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Fiduciary Obligations

Fiduciary Duties in a Business Entity

A fiduciary is a person of trust and confidence.  Members (owners and employees) incur duties of trust, loyalty, disclosure and confidentiality to the business.  That is, members of a business are fiduciaries.  The extent and nature of the fiduciary duty varies greatly with the nature of the business and the individual expectations of the member.
Co-owners of a business, regardless of the entity type, owe a fiduciary duty to other owners.  This is a duty to act reasonably in all undertakings that affect the business.  Partners in a general or limited partnership are required to discharge his or her duties in a fiduciary manner.

Fiduciary Obligations

There are several obligations that fall under the aegis of fiduciary duty:

  • Duty of Care – This is the duty to act as a prudent person in that position would act (i.e., as a reasonably prudent business owner would act.  This standard is similar to the standard for negligence in a tort action.)
  • Duty of Loyalty – This is the duty to act in the best interest of the business. This includes the obligation to not act in one’s own self-interest at the expense of the business.  This means avoiding conflicts of interest in business affairs.
  • Duty to Disclosure Important Information – Business owners have an implied duty to inform other owners of important information or material changes that come about in the operation of the business.
  • Duty of Confidentiality – This is the duty to preserve and protect business information from inadvertent or purposeful disclosure.

Additional Information

The fiduciary duties between individual members of a business organization is covered further in the Startup Legal Resources Library.

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