Who Owes Fiduciary Duties to the Company?
Florida law spells out the standard for each type of business.
Partners owe one another similar duties. This page covers the claim itself, which can arise in any of these business forms.
What Does a Breach Look Like?
Most claims we see fall into a few patterns:
- Self-dealing. An insider moves company business, funds or property to themselves or to a company they control.
- Usurping an opportunity. A manager or member takes for themselves a deal that belonged to the company. Under the LLC Act, the duty of loyalty includes accounting to the company for any property, profit or benefit derived from the appropriation of a company opportunity.
- Competing with the company. An LLC manager or member who competes with the company before it dissolves is addressed in the same duty of loyalty. If a former insider also breaks a restrictive covenant, our non-compete violations attorneys can enforce it alongside the fiduciary claim.
- Misusing company funds. Personal expenses, unexplained draws and inflated payments to related parties.
- Concealment. Withholding financial records or information a co-owner is entitled to see.
- Oppression of minority owners. Majority shareholders who freeze out a minority shareholder, cut off distributions or reduce an owner’s role without a business reason.
An insider does not always breach a duty just because they benefit. The LLC Act says a manager or member does not violate a duty solely because the conduct furthers the manager’s or member’s own interest. In our experience, the facts of each transaction matter, which is why we begin with the records.
How Do You Prove a Breach of Fiduciary Duty?
A claim generally requires showing that the defendant owed a fiduciary duty, that the defendant breached it, and that the breach caused a loss to the company or to the owner who is suing. The proof usually comes from documents: the operating agreement or bylaws, bank statements, tax returns, board and member minutes, emails and the accounting records.
Florida gives owners ways to get those records, and a shareholder dispute lawyer will often send a written demand for them before any lawsuit is filed. What the records show shapes everything that follows, including whether the case should settle or go to court.
Who Can Sue: Direct Claims and Derivative Claims
Who brings the claim depends on who was harmed.
A direct claim belongs to the owner. Under the Business Corporation Act, a shareholder who sues directly must plead and prove an actual or threatened injury that is not solely the result of an injury suffered by the corporation, or an injury from violation of a separate duty owed to the shareholder.
A derivative action belongs to the company, and an owner sues on its behalf. For a corporation, the complaint must be verified and allege with particularity the demand, if any, made on the board of directors, and either that the board refused, rejected or ignored it before 90 days passed, or why waiting 90 days would cause irreparable injury or the waste of corporate assets causing material injury, or the reasons the shareholder made no effort to obtain the desired action from the board. An LLC member generally must first make a demand on the other members or managers, and may sue if they do not act within a reasonable time not to exceed 90 days, or if a demand would be futile or irreparable injury would result from waiting.
Choosing the wrong type of claim, or skipping the demand step, can end a case before it begins. This is one of the first decisions we make with a client.
What Remedies Are Available?
The right remedy depends on what happened and what the owner wants from the business. Depending on the facts, a court may be asked for:
- Money damages for the loss the company or owner suffered
- An accounting of company funds
- The return of profits or property an insider took
- An injunction stopping the conduct
- The removal of a manager or director
- Judicial dissolution of the company, or a buyout of one owner’s shares
On the last point, a Florida circuit court may dissolve a corporation in a shareholder’s proceeding if the directors or those in control have acted, are acting, or are reasonably expected to act in a manner that is illegal or fraudulent. That ground does not apply to large or publicly traded corporations. In that kind of proceeding, the corporation may elect or, if it fails to elect, one or more shareholders may elect to purchase all shares owned by the petitioning shareholder at the fair value of the shares. A buyout can also be negotiated without a court order.
What Is the Time Limit to Bring a Claim?
Florida sets different limitation periods for different types of claims, and a catch-all provision covers any action not specifically provided for in the statutes. Which period applies, and when the clock started, depends on the facts, including when the owner discovered the conduct. If you suspect an insider has been acting against the company, talk with a lawyer before you confront them. Delay can limit your options, and a warning can lead to missing records.
Why Hire a Breach of Fiduciary Duty Lawyer at Legal Counsel, P.A.?
A claim for breach of fiduciary duty sits where corporate documents meet litigation. Our firm handles both, so we understand how the operating agreement, the shareholder agreement and the company’s records were put together, as well as how a court will read them. If your agreement was weak or never signed, our contract disputes lawyers can pursue a breach of contract claim alongside the fiduciary claim.
Michele Diglio-Benkiran founded the firm and has practiced business and real estate law since 1999. Richard Sierra is a commercial litigation and bankruptcy lawyer with more than three decades of experience, which matters when a fiduciary dispute involves an insolvent company or a partner’s bankruptcy. Results matter, and so does knowing when to settle. We offer a free consultation, and pay later options are available for clients who qualify.
Serving Business Owners Across Florida
We represent shareholders, LLC members, officers and business owners throughout Florida from our Winter Garden, Orlando and Seminole offices. See our overview of business litigation in Orlando for the full range of disputes we handle.
Think someone running your company has put their own interests first? A short conversation with a breach of fiduciary duty attorney will tell you what the records need to show and what your options are. The first consultation is free.