Fiduciary Duties in the Context of the Business Relationships and Entities We Have Studied

1. Fiduciary Duties in the Context of the Business Relationships and Entities we have Studied.

Fiduciary duties lie with the directors, owners or officers who are trusted to make good and sound judgments on behalf of their company and that they will make them with the companies best interests at stake. In a Principal-Agent relationship, the Agent acts on behalf of the Principal usually carrying out activities and tasks set forth by the Principal, but it is the agents fiduciary duty to act in best interest of what the Principals needs are. Principal- Agent relationships work off the idea of respondeat-superior in which the employer should answer to the employees acts within he scope of employment. The principal assumes all the risk and liability while the agent merely acts as an interim between themselves and the third party. The Agent is held under the Duty of Loyalty, in which they are to act without economic benefit from which can be breached if they make a self-interested transaction not in the good faith of the Principal. In the case of Tarnowski v. Resop the Agent was instructed to buy a business of coin-operated music machines on behalf of the Principal. After completing a superficial investigation, the Agent took then world of the seller in that they owned over 75 locations, all of which were within only 6 months old and brought in income of over $3,000 per month. The Agent accepted the deal and put down $11,000 of the Principals money and had received a personal commission from the sale. He soon came to find that there were only about 47 locations, in which the machines were up to even 7 years old and the monthly income was far less than the $3,000. The Principal went on to bring action against the Agent, for he acted outside of his fiduciary duties and shown negligence by not properly doing his research before buying the machines, and also earning commission off of the sale in which the Principals money was used to purchase. "The general rule is stated in Restatement, Agency, 407(1), as follows: if an agent has received a benefit as a result of violating his duty of loyalty, the principal is entitled to recover from him what he has so received, its value, or it proceeds, and also the amount of damage thereby caused." (Eisenberg 20) The Agent was forced to relinquish the $2,000 of the premium he made from the sale for he was not doing his duties of acting in good faith of the Principal.

A partnership between two or more people has the ability to set their own fiduciary duties by constructing a partnership agreement in which it is stated the certain duties that each partner has to the company whether it be limited liability or not. With regard for a partnerships fiduciary duties, it is stated in the case Gotham Partners v. Hallwood Realty Partners, LP. that "The Delaware Revised Uniform Limited Partnership Act expressly authorizes the elimination, modification of enhancement of fiduciary duties in the written agreement governing the limited partnership. The partners or other persons duties and liabilities may be expanded or restricted by provisions in the partnership agreement." (Eisenberg 108) After the Gotham Partners case, the Delaware law was amended to state that a partnership agreement has the ability to completely eliminate fiduciary duties, yet the implied contractual covenant of good faith and fair dealing could not be eliminated by any agreement.

The Board of Directors in a corporation has the duty to represent all other members of the company and the shareholders to whom the corporation is owned by. In the case Francis v. United Jersey Bank in which the Duty of Care of Directors is established, the criteria for the duties of what a director is required to do and know so he is acting in the good faith of the corporation is stated. It states that directors must discharge their duties in good faith and act as ordinarily prudent persons would under similar circumstances in like positions, in which the standard of ordinary care springs from. Directors should acquire a rudimentary understanding of the business of the corporation and should be familiar with the fundamentals of the business if corporation is engaged, so if one feels that they do not have sufficient business experience to perform the duties as director, that person should require the knowledge to learn them or refuse the position. It's under the obligation of the director to be informed about the activities of the corporation and to be there to participate in management. Further more the management of the director does not mean that they are required to have a detailed day-to-day inspection log of everything going on in the company, but rather a monitoring of the affairs of the corporation and should attend board meetings regularly, and if one cannot attend a meeting, it is up to them to learn of what the board concluded at the meeting. Directors should have an understanding of the financial records of the company and review them regularly. "The extent of the review depends on the nature of the company, whether it be large or small, and lastly the factors that impel expanded responsibility in the large, publicly held corporation may not be present in a small, close corporation, yet even a small corporation director is held to the standard of that degree of care that an ordinary prudent director would use under the circumstances." (Eisenberg 428) Within the case of Francis v. United Jersey Bank, Mrs. Pritchard, the director of the refinance company, is found in breach of her fiduciary duties by not upholding these statues for what constitutes the duties of a director and is therefore charged with negligence.

2. Types of Business Organizations in which there may be both limitation of liability for owners and favorable income tax treatment.

Many owners take forth in companies and organizations that have the option of providing not only limited liability to themselves in the situation of negligence by the company, but also certain income tax breaks deemed favorable to the company. The three main types of business organizations discussed in class that have this ability are limited liability companies, limited partnerships and shareholder corporations. Limited Liability Companies (LLCs) are "noncorporate entities that are created under statues that combine elements of corporation and partnership laws. As under corporation law, the owners or members of LLCs have limited liability. As under partnership laws, and LLC has great freedom to structure its internal governance by agreement." (Eisenberg, 385) Over 2 million LLCs exist in the United States, many choosing to form in the state that their business is located in, yet the trend has been that today over 80% of LLCs are formed in Delaware due to its looser interpretation of how to