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In their roles as directors, officers, and/or majority stakeholders of a startup, founders are fiduciaries of the company.
Fiduciary duties are generally defined by the laws of the jurisdiction where a company is incorporated. For most US startups, this means fiduciary duties are a function of Delaware law.
Fiduciaries under Delaware law have a legal responsibility to act in the best interest of the company and its shareholders and, in limited cases, certain other stakeholders.
The main fiduciary duties are typically grouped as duties of care and loyalty - each of which is explained below.
At all stages of a startup’s lifecycle, founders who are a director, officer, or major shareholder have a fiduciary duty to their company. However, founders’ fiduciary duty often receives increased scrutiny during exit or dissolution events.
Founders, officers, and directors can protect themselves against personal liability by carefully considering any actions that could be perceived as advancing personal gain at the company’s expense.
A founder’s fiduciary duty of care requires that they conduct reasonable diligence and exercise reasonable judgment when making decisions that impact the company.
Examples of actions conducted with care include disclosing any personal conflicts of interest, abiding by usual duties as a founder, and not intentionally breaking the law.
A founder’s duty of loyalty requires that they make good-faith decisions and take actions in the best interest of the company and its beneficiaries rather than for personal gain. Any personal conflicts of interest should be disclosed.