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Disclosure obligations require parties to provide material information for decision-making, with legal requirements and penalties for breach. They apply in criminal and civil proceedings, corporate actions, insurance sales, and more. The law places a proactive responsibility on parties to disclose all relevant facts, especially in transactions where all parties operate on an equal footing. Disclosure obligations also serve the public interest, such as the duty of a prosecutor to disclose exculpatory evidence in a criminal case. Company officers and directors have a statutory disclosure obligation to promote the public interest and protect investors. Advertising and insurance sales also impose disclosure obligations on sellers and buyers.
A disclosure obligation is an obligation to disclose material information that another party must rely on in making a decision. This duty has specific legal requirements and significant penalties for breach that depend on the context in which the duty applies and the laws of the relevant jurisdiction. Some of the more common cases where disclosure is required by law are criminal and civil proceedings, corporate actions, and the sale of insurance.
Some transactions require all parties involved to operate on an equal footing. In such cases, the law places a proactive responsibility on the parties, especially the party with the greatest influence, to disclose all facts relevant to the matter. This disclosure requirement allows all parties to complete the transaction with full knowledge of the facts and prevents a subsequent claim of fraud or ignorance of the material facts.
The law supports an express obligation of disclosure in cases that serve the public interest. One of the most important types of disclosure is the duty of a prosecutor in a criminal case to disclose all exculpatory evidence that is relevant to the defendant’s case. If a prosecutor is found to have breached this duty, the case may be dismissed, the defendant released, any convictions reversed, and the charge then fined by the court.
Company officers and directors are also subject to a statutory disclosure obligation that has been imposed to promote the public interest. Investors buy shares of companies remotely and through a stock market. These investors have no choice but to rely on the financial and current information released by the company to decide whether to buy or sell. Officers and directors are legally required to tell the company’s shareholders the truth about the company’s condition. If this obligation did not exist, companies could take advantage of investors, investors would lose faith in the system and a country’s corporate economy would be at risk.
An advertising obligation is very often applied to the sale of certain types of goods. While this varies by jurisdiction, automobiles, real estate, medicines, and food impose a disclosure obligation on sellers in various respects. The duty is intended to protect the consumer, who is considered to be at a disadvantage to knowing vital information that would influence the purchasing decision.
Insurance sales are one example where a disclosure obligation is imposed on both the buyer and the seller. Buyers are obligated to provide truthful information to the company so that the insurance can be properly underwritten. The insurance company also has a specific legal obligation to disclose the actual terms of coverage in a way that an ordinary consumer can understand. If either party defaults on its duty, a court can void the entire settlement or force the insurance company to pay.
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