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Types of fiduciary duty breaches

On Behalf of | May 15, 2023 | Business Litigation

Fiduciary duty is a legal term that describes one party’s obligation to act in the best interest of another party. This duty arises in several contexts, including employment relationships, partnerships, and in particular, in the context of corporate governance. Breaches in fiduciary duty can have severe consequences in California, including lawsuits, financial penalties and damage to an entity’s reputation.

Self dealing

There are several ways in which a breach of fiduciary duty can occur. One common type of breach is self-dealing. This occurs when a director or officer uses their position to benefit themselves, rather than the corporation.

For example, a director might award a contract to a company they own, rather than selecting the best vendor for the corporation. This type of conduct is a clear breach of fiduciary duty as it supports the director’s personal financial interests rather than the organization’s well-being.

Corporate waste

Corporate waste occurs when a director or officer makes decisions that are not in the best interest of the corporation, resulting in financial loss. For example, an executive might authorize a significant investment in a failing project, even though there is little chance of a positive return on investment.

Failure to act

A failure to act occurs when a director or officer fails to take action when they are aware of a problem that could harm the corporation. If an executive or director fails to report evidence of fraud within the corporation to the appropriate authorities, they are engaging in a breach of fiduciary duty.


When a breach of fiduciary duty occurs, the consequences can severely impact an organization. Shareholders or other parties may file lawsuits against the director or officer, seeking damages for the harm caused by the breach. In some cases, the director or officer may be required to pay financial penalties or may even face criminal charges.

In addition to business litigation, breaches of fiduciary duty can bring reputational damage. A corporation known to have directors or officers who have breached their fiduciary duty may have difficulty attracting investors or customers. The damage to the corporation’s reputation may also affect the individuals’ careers.

Guaranteeing trust

Directors and officers must act in the best interest of the corporation and its shareholders, and breaches of this duty can result in litigation, financial penalties, and damage to how consumers perceive the company. It is important for corporations to have strong governance structures in place and to monitor the fiduciary duty of their employees properly.