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Simple English definitions for legal terms
accounting for profits
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A quick definition of accounting for profits:
Accounting for profits is a legal action taken against someone who has breached a fiduciary relationship and taken profits that belong to someone else. It is a way to recover the money that was wrongfully taken. This is done by tracing the profits back to their source and returning them to the rightful owner. It is similar to a constructive trust, but even if tracing fails, the owner can still recover the profits that were taken.
A more thorough explanation:
Definition: Accounting for profits is a legal action taken against a person who has breached their fiduciary duty to recover any profits they have gained from that breach. It is a remedy based on avoiding unjust enrichment.
For example, if a financial advisor invests their client's money in a company they know will fail, and then profits from that failure, the client can take legal action to recover those profits.
Another example would be if a trustee of a trust uses the trust's assets for their own personal gain, the beneficiaries of the trust can take legal action to recover any profits gained from that breach of fiduciary duty.
These examples illustrate how accounting for profits is a way to hold those in positions of trust accountable for their actions and prevent them from profiting from their wrongdoing.