WHAT IS A "FIDUCIARY DUTY" ?
Each board members owes a legal duty of good faith, full
disclosure, fair dealing, and undivided loyalty to the corporation.
In other words, directors must positively renounce anything
that is unfair.
The fiduciary duty imposes a duty that is higher than the
morals of the work-a-day world, the marketplace, and the trodden crowd.
PURPOSE OF FIDUCIARY DUTY:
The purpose of the fiduciary duty is to remove all temptation
since it recognizes the weakness and frailty of human nature.
A breach typically occurs where directors or officers self
deal to their own benefit and to the detriment of the corporation.
TYPES OF FIDUCIARY DUTIES:
conflict of interest:
this potentially can occur whenever the corporation is
considering entering into a contract with one of its board members
(e.g. a lease, an employment contract, sale of stock, etc.).
The affected board member in such a situation has a potential
for divided loyalties.
To avoid problems, the minutes should show that the board
member disclosed the potential conflict, that there was a full
discussion about how the proposed deal was in the best interests of the
corporation, and that the board member with the conflict abstained from
the vote. The bottom line, however, is that the proposed transaction
must actually be in the best interest of the corporation.
Competing with the corporation:
Violates that fundamentals of duty of undivided loyalty.
Usurpation of corporate opportunity:
directors cannot divert for themselves business opportunities
that rightfully belong to the corporation.