When a homeowner gains election or appointment as a director or officer of a corporation, they become a fiduciary for the corporation, and undertake duties to the corporation, and ultimately to the members it represents.
What is a Fiduciary?
A fiduciary is a person who has a duty to protect money or property for the benefit of another. If the fiduciary breaches that duty, they are responsible to the beneficiary. The fiduciary may be liable to the beneficiary for damages.
What are some of the duties?
- Duty of Care – Before making a decision for the corporation, a fiduciary must examine the information available to guide that decision. If the information at hand appears to be insufficient, then the fiduciary must diligently investigate to form a more complete picture of the situation. The fiduciary must then prudently consider the information, to make a decision in the way that protects the interests of the corporation and its members.
- Duty of Loyalty – While working in their capacity as a director or officer, a fiduciary must act in the way that will benefit the corporation, before the fiduciary’s own interests. A fiduciary may not use their position for personal gain at the expense of the beneficiary.
• Duty of Good Faith – When taking action on behalf of the corporation, the fiduciary must not intentionally violate the law, or knowingly expose the corporation to liability.
- Duty of Confidentially – A fiduciary must guard the corporation’s private information from outsiders, if disclosure would impair the rights of privacy of or free association of its members, impair the lawful purposes of the corporation, or otherwise compromise the best interests of the corporation or its members.
- Duty of Disclosure – A fiduciary must maintain transparency to the members of the corporation. This includes disclosing the facts and circumstances considered in making a decision for the corporation.
Directors and Officers Insurance
A comprehensive commercial insurance package will often include a Directors and Officers policy. The corporation’s articles of incorporation or bylaws may specifically require this coverage. The policy will protect individual directors and officers from liability for inadvertent breaches of their fiduciary duties. It will also protect the corporation from the financial impact of those breaches.
Are you a member, director, or officer of a corporation, and have questions about fiduciary duties? We at Tilchin & Hall, P.C. have many years of experience in these matters, and we are available to advise you regarding care and decision-making. Please reach out to us at (248) 349-6203 or email us using the form below.
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