What do shareholders need to prove a claim for breach of duty of loyalty?
In Nevada, corporate officers and directors owe fiduciary duties to the corporation and its shareholders. One of these pivotal fiduciary duties is the duty of loyalty. To successfully allege a breach of the duty of loyalty in Nevada, shareholders generally need to establish these elements:
- Existence of Fiduciary Duty: Begin by establishing that the individual (typically a director or officer) indeed owed a fiduciary duty to the shareholders.
- Breach of that Duty: Demonstrate that the director or officer acted in a manner that was not aligned with the best interests of the corporation or its shareholders. This might include actions that further their personal interests at the expense of the corporation.
- Conflict of Interest: One of the most common manifestations of a breach of the duty of loyalty is a conflict of interest. This arises when a director or officer has a personal stake in a transaction, potentially compromising their ability to act solely in the corporation’s best interest.
- Resulting Harm: Shareholders must show that the breach harmed the corporation. This could manifest as financial losses, damage to the corporation’s reputation, or other tangible adverse effects.
- Absence of Fairness: In some cases where a conflict of interest is evident, the burden might shift to the accused director or officer to prove that the transaction was fair to the corporation despite the conflict.
Given the legal nuances associated with proving a breach of the duty of loyalty, company shareholders are advised to seek counsel from a Nevada attorney experienced in corporate litigation. The legal professionals at Hone Law can guide shareholders in building a case, navigating the legal landscape, and ensuring that corporate officers and directors are held accountable for their fiduciary duties.