Fiduciary Principles in Unincorporated Entity Law

Abstract

This book chapter, prepared for the Oxford Handbook of Fiduciary Law, provides a descriptive account of fiduciary principles in the context of unincorporated business entities, principally the general partnership, the limited partnership, and the limited liability company. Specifically, this chapter examines (a) the trigger for finding a fiduciary relationship within unincorporated entities; (b) the duty of loyalty; (c) the duty of care; (d) other related duties, including the duty of disclosure and duty of good faith and fair dealing; (e) the extent to which fiduciary principles in unincorporated entity law are mandatory or may be waived by contractual agreement among the participants within an entity; and (f) the remedies available for a breach of duty.

As this chapter shows, although there exists a general degree of consistency in fiduciary principles across unincorporated entities, there is also a pervasive tension in the law between the desire to empower courts to police fiduciaries and the desire to ensure certainty and predictability in rights and obligations of the participants within the entity. This chapter covers both Delaware law as well as the various uniform statutes promulgated by the Uniform Law Commission (ULC) governing unincorporated entities. In doing so, this chapter offers a critique of the ULC's so-called “harmonization” amendments of 2013, which in the name of harmonization propose significant changes to each of its uniform statutes governing unincorporated entities.

Keywords: Partnership, General Partnership, Limited Partnership, Limited Liability Company, LLC, Fiduciary, Fiduciary Duties, Delaware, Uniform Law Commission

JEL Classification: K20, K22, K29