When you put someone in charge of your money, business, or property, you expect them to put your interests first. That is the essence of a fiduciary duty. A fiduciary is a person or entity bound by a legal duty to act in the best interests of another. This obligation may arise from a statute, a governing document, or the nature of the relationship between the parties. It typically applies when one party places trust and confidence in another to make decisions involving money, property, or business affairs. Those entrusted with that authority are expected to put the interests of the organization and its owners ahead of their own.
Fiduciary obligations are powerful, but they are not one-size-fits-all. In some situations, the parties can narrow, modify, or even waive certain duties by agreement. Whether that is possible depends heavily on the type of entity involved and the law of the state where it is formed. For Massachusetts businesses, that makes the drafting of governing documents critical.
While fiduciary duties carry significant weight, they are not always fixed in every context. In some situations, the scope of those duties can be waived. Whether that is permitted depends on the type of business entity involved and the governing law of the state in which it is formed.
The Different Types of Fiduciary Duties
Managers and directors are legally required to act in the best interests of the company and its shareholders, and the law enforces that expectation through several key duties. These legal obligations govern how they exercise authority and make decisions on behalf of the business. Core fiduciary duties include:
- Duty of Care – Decision-makers must act carefully and on an informed basis. The fiduciary must make decisions carefully using the information available to them. They are expected to review relevant facts and act in a responsible and informed way in their role of overseeing the company.
- Duty of Candor – The fiduciary must share material information with shareholders when it affects decisions that require their input or approval. Withholding or shading the truth in these contexts can constitute a breach of duty.
- Duty of Loyalty – The fiduciary must put the company’s interests ahead of their own. They may not use their position for personal gain, and knowingly breaking the law or acting for personal benefit instead of the company is a violation of this duty.
Fiduciary Duties in Massachusetts
The fiduciary duties of directors and managers differ depending on the state. In some states, fiduciary duties can be restricted or waived through agreements, while in others, the law does not allow any such waiver. In Massachusetts, it is important for companies, corporations, and their owners (whether shareholders or members) to understand these rules and ensure that corporate documents are drafted to reflect their needs.
Limited Liability Companies (LLCs)
Under Massachusetts law (Part I, Title XXII, Chapter 156C, Section 63), members of an LLC owe fiduciary duties to the company and to other members or managers. The statute also allows these duties to be expanded or limited through the operating agreement. This means that fiduciary duties can only be waived if the operating agreement explicitly allows it. Such provisions can be included when the agreement is first drafted or added later through an amendment.
Corporations
Section 8.30 of the Massachusetts Business Corporation Act requires corporate directors and officers to act with a duty of care toward the corporation, not individual shareholders. While directors’ duties are generally firm, certain agreements among shareholders may allow for specific modifications or limitations. Companies and their shareholders should carefully review these rules when drafting agreements to ensure any changes are legally effective.
Why Your Governing Documents Matter
Whether fiduciary duties can be waived, or more realistically, adjusted, depends on both the entity form and the governing law. In Massachusetts, LLCs offer more flexibility through the operating agreement, while corporations operate under more rigid statutory duties, with only limited room for modification through shareholder arrangements. Boilerplate bylaws or operating agreements rarely address these nuances in a way that actually protects investors, founders, and managers when a dispute arises.
Conclusion
Do your company’s bylaws or operating agreements waive fiduciary duties? Depending on the entity type and the state’s laws, such waivers may not be legally enforceable, or they may not go far enough to achieve what the parties intended. It is important to have these documents carefully drafted or reviewed by experienced legal counsel. Contact our team to discuss how to ensure your agreements comply with Massachusetts law and protect your company and its stakeholders.
Contributions to this blog by Ashley Smith.
