What is the Fiduciary Duty Between Business Partners?

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What is the Fiduciary Duty Between Business Partners?

A fiduciary duty is the duty to act for the benefit of another without taking a personal advantage from that act. Essentially, if you obey a fiduciary duty, you are acting on another’s behalf for his or her benefit. Fiduciary duties often exist because they are expressly outlined in a contract or a statute, but they also can be implied by law in certain circumstances.

In a corporation, it is well-settled under Arizona law that corporate directors and officers owe a fiduciary duty to the corporate shareholders. They also owe a fiduciary duty to creditors if the corporation becomes insolvent. For example, if a corporation owes money to two different creditors of the same class, a corporate director should not use corporate funds to pay one debt and not pay any of the other debt.

A limited liability company, or LLC, is a common business structure for partners engaging in a joint business endeavor due to its simplicity, ability to provide protection from personal liability, and tax benefits. Arizona created the LLC by statute, but the statute itself does not outline or define the fiduciary duties, if any, between business associates or partners to an LLC. Under Arizona law, whether and in what regard one member has a fiduciary duty to another member depends on the terms of the operating agreement. It is very much a fact specific inquiry. The existence of a fiduciary duty may turn on whether, under the agreement, one member has entrusted another member with care or responsibility over his money or property.

In general partnerships, on the other hand, the partners typically owe one another a fiduciary duty unless otherwise provided by contract.

As you can see, whether a fiduciary duty exists in a particular business association is often an open question. When issues regarding fiduciary duties between business partners arise, you need experienced legal representation and advice. Williams Mestaz, L.L.P., is a law firm focusing on business divorce and contract disputes. Contact us at (602) 256-9400 and schedule a time to meet with us today.

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