When you enter into a partnership or form a corporation or an LLC, you expect everyone involved to act in the best interests of the company. That expectation forms a fiduciary duty, a legal obligation that requires honesty, transparency, and loyalty among the owners, directors, officers, partners, or members. When someone violates that obligation, the entire business can suffer, often leading to financial losses, stalled operations, and litigations that strain long-standing business relationships.
- What Is a Fiduciary Duty Under Michigan Law?
- Legal Standards and Remedies for Breach of Fiduciary Duty
- Defending Against Allegations of Breach
- Why You Need a Michigan Business Lawyer for Fiduciary Disputes
Let our qualified business attorney in Muskegon, Michigan, explain further what fiduciary duty means, how breaches occur, and what steps you can take to address them.
What Is a Fiduciary Duty Under Michigan Law?
A fiduciary duty is a legal responsibility that requires someone in a position of trust to act in the best interests of the business. The exact obligations can vary depending on the business structure, but all revolve around a core set of expectations. Here are the key components of fiduciary duty and how each might apply to Michigan businesses:
- Duty of Loyalty
The duty of loyalty requires business leaders to put the interests of the company above their own, meaning you can’t use your position to make secret profits or take business opportunities that belong to the company. A managing partner, for instance, in a Muskegon-based partnership starting a side business that competes with the firm might be considered a breach of the duty of loyalty.
- Duty of Honesty and Good Faith
Honesty and good faith mean acting with fairness, integrity, and transparency. Fiduciaries are expected to avoid deception, fraud, or actions that undermine the business or co-owners. Let’s say a corporate officer misrepresents financial projections to attract new investors. Even if the intent was to help the company, misleading information violates the duty of honesty and good faith.
- Duty of Full Disclosure
Partners, LLC members, and corporate officers are required to share relevant business information with one another, especially when that information could impact decision-making or financial planning. For example, a managing member of an LLC discovers that a major client plans to terminate its contract. Failure to disclose that critical information violates the fiduciary responsibility.
- Duty of Care
The duty of care requires business leaders to make informed decisions and exercise reasonable caution. That means you must act with the level of care a reasonably prudent person would use in similar circumstances. Suppose a director approves a large investment without reviewing the financial reports or consulting advisors. Negligence in such a decision might be seen as a breach of the fiduciary duty.
When any of the fiduciary duties are violated, the affected parties, such as partners, shareholders, or the business entity itself, can seek legal remedies through civil lawsuits. Consulting with local attorneys in Muskegon, Michigan, can help you understand your options and build a strong case if you suspect or face a breach.
Legal Standards and Remedies for Breach of Fiduciary Duty
Not every bad business decision qualifies as a breach of fiduciary duty in Michigan. Muskegon courts evaluate the intent and conduct of a person to determine liability. For instance, a business partner or corporate officer who made a poor decision that results in financial loss, but acted in good faith and with reasonable care, might not be held liable. However, when a fiduciary knowingly acts against the interests of the company or misuses authority for personal benefit, it’s a serious violation of trust and a clear breach of fiduciary duty.
Michigan law offers several remedies when a fiduciary breach harms a business. Depending on the circumstances, the court might award the following:
- Compensatory Damages
These are intended to compensate the injured party for financial losses, including lost profits, lost business opportunities, or the cost of repairing the harm the breach of fiduciary duty caused.
- Restitution
Restitution forces the wrongdoer to give up any unlawful gains. If someone used company assets for personal benefit, that person might be ordered to return the funds or property obtained.
- Injunctive Relief
The court might issue an injunction to prevent further harm. For example, a partner is prohibited from continuing a competing business, or an officer is restricted from accessing financial accounts.
In some cases, courts might even remove the person who violated the fiduciary duty from their position or dissolve the business relationship entirely.
Defending Against Allegations of Breach
Michigan business owners, partners, officers, and LLC members who acted reasonably, transparently, and in good faith have the right to defend themselves against claims of fiduciary duty breach. Several defenses might apply, including:
- Business Judgment Rule
Under the business judgment rule, directors and officers are protected when making informed decisions in good faith, even if the outcome is unfavorable. If you relied on reasonable information and acted honestly, you might be shielded from liability.
- Consent
If the other partners, members, or shareholders consented to your actions, either verbally or in writing, such a consent might negate a breach claim. That often applies to transactions involving conflicts of interest or unusual business arrangements.
- Lack of Harm
Since damages are often part of breach claims, showing that the business suffered no actual harm can be an effective defense. Even if an act appears questionable, the absence of measurable harm might prevent recovery of compensatory damages.
Experienced business attorneys in Muskegon, Michigan, can evaluate the facts, determine whether your actions met legal standards, develop a strategy for defense or negotiation, and represent you in alternative dispute resolution or court proceedings, ensuring your rights are protected while minimizing business disruption.
Why You Need a Michigan Business Lawyer for Fiduciary Disputes
Disputes involving loyalty, honesty, or misuse of company assets can destroy business relationships, hurt reputations, and cost thousands in legal fees. If you’re dealing with a fiduciary dispute, Bowen Hoogstra Law is here to protect your business and your peace of mind. Our seasoned business attorneys in Muskegon, Michigan, combine deep legal knowledge with practical business insight to help you resolve conflicts efficiently and effectively. Contact us today at (231) 726-4484 or here to schedule a consultation.