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Do Directors Have Fiduciary Duties to Shareholders of Their Company?

Posted by M. Margaret Gonsalves-Sabola | Sep 07, 2018 | 0 Comments

Do you have fiduciary duties to investors in your company 460x260 c

Company directors in The Bahamas have fiduciary duties to their company because of their decision-making power and level of control over the company's operations. These duties require them to act in the company's best interest – not necessarily any individual shareholder's best interest. Sometimes the interests of individual shareholders and the interests of the company as a whole may diverge. In that case, directors must do what is best for the company. Companies Act, Section 81(1)-(2).

Bahamian legislation requires that directors of Bahamian companies must “act honestly and in good faith with a view to the best interests of the company”. They also should act with “the same care, diligence and skill that a reasonably prudent person would exercise” under similar circumstances. Companies Act, Section 81(1). Consequently, directors should not act deceptively or engage in fraud, should act in the company's best interest, and they should exercise care when making decisions about the company's operations or finances.

In particular, directors must take care not to put their own interest above that of the company for personal gain. Doing so is called “self-dealing” and usually leads to a conflict of interest for the director. For example, a director might convince other company directors that they should sign a contract with the director's own company. If the director does not demonstrate that the transaction was fair – by methods such as disclosing his interest in his company, obtaining other bids, and abstaining from the vote on whether to sign the contract – he likely has breached his fiduciary duty by putting his personal business interests ahead of the company's.

By prohibiting self-dealing and requiring directors to uphold duties of care and loyalty, Bahamian law protects companies, and indirectly their shareholders. People who invest in shares in a company want to see it succeed, and directors who act in the company's best interests will help it do so.

If directors do not uphold their fiduciary duties, shareholders may have legal claims against the director or against the company. Shareholders who sue should be aware that if the court finds that the director acted honestly, in good faith, and with a view to the best interest of the company, the shareholder or the company may have to pay the director's legal costs. Companies Act, Section 113.

To find out more about fiduciary duties of directors in The Bahamas, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.

About the Author

M. Margaret Gonsalves-Sabola

M. Margaret Gonsalves-Sabola is a civil and commercial litigation attorney and an accredited civil and commercial mediator. Margaret has over 21 years' experience in legal practice in the United Kingdom, Jamaica and The Bahamas.

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