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Set Business Expectations through Fiduciary Duty

business-law-fudiciary-duty.jpgThe term "fiduciary duty" is technical in nature, but in simpler terms, it covers the expectations between business partners to do the right thing when it comes to the working relationship. There are common duties associated with a fiduciary relationship which include duties of confidentiality, loyalty, and good faith.

When any of these are violated, then it has to be determined if the parties involved are protected by business law. Below are a few examples of what may arise in a business partnership that may lead to a breach of fiduciary duty including:

  • Insider trading;
  • Sales to or purchases by a corporation from directors or entities in which the directors have an interest;
  • Use of corporate funds to gain control; and
  • Improper use of corporate position.

Say that John and Jane form a corporation and buy a string of properties with money from that entity, John would have a fiduciary duty to Jane, if he decided to sell part of those properties for a profit. If John failed to inform Jane of the sale or divulge profits as part of the interest of the corporation as agreed upon in their contract, there would be a breach of fiduciary duty.

There are many factors to consider before going into business with another person. An article published by Entrepreneur suggests asking yourself questions like:

  • What am I looking for in a business partner?
  • What are the expectations involved from the potential business partner?
  • How strong is your potential business partner's commitment to the business?

Covering these kinds of bases can help when it comes to drafting a contract and communicating in the future. It's important to have the same expectations going into the business and a clear understanding of business operations.

It's unfortunate when business partners face allegations of breaches of fiduciary duty. After putting trust into another person, it can feel hurtful and aggravating to feel wronged. It is crucial to have an attorney review any and all contracts regarding your business. It can save you from drawn out legal proceedings and complications in the future. The start of business is an exciting venture, but make sure the proper pieces are in place before signing your name.

Our law firm helps people navigate through both business formations and business dissolutions. We are your trusted legal source to help make sure your rights are protected. If you feel you have been victim to a breach of fiduciary duty in California, contact a San Jose business law attorney today, so that we may review your options.

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