In legal terms, a fiduciary is a person who acts in the best interests of another person. To that end, within a corporation, there are certain people who have “fiduciary responsibilities” to others. These may include promoters, officers, directors and, in some cases, shareholders.

Let’s take a quick look at the various fiduciary responsibilities associated with running a corporation.

Fiduciary responsibilities of promoters

A corporate promoter is responsible for finding and organizing investors. This person’s fiduciary relationship is to the corporation, investors and co-promoters.

Promoters must always be honest in their actions and work in the best interests of the corporation and its shareholders. For example, if a promoter finds out about a business opportunity because of his or her position, that person is legally forbidden from taking advantage of that opportunity at the expense of the corporation and shareholders. Otherwise, the promoter may be guilty of insider trading, a type of fraud.

Fiduciary responsibilities of directors

Directors have two main fiduciary duties: duty of care and duty of loyalty.

Duty of care requires a director to always act honestly and in good faith in a way that promotes the corporation’s best interests. For example, directors should keep up to date on all corporate matters, attend board meetings and act in a way that improves the corporation’s standing.

Duty of loyalty requires directors to place the interests of stockholders and the corporation above their own, much in the same way as promoters. They are not allowed to take advantage of their position or knowledge that would benefit them in any way that would be to the detriment of the corporation.

Fiduciary responsibilities of officers

Directors typically delegate various day-to-day tasks of running a corporation to officers. These officers, like directors, have a duty of care and a duty of loyalty as they carry out their tasks and responsibilities. They must act in good faith at all times, using care in their decision making to the same standard that a reasonably careful person would act. They also must avoid potential conflicts of interest.

Fiduciary responsibilities of shareholders

Although shareholders typically do not have any fiduciary responsibility, as they do not have any oversight capacity, there are some circumstances in which shareholders may become members of the board of directors. In this situation, the shareholder would have the same fiduciary responsibilities any other director.

The level of liability directors, officers and promoters assume can vary, but it’s important for business leaders to have at least a basic understanding of how fiduciary responsibility works. For further information and guidance on this important issue, consult a skilled corporate planning attorney serving U.S. Virgin Islands businesses.

Steven K. Hardy is Chair of the Corporate, Tax and Estate Planning Practice Group at BoltNagi, a well-established and respected business and corporate law firm proudly serving clients throughout the U.S. Virgin Islands.