Penalties for Breach of Fiduciary Duty

Breach of fiduciary duty is an increasingly common accusation raised among people in business when they have disputes with their partners, managers, and employees. Usually, the penalties for breach of fiduciary duty are financial, since violations of a fiduciary duty often cause economic losses.

If you suspect that someone has breached their fiduciary duty, you will want to talk to a South Carolina business attorney about your options. These situations are not one-size-fits-all. The appropriate remedy in one dispute might be quite different from the outcome in another.

An Overview of Fiduciary Duty

A person has a fiduciary duty when they have a responsibility to put the interests of another individual or business ahead of their own interests. For example, business partners have a duty to take actions that are in the interests of the partnership and their partners. If one partner acts in a way that benefits the partner at the expense of the other partners or the partnership, the partner has breached their fiduciary duty.

What Can Constitute Breach of Fiduciary Duty

Breaches of fiduciary duty typically vary based on the role of the violating party. In other words, partners tend to perform different actions than employees or members of the board of directors when they violate their fiduciary duties.

Here are a few examples of conduct that can constitute a breach of fiduciary duty:

Partners

A partner might take company funds or assets for their personal use. The partner might commit actual embezzlement or merely mismanage partnership accounts. Partners also need to disclose conflicts of interest and refrain from engaging in self-dealing like funneling contracts away from the partnership to their personal business entity. 

When a partner is negligent or takes illegal actions, the partner could breach the fiduciary duty to the partnership by damaging the company goodwill and exposing the partnership to liability. 

Board of Directors 

Members of the Board of Directors face some of the same opportunities for breaching their fiduciary duties as a business partner, like conflicts of interest and self-dealing. In addition, the board of directors might violate shareholder agreements about voting rights, payment of dividends, and access to records.

Employees and Agents

When someone acts on behalf of someone else as their agent or employee, they have a fiduciary duty not to use the relationship to harm the principal or employer. Common types of fiduciary breaches include theft, embezzlement, colluding with a competitor, filing fraudulent invoices or expense reports, or sharing the employer’s customer lists and trade secrets.

The Importance of the Partnership Agreement, Employment Contract, and Bylaws

The partnership agreement, employment contract, bylaws, or other applicable document might address the issue of what penalties are available in the event of a breach of fiduciary duty. You will need to look to these documents first when exploring your options against the person who violated their fiduciary duty. 

Taking Legal Action for Claims of Breach of Fiduciary Duty

Breach of fiduciary duty is typically a common law issue, meaning that there is an absence of specific criminal statutes that create a specific offense called breach of fiduciary duty. Instead, the person violating the fiduciary duty could face criminal charges or a civil lawsuit for fraud, embezzlement, theft, or other conduct. 

The criminal penalties would depend on the offense charged. Civil penalties usually bear some relationship to the financial harm caused by the breach of fiduciary duty. 

A South Carolina business attorney could talk to you and help you seek to recover the economic harm that you or your business entity suffered as a result of the breach of fiduciary duty. Contact our office today for help with your case, we gladly offer a free consultation.