What Is a Fiduciary?

If you run a company, sit on a board, manage client money, or appoint agents to act for your business, you’re dealing with fiduciary duties - whether you realise it or not.

Understanding what a fiduciary is (and what fiduciary duties require) helps you make better decisions, prevent conflicts, and protect your business from costly disputes. The good news: while the concept comes from equity and can sound technical, the rules are grounded in common-sense principles of loyalty, honesty and acting for someone else’s benefit, not your own.

In this guide, we explain what a fiduciary is under UK law, which relationships commonly give rise to fiduciary duties in small businesses, what those duties mean in practice, and how to manage the risks day to day.

What Is A Fiduciary In UK Law?

A fiduciary is someone who has agreed to act for or on behalf of another person or entity in circumstances that give rise to a relationship of trust and confidence. In plain English, a fiduciary must put the other party’s interests ahead of their own when acting in that role.

In the UK, many fiduciary duties are judge‑made (equitable) obligations. For company directors, key fiduciary duties are also codified in the Companies Act 2006 (such as acting within powers, promoting the success of the company, avoiding conflicts and not accepting benefits from third parties). These duties apply in addition to any contractual obligations or statutory rules.

Fiduciary duties are strict. They’re not just about avoiding bad outcomes - they’re about avoiding the wrong kind of decision‑making in the first place. For example, if a fiduciary profits from their position without proper authorisation, a court can require them to hand over that profit even if the company wasn’t harmed.

Who Owes Fiduciary Duties In A Small Business?

Several common relationships in small and growing businesses create fiduciary obligations. You don’t need a formal label for the law to apply; it’s the substance of the relationship that matters.

Directors And Shadow Directors

Company directors owe fiduciary duties to the company (not directly to shareholders). This includes de facto and shadow directors who act like directors or whose instructions the board usually follows. If you wear multiple hats in a startup, understanding when you’re acting as a director versus as an employee is important - particularly around conflicts, use of information, and decision‑making. If you’re balancing both roles, it’s worth reviewing the nuances of being a director or employee.

Partners And LLP Members

Partners in a traditional partnership (under the Partnership Act 1890) owe fiduciary duties to each other and the firm: loyalty, no secret profits, and disclosure of interests. Many LLP members will have similar obligations via the LLP agreement and general equitable principles.

Agents

Where your business appoints an agent to act for you (for example, a sales agent, broker or buying agent), that agent is usually a fiduciary while acting within their authority. The law expects agents to avoid conflicts and follow your lawful instructions. If agency is a regular part of your model, consider formalising the relationship with an appropriate agency agreement that sets out authority, fees, conflicts and confidentiality.

Trustees

Trustees owe some of the highest fiduciary standards to beneficiaries. This may arise if you operate an employee benefit trust, a customer escrow, or hold assets on trust for investors. If your structure or plans involve trusts, it’s sensible to revisit the basics of a trust and the role of trustees under UK law.

Senior Employees In Special Circumstances

Employees don’t automatically owe fiduciary duties, but senior employees who control key decisions or have a special position of trust may be treated as fiduciaries in respect of those responsibilities. Regardless, all employees owe duties of fidelity and confidentiality as a baseline.

What Exactly Are Fiduciary Duties?

The badge of a fiduciary is loyalty. In practice, fiduciary duties typically include:

• Avoiding Conflicts of Interest: Don’t put yourself in a position where your personal interests, or duties to someone else, conflict with the interests of the company or principal. For directors, this aligns with the Companies Act duty to avoid conflicts.
• No Secret Profits or Unauthorised Benefits: Don’t receive any benefit from your position unless it’s properly authorised. That includes commissions from suppliers, kickbacks, or exploiting business opportunities that belong to the company.
• Acting for Proper Purposes: Use powers only for the purposes they were given (for directors, this includes acting within the company’s constitution and for proper corporate purposes).
• Undivided Loyalty and Good Faith: Act honestly and in the best interests of the company or principal, not to advance your own agenda.
• Confidentiality: Don’t misuse confidential information obtained in your role, even after the relationship ends.

These duties often sit alongside statutory director duties in the Companies Act 2006, the Trustee Act 2000 for trustees, sector‑specific regulations (e.g. financial services), and whatever you’ve agreed in contracts or your constitution.

How Do Fiduciary Duties Show Up Day To Day?

Most small businesses don’t see fiduciary duties as abstract legalities - they show up in everyday choices. Here are common scenarios and how to handle them safely.

Supplier Kickbacks And Referral Fees

If a director or agent receives a referral fee from a supplier your business uses, that’s typically a fiduciary issue. The safe route is to disclose the arrangement fully, get proper authorisation, and ideally have the business, not the individual, receive any benefit. A clear Conflict of Interest Policy helps you set the rules and expectations upfront.

Corporate Opportunities

Spotted a lucrative deal because of your role with the company? In many cases, that opportunity belongs to the company first. If you wish to pursue it personally, you’ll need informed approval through the appropriate governance process (often via Board Resolutions and disclosure of interest in line with the company’s constitution and the Companies Act).

Competing With Your Own Business

A director or partner starting a side venture that competes with the business is a classic conflict. For directors, even preliminary steps can be problematic if they use inside knowledge or divert opportunities. Deal with it through early disclosure, independent decision‑making by non‑conflicted leaders, and, where appropriate, formal consent conditioned and recorded in minutes.

Multiple Hats In A Group

In group structures, directors of subsidiaries often face conflicts between the best interests of the subsidiary and the parent. Directors must still act in the best interests of the company whose board they sit on, even within group company structures. Clear governance frameworks and information barriers can help.

Using Company Information

Using confidential information or contacts gained through your role to benefit yourself (or a third party) can breach fiduciary obligations. Tight confidentiality provisions in your contracts and clear internal policies reduce the risk and make enforcement easier if needed.

How Do You Comply With Fiduciary Duties As You Grow?

Compliance doesn’t have to be complicated. Build simple, reliable habits and documents that make the right decision the default.

1) Get Your Governance Basics In Order

For companies, make sure your constitution is fit for purpose and the board knows how to run meetings, record decisions and manage conflicts. Regular, well‑documented meetings, proper agendas, and clean minutes show you’ve made informed, independent decisions - crucial evidence if anything’s challenged later. If decisions are made in writing, keep them organised as Board Resolutions, with any disclosures clearly noted.

2) Put Clear Policies In Place

Short, practical policies guide behaviour without slowing you down. At minimum, consider a Conflict of Interest Policy covering disclosure triggers, gifts and hospitality thresholds, how to handle corporate opportunities, and approval processes. Complement this with a confidentiality policy and a gifts & hospitality register.

3) Use The Right Contracts

Where relationships are inherently fiduciary (agency, distribution, trusteeship), your contracts should define the scope of authority, fees, who owns opportunities and IP, and what counts as a conflict. For founders and investors, a robust Shareholders Agreement helps set expectations around director decision‑making, reserved matters, conflicts and information rights. Clear agreements not only reduce disputes - they can also provide the “authorisation” that turns a potential conflict into a permitted arrangement.

4) Manage Delegation And Authority

When you allow someone else to act for the business - whether a consultant, broker or accountant - document it properly. A simple Authority to Act can make it clear what they can and can’t do, for how long, and what needs approval. This helps align fiduciary expectations and avoids unauthorised commitments.

5) Train Your Leadership Team

Fiduciary duties are about judgement calls. Brief your directors, senior staff and agents on the basics: disclose early, avoid personal benefit without approval, and document key decisions. Even a short onboarding session plus a one‑pager of “do’s and don’ts” goes a long way.

6) Record Disclosures And Approvals

Good records are your friend. Maintain a conflicts register, require written disclosures, and minute how the board or partners dealt with each issue (for example, conflicted individuals stepping out of the room and abstaining from votes). Paper trails demonstrate compliance and protect the business.

7) Consider Insurance And Indemnities

Directors’ and officers’ (D&O) insurance and company indemnities can’t excuse dishonesty or fraud, but they can provide protection for honest errors and defence costs. Review your cover annually to ensure it matches your risk profile.

What Happens If Fiduciary Duties Are Breached?

UK courts have broad remedies to address breaches. The focus isn’t just compensation - it’s removing the improper benefit and restoring trust.

• Account of Profits: The fiduciary may have to hand over profits made from the breach (for example, commissions or gains from a diverted opportunity), even if the company suffered no direct loss.
• Equitable Compensation: If the business suffered loss, courts can award compensation to put the company in the position it should have been in.
• Rescission: Certain tainted transactions can be set aside.
• Injunctions: To stop ongoing or threatened breaches, such as misuse of confidential information.
• Disqualification And Other Consequences: Serious misconduct can lead to director disqualification or professional discipline. Shareholders may also bring derivative claims.

Because duties are strict, “I meant well” may not be a defence. That’s why proactive disclosure, independent approval, and clean documentation are so valuable - they can convert a potential breach into a properly authorised transaction.

How Do You Spot A Fiduciary Relationship (And Avoid Accidental Duties)?

Sometimes the law treats a relationship as fiduciary based on how it works day to day, not what you call it. Ask yourself:

• Have we placed trust and confidence in this person to act on our behalf?
• Do they have discretion to make decisions affecting our interests?
• Do we rely on their expertise or advice in a way that gives them influence over our affairs?
• Are they able to access and use our confidential information or business opportunities?

If the answer to most of these is “yes”, you likely need fiduciary‑aware documentation, policies and processes. This is particularly true for agents, introducers and outsourced functions (e.g. sales partners). If you’re experimenting with partnerships or long‑term collaborations, outline authority, conflicts and approvals early - ideally within a structured agreement - rather than relying on goodwill.

As your organisation evolves, new roles and structures can change the fiduciary landscape. For example, moving from a sole company to layered group company structures or introducing a trust into your strategy shifts who owes duties to whom. Revisit your governance whenever you restructure.

Frequently Asked Questions About Fiduciaries

Do Fiduciary Duties Replace Contract Terms?

No. Contract and equity operate side by side. A well‑drafted contract can clarify authority, consent mechanisms and benefits, and may provide the “informed authorisation” needed to permit something that would otherwise be a conflict. But you can’t contract out of core obligations of honesty and good faith.

Can Shareholders Authorise A Conflict?

Often, yes - if they’re fully informed. For directors, the Companies Act 2006 allows certain conflicts to be authorised by the board or shareholders (depending on your constitution). Get the process right: disclose properly, ensure unconflicted decision‑makers approve, and record the basis for the decision. A strong Shareholders Agreement can set out how conflicts will be handled and which decisions need shareholder consent.

Are Senior Employees Fiduciaries?

Not by default, but courts may find fiduciary duties for employees who occupy positions of significant trust and discretion (for instance, a general manager negotiating major contracts). Either way, give employees clear confidentiality and conflicts obligations in their employment contracts and handbook.

How Do We Let An External Adviser Act On Our Behalf?

Define scope and authority in writing. If the adviser needs to liaise with third parties, an Authority to Act can confirm they’re authorised to access information or make certain requests. For ongoing roles, build fiduciary expectations into the services or agency agreement.

What About Charities And Companies Limited By Guarantee?

Trustees and charity directors (often of companies limited by guarantee) carry heightened duties and regulator oversight. If you operate in this space, ensure your constitution, policies and board practices reflect the higher standard that applies to not‑for‑profit stewardship and beneficiary interests.

Key Takeaways

• Fiduciaries are people who agree to act on behalf of others in relationships of trust and confidence, and must prioritise the other party’s interests over their own.
• In small businesses, typical fiduciaries include company directors, partners, agents and trustees. Senior employees may owe fiduciary duties in special circumstances.
• Core duties include avoiding conflicts, not making unauthorised profits, acting for proper purposes, and safeguarding confidential information.
• Good governance, clear policies, the right contracts and clean records are your frontline tools to manage fiduciary risk as you grow.
• If a breach occurs, remedies can be serious (account of profits, equitable compensation, injunctions, disqualification), so proactive disclosure and proper authorisation are essential.
• Map your fiduciary relationships when you restructure, expand into groups, use agents, or introduce trusts, and align your documents accordingly.

If you’d like help clarifying fiduciary duties in your business, documenting authority and conflicts, or updating governance and agreements, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no‑obligations chat.