---
title: "What Is Fiduciary Duty?"
term: "Fiduciary Duty"
description: "Fiduciary duty is the legal obligation to act in another party's best interest with loyalty and care—board members owe it to the company and shareholders; fund GPs owe it to LPs per the partnership agreement."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/fiduciary-duty
---

# What Is Fiduciary Duty?

> Fiduciary duty is the legal obligation to act in another party's best interest with loyalty and care—board members owe it to the company and shareholders; fund GPs owe it to LPs per the partnership agreement.

**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](/glossary/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](/glossary/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](/glossary/fiduciary-out), [fairness opinion](/glossary/fairness-opinion), business judgment rule, and LPAC.

## FAQ

### What is fiduciary duty in simple terms?

It means you must put the people you serve first— not your personal gain— when making decisions. Board directors serve the company; fund managers serve their LPs within the fund rules.

### Why does fiduciary duty matter?

Breaches lead to lawsuits, blocked deals, and reputational harm. Founders on boards must separate founder interests from company interests; investor directors balance fund returns with company welfare.


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Source: https://venturecapitaltracker.com/glossary/fiduciary-duty