Breach Of Fiduciary Duty: What Illinois Business Owners Need To Know

At the Business Law Group, we understand that running a business involves building relationships founded on trust, transparency, and accountability. When fiduciary duties are breached, these foundational principles are compromised, often leading to severe financial and reputational damage. As “The Chicago Business Lawyers^®,” we are here to help Chicago businesses in understanding and addressing breaches of fiduciary duty. Whether you’re a business owner who suspects a breach or a director seeking guidance on fiduciary obligations, we’re here to provide clear and actionable insights. If you’re facing a breach of fiduciary duty issue, call us for a free consultation at (224) 353-6498.

What Is A Fiduciary Duty?

In Illinois, a fiduciary duty goes beyond a simple legal obligation; it’s the foundation of trust and responsibility in business relationships. This duty requires certain individuals—such as corporate directors, officers, and majority shareholders—to act in the best interests of the business and its shareholders, putting company interests above their own. Illinois law defines specific duties for fiduciaries, including the duty of loyalty, the duty of care, and, in some cases, the duty of good faith.

These duties ensure that those in positions of power within a company act responsibly and in a manner that serves the best interests of the business. When these obligations are disregarded, legal recourse may be pursued by the injured party, often the business or its shareholders.

Key Fiduciary Duties Under Illinois Law

Illinois recognizes several key fiduciary duties that individuals in fiduciary roles must uphold. Breaching any of these duties can have serious consequences for the business, including financial losses, legal costs, and damage to the company’s reputation.

Duty Of Loyalty

The duty of loyalty is perhaps the most fundamental fiduciary duty. It requires fiduciaries to put the interests of the company above their own personal interests. A breach of this duty might involve self-dealing, where a fiduciary benefits personally at the company’s expense or competing directly with the company. In Illinois, the duty of loyalty is particularly critical for majority shareholders, who are prohibited from using their controlling interest to exploit minority shareholders.

Duty Of Care

The duty of care requires fiduciaries to make informed and prudent decisions on behalf of the company. This means fiduciaries should be diligent in understanding the issues at hand, reviewing all pertinent information, and making decisions based on a reasonable standard of care. Under Illinois law, this duty mandates that corporate officers and directors exercise the same care that a reasonably prudent person would under similar circumstances.

Duty Of Good Faith

While Illinois courts primarily focus on the duties of loyalty and care, there is also an implied duty of good faith. This duty obligates fiduciaries to act honestly and with integrity in their dealings with the company. A fiduciary acting in bad faith or with malicious intent could be held liable for breaching this duty.

Common Examples Of Breach Of Fiduciary Duty

Breaches of fiduciary duty can occur in a variety of ways, often involving misuse of authority, conflicts of interest, or neglect of responsibility. Here are some common scenarios where breaches may arise:

• Self-Dealing – When a fiduciary engages in transactions that benefit them personally at the expense of the company, they are engaging in self-dealing. This is a direct violation of the duty of loyalty.
• Corporate Opportunity Doctrine Violations – Fiduciaries must not exploit business opportunities for personal gain if the opportunity rightfully belongs to the company. Diverting potential business opportunities away from the company to benefit oneself is a breach of fiduciary duty.
• Failure to Act in Good Faith – Acting with fraudulent intent, concealing critical information, or knowingly making decisions that harm the business can constitute a breach of the duty of good faith.
• Negligent Decision-Making – Failing to exercise appropriate diligence, care, and prudence in decision-making can be a violation of the duty of care. Directors or officers who make uninformed decisions without adequate consideration may be held accountable for losses that result from their negligence.

Legal Remedies For Breach Of Fiduciary Duty In Illinois

When a fiduciary duty is breached, Illinois law provides several remedies that can help the injured party recover damages or seek other forms of relief. These remedies are not just theoretical, they are practical solutions designed to compensate the harmed party and, in some cases, to prevent future harm. You’re not alone in this, there are legal avenues to address breaches of fiduciary duty.

Damages

If a breach of fiduciary duty causes financial harm, the injured party may seek monetary damages. This can include compensation for direct financial losses as well as punitive damages if the breach involved intentional misconduct or malice.

Disgorgement of Profits

In cases of self-dealing or misuse of corporate opportunities, the court may order the fiduciary to disgorge any profits they gained from the breach. This remedy ensures that the fiduciary does not benefit from their wrongful actions.

Injunctions

In some cases, an injunction may be sought to prevent the fiduciary from continuing the harmful behavior. This can be especially useful if a fiduciary is still in a position of power within the company and is engaging in ongoing misconduct.

Rescission

If a breach of fiduciary duty involves a specific transaction, such as a contract or agreement, the court may choose to rescind or undo the transaction. This remedy can prevent further harm to the company and return the business to its original state before the breach occurs.

Proving A Breach Of Fiduciary Duty In Illinois

Proving a breach of fiduciary duty in Illinois requires clear evidence of the fiduciary relationship, the specific duty owed, the breach itself, and resulting harm. Here’s what Illinois law generally requires to establish a breach of fiduciary duty:

1. Existence of a Fiduciary Relationship – You must demonstrate that the person accused of the breach was indeed in a fiduciary relationship with the company or individual, such as a director, officer, or majority shareholder.
2. Duty Owed – You must prove the specific duty that the fiduciary owed to you or the business, such as the duty of loyalty or duty of care.
3. Breach of Duty – Evidence must show that the fiduciary failed to act in accordance with their duty, whether through self-dealing, negligence, or intentional harm.
4. Damages – Finally, you must prove that the breach directly caused harm to the business, which may be financial or otherwise.

Breach Of Fiduciary Duty FAQs

What Constitutes A Fiduciary Relationship In Illinois?

A fiduciary relationship arises when one party has an obligation to act in the best interests of another. In business, this often includes relationships between directors, officers, and shareholders of a company. Under Illinois law, fiduciaries must uphold duties of loyalty, care, and good faith in their roles.

How Can A Breach Of Fiduciary Duty Affect A Business?

A breach of fiduciary duty can lead to significant financial losses, reputational damage, and, in severe cases, the collapse of the business. Breaches often undermine trust within the company and can result in costly litigation or regulatory penalties.

What Is The Statute Of Limitations For A Breach Of Fiduciary Duty Claim In Illinois?

In Illinois, the statute of limitations for breach of fiduciary duty claims is generally five years from the date of the breach or when the breach should have reasonably been discovered. However, circumstances can vary, and we recommend consulting an attorney to understand how the law applies to your specific case.

How Can Business Owners Prevent Breaches Of Fiduciary Duty?

Implementing clear policies, conducting regular training, and establishing strong oversight can help prevent breaches of fiduciary duty. Working with experienced attorneys to develop governance structures and compliance procedures can also reduce the risk of fiduciary misconduct.

Contact Our Chicago Breach Of Fiduciary Duty Lawyer For A Free Consultation

If you suspect there has been a breach of fiduciary duty in your business, or if you need guidance on fiduciary obligations, don’t wait to seek legal advice. At the Business Law Group, our law firm is committed to helping Illinois business owners protect their companies and pursue justice. Contact our Chicago breach of fiduciary duty lawyer at the Business Law Group by calling (224) 353-6498 to receive a free consultation. Let us help you safeguard your business and achieve the resolution you deserve.