Many different business transactions must be undertaken by a neutral third party or by someone who is not the party involved but instead is acting on their behalf. In order to make sure this third party acts in the best interest of the party they are representing, they are granted what is legally known as “fiduciary duty.” In essence, fiduciary duty is a relationship between two parties that makes one legally obligated to act in the best interests of the other. While there are ways to ensure that someone entrusted with fiduciary duty acts in the best interest of their principal, it’s still crucial that a fiduciary be someone who has no conflicts of interest with any transaction they may be required to partake in. They also should not be able to profit off any of these transactions, unless explicit consent is granted at the start of the relationship.
There are three primary types of fiduciary relationships that could apply to businesses: trustee/beneficiary, attorney/client, and principal/agent. Let’s look at each of these in more detail.
These are primarily used in estate planning law, but can lean into the business law world as well depending on the nature of a trust. In this instance, an individual named in a trust is named the fiduciary and given the role of trustee. At this point, they take legal ownership of property included in the trust and are given the power to handle the assets in the name of the trust. However, as a trustee, they are required to make decisions regarding that property in the best interest of the trust itself, including ceasing to distribute property from the trust should its beneficiary break its terms. In many cases, business assets or control over a business can be placed into a trust and then held by a trustee on behalf of a beneficiary.
In order for an attorney to properly represent their client and provide them with the best possible counsel and representation, they must have the full confidence and trust of their clients. For this reason, the Supreme Court has ruled that an attorney is not required to testify against their client and is not required to expose any information that might incriminate them. In return, attorneys must also act in the best interests of their clients, being completely loyal to their cause. Any attorney who fails to do this or guides a client wrongfully in order to gain has broken their fiduciary duty and could face serious charges in court for their conduct.
The principal/agent relationship is the most generic type of fiduciary relationship, and the most common in business litigation law. Anyone or anything with legal capacity to act on their own may act as a principal, and the agent may be anyone of their choosing that does not have a conflict of interest. One common example in business is when a group of shareholders for a corporation act as principals when selecting management, who then act as agents on behalf of the company. Obviously in this instance you’ll want to make sure the management does not have any conflicts of interest, such as investment banking on the success of a competitor.
If you would like to learn more about fiduciary duty and how it can apply to your business, speak with a Dallas business litigation attorney from Lyons & Simmons, LLP today. We know the business world can be complex, and that means it’s important to have an ally who can help you navigate through any issues you might face. We strive to protect your best interests and your future through careful strategy, decisive action, and aggressive representation should your issue ever need to escalate further.For all your business law and litigation needs, call Lyons & Simmons, LLP today at (844) 297-8898.