A “fiduciary” is someone who has an obligation to act in the best interests of another person or entity. These duties can be established either by law or by the nature of the relationship itself. They typically arise when one party must place their trust and reliance on another to exercise sound judgment. Fiduciary duties impose a responsibility on individuals (i.e., the fiduciaries) entrusted with critical decision-making for an organization to always act in the organization’s and its owners’ best interests.
What happens if a company’s manager prioritizes their personal interests over the well-being of the company and its stakeholders? The manager’s actions could lead to a claim of a breach of her fiduciary duties.
Although fiduciary duties may seem absolute, there are situations where they can be waived. The ability to waive these duties is contingent on the legal structure of the company and the laws of the state where it was incorporated.
The Different Types of Fiduciary Duties
A company’s manager or director owes fiduciary duties to the company and its stakeholders. Some basic fiduciary duties include:
- Duty of Care – The duty of care requires a fiduciary to use his or her informed business judgment in their role of overseeing the company and making business decisions.
- Duty of Candor – The duty of candor requires a fiduciary to disclose material information to the shareholders. However, Florida does not recognize the duty of candor.
- Duty of Loyalty – The duty of loyalty typically includes subsidiary duties of good faith and oversight. These duties require a fiduciary to act honestly, on a disinterested and independent basis, in the best interests of a party owed such duty. This prohibits a fiduciary from putting their personal interests ahead of the company. A director’s intentional violation of law would be deemed a breach of fiduciary duty as such action subjects the company to liability.
Fiduciary Duties in Florida
The fiduciary duties of a director or manager vary by state. Certain states allow waivers or limitations of fiduciary duties by contract. Other states prohibit the waiver of any fiduciary duty. Companies, corporations, and their owners (whether shareholders of members), must be aware of such state-specific limitations and draft and corporate documents to meet their needs. In Florida, fiduciary duties are limited to the Duty of Care and the Duty of Loyalty.
Limited Liability Companies (LLCs)
Unlike in Delaware, The Florida LLC Law (§ 605) does not allow for complete waiver of fiduciary duties. However, Florida does permits waivers of certain fiduciary duties by contract if the waiver not manifestly unreasonable but When determining if a waiver is manifestly unreasonable, a judge will look to whether the objective of the waiver was unreasonable.
Corporations
Although directors may have some protection under the business judgement rule, corporations in Florida may not entirely waive the fiduciary duties of its directors. In a Florida corporation, directors owe a duty of loyalty and a duty of care.
Conclusion
Do your company’s corporate documents waive certain fiduciary duties? Depending on the state and entity type, those waivers may not be enforceable. Your company’s bylaws or operating agreements should always be drafted or negotiated with the assistance of seasoned legal counsel to avoid potential pitfalls.
