Dan's Desk

Fiduciary Duty: Your Obligation to the Company in Lean Times

Written by Dan Gallatin | Jun 11, 2020 5:00:00 AM

Your company is flush with cash. Your company is getting Paycheck Protection money just to meet payroll. All owners, seasoned or new, have experienced different points in that spectrum. Perhaps recyclables in Hugo are more valuable than ever while car sales in Lino Lakes are near zero. What does not change is the law and an owner's fiduciary duty to the company.

There are two fundamental, unwavering legal requirements that frame an owner's fiduciary duty to the company: The Duty of Care and the Duty of Loyalty. But, just what is expected of you as an owner, and the decisions you make, have to be fluid and are analyzed against the then-present variables. That is, if you make a decision that leads to a bad result, it does not mean you breached a duty. The outcome of your decision is not the baseline, it's more your process and procedure in arriving at the decision you made.

The duty of Care has three elements. First, you must be reasonably informed of the relevant facts and alternatives available. Second, you must act in good faith while making prudent business decisions. Third, you cannot delegate the decision (or at least the consequences of the decision) to another.

The duty of Loyalty is a bit simpler. It requires that you in the process of making decisions you are keeping the company's interests in mind. You cannot act out of concern for your own, personal best interests.

Use this as your guide in these times. Keep in mind, litigation facts are being developed every single day. You just do not realize it until you are in a litigation and being asked to remember what you did a month or 6 or 12 months ago. Take time now and prepare for the future.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney. All information contained in links are the property of the linked site.