Fiduciary Duties

Partners or co-owners of an organization owe each other fiduciary duties.  A fiduciary duty is one of utmost good faith, trust, candor, and confidence owed by one fiduciary (say a corporate officer or manager of a company) to a beneficiary (a shareholder of that company, or member of an LLC).  A fiduciary duty means that one must act with the highest degree of honesty and loyalty to the other person and must always act in the best interests of that person. Some specific examples of this fiduciary duty include:

1. As a fiduciary a partner must consider his or her partners’ welfare, and refrain from acting for purely private gain.
    – Ex: One partner should not hire a close family member unless they are the best candidate for the position, or unless the hiring has been approved by the other partners.
2. Fiduciaries may plan to compete with the entity to which they owe allegiance, provided that in the course of such business plans or arrangements they do not act in violation of their fiduciary duties. At the same time, one partner doesn’t violate that fiduciary duty just because their conduct further’s their own interests.
    – Ex: If Jane and John’s company A makes widgets, but Jane has another business (company B) on the side that makes one specific line of those widgets.  If Jane is in charge of accepting orders for new widgets at company A, she should not refer business to company B, under the excuse of lack of capacity to fill the order, unless lack of capacity is actually the case, and not just a desire for Jane to make herself more money on the side.  Jane should also disclose her company B to John, and get John’s permission to refer business to company B.
3. A partner has an obligation to render on demand true and full information of all things affecting the partnership to any partner.
   – Ex: If Jane and John are partners and Jane is in charge of accounting for company A, John has the right to review those records at any time to make sure they are in good order.
Photo By: Galt Museum