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