Fiduciary duty is the legal standard requiring certain actors—corporate directors, fund general partners, and sometimes controlling shareholders—to prioritize beneficiaries’ interests with care, loyalty, and good faith.

How it works

Corporate law imposes duty of care (informed decisions) and duty of loyalty (no self-dealing without proper process) on boards. Venture-backed boards approve financings, option grants, and M&A; investor directors must not steer the company solely to benefit their fund if it harms other shareholders without disclosure and approval.

Fund GPs owe contractual and common-law duties to LPs: follow the LPA, avoid undisclosed conflicts, allocate opportunities fairly across funds, and provide accurate reporting. Conflicted transactions—related-party sales, dual-track processes—trigger fairness opinion and special committee review.

Founders wearing two hats (CEO and large shareholder) face scrutiny when approving transactions benefiting them personally.

Why it matters

• Founders: Recuse and document when personal interests diverge from company interests; good process prevents later litigation.
• Investors: Fiduciary frameworks justify fiduciary out clauses in M&A and inform LPAC oversight of GP conduct.

Common mistake

Assuming fiduciary duty means “always maximize short-term share price.” Directors balance long-term company health, stakeholder commitments, and legal standards— not every employee-friendly decision is a breach.

Related ideas

See fiduciary out, fairness opinion, business judgment rule, and LPAC.