There are many different options to choose from when you set out to incorporate your business. One requirement that you must meet if you select most of these structures is that you have to either appoint a board of directors or officers for it. Those individuals that you appoint to these roles have some very important responsibilities. One of those is a duty of loyalty. Your corporation’s officers or directors may face significant penalties if they breach this duty.
The individuals that you appoint to officer or director roles in your company are considered to be corporate fiduciaries. This means that they’re obligated to make decisions that are in your corporation’s best financial interests and not their own.
Individuals appointed to these roles are supposed to be transparent about any situations that may cause a potential conflict of interest. Any director or officer that takes a corporate opportunity or puts their financial interests over that of the corporation may be accused of having breached their duty of loyalty.
There are many steps that a corporate fiduciary such as a board member or officer should take to avoid violating their duty of loyalty. Many of those proactive measures center around them being fully transparent with the corporation’s leadership and other board members about the potential conflict of interest that they’re facing. They should be prepared to fully disclose any details about any transactions that have already occurred as well.
The responsibility falls on the shoulders of the corporation’s leadership and the other board members to decide whether to approve the potentially controversial transaction. The corporate charter and its operating agreement will often spell out whether a majority of disinterested shareholders or directors must give their approval for the transaction to move forward.
There are remedies that you as a corporate owner, shareholder or other interested party may be able to pursue in court if an officer or director violates their duty of loyalty. An attorney may advise you of your right to sue any violator here in Fayette. If your case goes to court, then the Kentucky judge presiding over the legal matter may order the officer or board member to pay restitution and other damages to ensure that they don’t violate their fiduciary duty once again.