Legal & Compliance
Fiduciary Out
Last updated
Quick Answer
A clause allowing a board to withdraw from a previously agreed deal if doing so is required by their fiduciary duties to shareholders.
What it is
A fiduciary out is a contractual provision that allows a company's board of directors to terminate or modify a previously agreed-upon transaction if continuing with the deal would violate their fiduciary duties to shareholders. This typically applies when a superior offer emerges after a deal is signed but before it closes, allowing the board to consider or accept the better offer despite an existing agreement.
In Practice
Despite signing a $500M merger agreement with Company A, the board exercised the fiduciary out when Company B offered $700M, determining that rejecting the superior offer would breach their duty to maximize shareholder value — though they had to pay a $15M breakage fee to Company A.
Operational context
What good looks like
The term is tied to a real workflow, not just a definition.
Ownership, timing, and evidence are clear.
The reader can tell what decision the concept supports.
Related terms point to the next useful explanation.
Why It Matters
Fiduciary outs protect shareholders from boards that might accept suboptimal deals. For VC-backed companies, they ensure that the board can pursue the best available exit even after initially agreeing to a specific transaction.
VC Beast Take
The interplay between fiduciary outs and breakage fees creates interesting game theory. A large breakage fee can effectively neutralize the fiduciary out by making it economically prohibitive to switch. This is why the breakage fee size is often the most contested point in deal negotiations.
Related tools and reading
Term Family
Related concepts
Further Reading
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Frequently Asked Questions
What is Fiduciary Out in venture capital?
A fiduciary out is a contractual provision that allows a company's board of directors to terminate or modify a previously agreed-upon transaction if continuing with the deal would violate their fiduciary duties to shareholders.
Why is Fiduciary Out important for startups?
Understanding Fiduciary Out is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Fiduciary Out fall under in VC?
Fiduciary Out falls under the legal category in venture capital. This area covers concepts related to the legal frameworks and compliance requirements in venture capital.
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