Fiduciary duty
Legal duty to act in the best interests of another party. For directors and managers: duty of care, duty of loyalty, duty of good faith.
Definition
Fiduciary duty is a legal obligation to act in the best interests of another party (the 'beneficiary'). For Delaware corporations and LLCs, fiduciary duties apply to directors, officers, and (in some structures) controlling members. Three core duties: care (informed decision-making), loyalty (no self-dealing or conflicts), and good faith (acting honestly).
Context
Delaware's LLC Act allows broad modification of fiduciary duties via Operating Agreement (6 Del. C. § 18-1101); the implied covenant of good faith and fair dealing cannot be eliminated.
Example
A Delaware C-Corp director who buys company assets at below-market price for personal benefit breaches duty of loyalty. The board can typically pursue the breach.
Common pitfalls
- LLC fiduciary modifications must be explicit in the Operating Agreement.
- Duty of care can be substantially limited under Delaware Act; courts respect Operating Agreement provisions.