Duty of loyalty obligates fiduciaries to prioritize the entity they serve over personal gain—and to disclose situations where those interests might collide.

How it works

Common loyalty issues in venture:

• A director personally invests in a competitor without board disclosure.
• A founder routes a company contract to a family-owned vendor at above-market rates.
• A GP allocates a hot deal to their personal carry vehicle ahead of the fund.
• An investor-led round prices unfairly to benefit the lead’s existing stake.

Proper response: disclose the conflict early, recuse from votes where biased, and obtain disinterested director or committee approval. Delaware law allows many conflicted transactions if properly cleansed; hiding them creates liability.

Entire fairness review applies when loyalty is challenged—burden shifts to prove price and process were fair, a high bar.

Why it matters

• Founders: Side projects, consulting gigs, and related-party hires need board visibility. “Forgot to mention” is not a defense in shareholder litigation.
• Investors: Your reputation and fund LP agreements require conflict policies. Coinvestment rights must be offered fairly across LPs where promised.
• Employees: Loyalty also binds executives who compete or steal trade secrets post-departure—overlapping with non-compete and IP assignment rules.

Common mistake

Assuming small conflicts do not count. Even modest personal benefits—cheap office sublease from a founder’s LLC—require disclosure if the company is party. Paper the waiver.

Related ideas

• Duty of Care — prudent process standard
• Related-party transaction — formal term for insider deals
• Entire fairness — judicial standard for conflicted transactions
• Drag-Along Rights — sale process must respect fiduciary duties