard v. Salmon, establishing that fiduciaries are held to a standard 'stricter than the morals of the marketplace.' Breach of fiduciary duty is the most common basis for holding directors and officers personally liable in corporate litigation.
Example
A controlling shareholder who forced the corporation to enter into a below-market lease with a company he personally owned breached his fiduciary duty to the minority shareholders by placing his own financial interest above that of the corporation.