Fiduciary Duty

In the State of Texas, when more than one person owns a business—even if it’s only a minority share of that business—they have a fiduciary duty to the financial health of the organization and to each other.  In corporations, the executive boards and management have a responsibility to put the welfare of the shareholders above their own personal self-interest. In limited liability corporations and other types of partnerships, the same commitment exists to the other partners and to the business itself.

Occasionally, a partner or executive begins to make decisions that are not mutually beneficial to the other owners of the business. Sometimes these decisions may be criminal, in which case Texas and federal criminal statutes may be applicable. However, even if the case doesn’t involve a crime like insider trading or embezzlement, the injured parties may still make a claim through their attorneys in the Texas civil courts.

In Texas, the elements of a breach of fiduciary duty claim must contain:

  • A fiduciary relationship between the plaintiff and defendant exists
  • The defendant’s breach of the fiduciary duties arises from that relationship
  • Injury to the plaintiff, or benefit to the defendant, resulting from that breach

Consequently, if the decisions that a partner, executive, or manager makes for a business has a neutral or positive impact on the operation as a whole, then no breach of fiduciary duty exists—even if the person who made the move also personally benefited from that decision. However, when it can be shown that a partner or executive has made moves that are counter to the interest of the business, or that that he or she denied those benefits to the partners or shareholders, a breach of fiduciary duty case may exist.

Breaches of fiduciary duty can be extremely damaging to a business. For example, consider the impact of a controlling partner siphoning company funds only to leave a shell of a company in existence. As a minority shareholder, you may not even know what is transpiring until it is too late. Because a fiduciary duty exists, however, you may have rights to immediately restrain the bad acting partner, get a writ of attachment on the funds that have been stolen, and give the company life again. Or, what if the controlling partner is sharing proprietary technology with a competitor so that he can secure a future position with that company? Or an executive making the decision to use a more expensive supplier because she was promised a favorable rate on a piece of property that she wants to acquire in a private deal.

Courts honor fiduciary duties, and they take seriously a breach of a fiduciary duty. If you believe that a member of your team is practicing this kind of self-dealing, you should consider bringing your claim to a Texas business law and commercial litigation attorney who handles breach of fiduciary duty claims. Contact or call the firm toll free at 866-558-8149 or 713-391-8247 to find out how to protect your rights.

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