Fiduciary Duty & New York Regulations
The Complex Legal Challenges of Fiduciary Duty, Requiring Experienced Legal Assistance3 min read
Every business faces legal challenges, but the ones compounded by the complexities of fiduciary duty, can require the help of an experienced attorney. Business owners and executive teams need to understand how fiduciary duty works, and how it applies to their operations, particularly in regions with specific fiduciary duty regulations like New York. Discerning the nuances between federal and state legislation is another important concern. As any business owner can attest, understanding the full, legal implications of fiduciary duty is vital to preventing costly, legally actionable errors.
When conducting business in New York, understanding the intricate legal frameworks of fiduciary duty is essential. What an executive needs to know is that New York takes an "active" approach towards the enforcement of fiduciary duties, meaning that the more knowledgeable a business is about the regulations and standards of its applicable fiduciary duties, the more legally 'immune' the business can become. As such, understanding the relevant regulations, and working with a qualified legal expert, is the best means of ensuring a business is properly established and executed.
Fiduciary Duty's Definition
Fiduciary duty is defined as a legal or ethical relationship of trust between two or more parties. The person tasked with acting in a fiduciary capacity (the fiduciary) has a duty to ensure the success of the party in whom they are charged with protecting (the beneficiary). Fiduciary duty involves an essential trustworthiness, and is, by definition, voluntary in nature. It can involve everyone from the sole-proprietor conducting their business to the executive team of a major corporation.
Common Types of Fiduciary Duty
In general, when examining fiduciary duty from a legal perspective, there are four main categories: duty of loyalty, duty of confidentiality, duty of prudence, and duty to act in good faith. However, there may be more specific duties placed upon the fiduciary depending upon the nature of the fiduciary relationship or the person engaging in the fiduciary duty itself.
Duty of Loyalty: This mandates that the fiduciary protect the interests of the beneficiary by refraining from actions, both personally and on behalf of the beneficiary, that would negatively impact them, most notably transactions that conflict with the beneficiary’s interests.
Duty of Confidentiality: The fiduciary is obliged to keep information which is shared by the beneficiary solely for the purpose or benefit of the beneficiary in an effort to ensure that the relationship remains confidential.
Duty of Prudence: This requires fiduciaries to adhere to the customary standards of prudent conduct and practice with regards to all of the activities they undertake for the benefit of the beneficiaries.
Duty to Act in Good Faith: This particular type of fiduciary duty mandates that the fiduciary not only refrain from activities that are contrary to the interests of the beneficiary but also operates in the best interests of the beneficiary and independent of their own interests.
Compliance with Fiduciary Duty Laws in New York
Fiduciary duty laws in New York exist to ensure that those who operate businesses and engage in trust relationships are held accountable to the same legal standards. It is imperative for those in fiduciary relationships to understand, and follow, the regulations when operating in the state. For example, when dealing with certain contracts, service providers must have written authorization and approval from the beneficially, and should maintain written records of such authorizations and approvals, as failing to do so can lead to actionable negligence in the court of law.
Moreover, businesses operating in New York need to commit to preventing conflicts of interest, as the state upholds a stringent mandate against such activity. If a conflict of interest does arise, the contractual fiduciary must make use of the written authorization previously obtained from the beneficiary in order to resolve the conflict.
Considering all of the nuance mentioned above, the differences between federal and state regulations, and the financial stakes that surely accompany such issues, there is really no substitute for experienced legal counsel. By leveraging the help of qualified attorneys, businesses in New York can more easily come to comply with the increasing complexities and nuisances of this legal discipline.
UpCounsel is an online platform that provides businesses with access to an experienced legal team on retainer or through more flexible, one-off agreements based on the specific needs of a business. Businesses can easily access a plethora of experienced attorneys that specialize in compensating all types of businesses, from small, start-up teams to large, corporate entities.
Not all of New York’s legal regulations are more difficult than at the federal level. But the constraints and burdens placed by fiduciary duty regulations are complex — much more than most business owners can independently assess. Understanding and adhering to state regulations is not only difficult, but incredibly important from a legal perspective, and attorneys are the best line of defense. This is true in New York and most states across the country.