Opting Out of Fiduciary Duties and Liabilities in U.S. and U.K. Business Entities
Research Handbook on Fiduciary Law (Andrew Gold and Gordon Smith eds., Edward Elgar Publishing, Forthcoming)
25 Pages Posted: 1 Sep 2017 Last revised: 6 Oct 2017
Date Written: August 29, 2017
This chapter explores the extent of contractual freedom to opt out of fiduciary duties and liabilities in U.S. and U.K. business entities, including the U.S. corporation, general partnership, limited partnership, limited liability partnership, and limited liability company, and the U.K. limited company, general partnership, limited partnership, and limited liability partnership.
Discernible commonalities emerge from this comparative analysis. Notably, corporate law readily permits reducing liability exposure for breaches of duty in each jurisdiction, yet provides only quite limited capacity to carve back at the substance of the duties themselves. Meanwhile, unincorporated entities in each jurisdiction offer substantially greater latitude to limit the duties themselves, in some cases resulting in purely contractual business relationships.
Yet substantial differences are also apparent. U.S. corporate law permits greater insulation from liability exposure, and U.S. unincorporated entities generally provide clearer and more extensive latitude to eliminate default duties of loyalty and care outright (particularly in Delaware). One cannot comprehensively declare that U.S. law universally deviates further from the "fiduciary" governance paradigm, however, because the U.K. limited liability partnership has gone further by providing an entity form in which no such general default duties apply at all.
The analysis raises some complex comparative questions, and the chapter closes with brief reflections on why such trends, commonalities, and divergences may have arisen.
Keywords: corporation, limited company, general partnership, limited partnership, limited liability partnership, limited liability company, fiduciary duty, loyalty, care, exculpation, indemnification, directors and officers insurance, law and economics, contractualism, Delaware, United States, United Kingdom
JEL Classification: K22
Suggested Citation: Suggested Citation