Fiduciary Duties Both the board of directors an
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Posted On: 04/05/2017 1:14:10 AM
Fiduciary Duties
Both the board of directors and the CEO of a small business have a fiduciary responsibility to the business's shareholders. The fiduciary duties are legal concepts that form the basis of a CEO's legal relationship with his company's owners. According to the American Bar Association, courts have ruled that a CEO's relationship with his small business's shareholders carries more legal responsibility than his relationship with his company's creditors. This is because the creditors' relationship with the company exists purely as a result of a legal contract. The shareholders' relationship with the CEO, by contrast, entails both a binding contract and the trust of that CEO in controlling the shareholders' property.
Duties of Care, Loyalty and Disclosure
A CEO's legal responsibilities to his company's shareholders are broken down into three distinct fiduciary duties: the duty of care, the duty of loyalty and the duty of disclosure. The duty of care refers to the CEO's responsibility to consider all of the available information relevant to business decisions, including the advice of experts and employees. The duty of care also includes the responsibility to understand and evaluate the company's day to day operations and the terms of agreements. The duty of loyalty requires that a CEO always acts in the best interest of a business's shareholders, and that he places that interest above his own in business decisions. This includes the responsibility to avoid conflicts of interest. Finally, the fiduciary duty of disclosure mandates that a CEO fully inform both the board of directors and the shareholders about the major issues facing the business.
Both the board of directors and the CEO of a small business have a fiduciary responsibility to the business's shareholders. The fiduciary duties are legal concepts that form the basis of a CEO's legal relationship with his company's owners. According to the American Bar Association, courts have ruled that a CEO's relationship with his small business's shareholders carries more legal responsibility than his relationship with his company's creditors. This is because the creditors' relationship with the company exists purely as a result of a legal contract. The shareholders' relationship with the CEO, by contrast, entails both a binding contract and the trust of that CEO in controlling the shareholders' property.
Duties of Care, Loyalty and Disclosure
A CEO's legal responsibilities to his company's shareholders are broken down into three distinct fiduciary duties: the duty of care, the duty of loyalty and the duty of disclosure. The duty of care refers to the CEO's responsibility to consider all of the available information relevant to business decisions, including the advice of experts and employees. The duty of care also includes the responsibility to understand and evaluate the company's day to day operations and the terms of agreements. The duty of loyalty requires that a CEO always acts in the best interest of a business's shareholders, and that he places that interest above his own in business decisions. This includes the responsibility to avoid conflicts of interest. Finally, the fiduciary duty of disclosure mandates that a CEO fully inform both the board of directors and the shareholders about the major issues facing the business.
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