Legal Updates

In a company that is managed as a partnership officers owe fiduciary duty both to the company and to the shareholders

February 8, 2018

A person who was supposed to be appointed as manager of a company that dealt with a project to develop a product in the field of network security set up a competing business with two of the company's entrepreneurs.
The Court held that it was not proven that the competing business used the company's trade secrets, but the entrepreneurs were office holders in the company and violated the duty of trust towards the company when they themselves promoted what could have been a business opportunity for the company. In a closely-held private company managed as a kind of partnership, fiduciary duty of the officers may also apply to the shareholders and not only to the company itself. Moreover, breach of fiduciary duty is considered a breach of contract and therefore a person who was a party to the breach of the fiduciary duty by an officer may be liable for interference with contract. The Court ordered the officers and the intended manager to allocate to the plaintiff shareholder percentages of the shares of the competing company as compensation for breach of the fiduciary duty.