Examples of self-dealing in business

“Self-dealing” happens when someone in a position of trust uses their role to benefit themselves instead of the business. This often involves company directors, officers or partners. These individuals have fiduciary duties, meaning they must act in the best interest of the business, not their own.

When someone puts personal gain above those duties, it may be considered self-dealing.

Common examples of self-dealing

There are several ways self-dealing can occur. Some common examples include:

• A director sells property they own to the company at an inflated price.
• A partner takes a business opportunity for themselves instead of offering it to the company.
• An officer approves a loan to themselves using company funds.
• A board member hires a relative or friend for a key position without following hiring procedures.

In each case, the individual uses their access or authority for personal benefit, which can lead to serious consequences.

How self-dealing relates to fiduciary duties

Fiduciary duties include loyalty, care and full disclosure. When someone engages in self-dealing, they may be breaching one or more of these duties. For example, failing to disclose a conflict of interest or taking unfair advantage of a business opportunity can violate the duty of loyalty. These breaches can damage trust within the business and may harm other stakeholders.

If self-dealing is discovered, the person involved may face legal action. Common consequences include being removed from their role, having to repay profits or facing claims for damages. In some cases, courts may reverse the transaction or issue an injunction.

Preventing self-dealing often starts with strong contracts, internal controls and a clear understanding of fiduciary duties. If you are dealing with a fiduciary breach in your business, it may be time to seek legal guidance.