Legal & Compliance
Fiduciary Standard
The highest legal standard of care requiring a person to act in the best interest of another party.
The fiduciary standard obligates one party to act in the best interest of another. In venture capital, fiduciary duties arise in multiple relationships: GPs have fiduciary duties to LPs, board members have fiduciary duties to shareholders, and fund administrators may have fiduciary obligations. Breaches of fiduciary duty can result in personal liability, making this one of the most important legal concepts in fund management.
In Practice
A GP who invests fund money in a company owned by their family member without disclosure violates their fiduciary duty to LPs, potentially facing legal action and fund termination.
Why It Matters
Fiduciary obligations constrain GP behavior and protect LP interests. Understanding fiduciary duties is essential for anyone serving on boards or managing fund capital.
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