Joe is a final year law student at the Australian National University. Joe has legal experience in private, government and community legal spaces and is now a Content Writer at Sprintlaw.
If you’re running a business (or thinking about starting one), you’ll hear the phrase “fiduciary duty” come up sooner or later - usually when there’s a lot at stake.
In simple terms, a fiduciary duty is a legal obligation to act in someone else’s best interests, not your own. It’s one of the highest standards the law imposes, and it often applies when you’re trusted with power, money, information, or decision-making that affects someone else.
This article is a current, practical explainer (updated for today’s business environment) on what fiduciary duty means in New Zealand, when it applies, and how to manage it properly so you’re protected from day one.
What Does “Fiduciary Duty” Mean In Plain English?
A fiduciary duty exists when one person (the fiduciary) has undertaken to act for, or on behalf of, another person in a way that creates a relationship of trust and confidence.
That sounds formal, but the idea is straightforward:
- You have power or influence over someone else’s interests (for example, their money, business opportunities, or legal rights).
- They rely on you to use that power properly.
- The law expects loyalty - meaning you can’t secretly put yourself first.
Fiduciary duties come up a lot in business because founders, directors, partners, and advisers often sit in positions where they can affect outcomes for others.
What Makes Fiduciary Duties Different From “Normal” Legal Duties?
Not every legal obligation is fiduciary. For example, you might have a duty to take reasonable care, or a duty to comply with a contract - but those aren’t automatically fiduciary.
A fiduciary duty is stricter because it’s about loyalty and avoiding conflicts, not just competence.
That’s why fiduciary obligations often focus on things like:
- conflicts of interest
- using someone else’s confidential information
- taking business opportunities for yourself
- secret profits or commissions
If you’re in a fiduciary role, it’s not enough to say “I didn’t mean harm” - you may still be in breach if you put yourself in the wrong position.
When Does A Fiduciary Duty Apply In New Zealand?
In New Zealand, fiduciary duties can arise in two main ways:
- Automatically, because of the role (like a director or trustee).
- Because of the relationship and conduct (even if the contract doesn’t use the word “fiduciary”).
This is important for business owners because fiduciary duties aren’t limited to big corporate situations. They can apply in small businesses, startups, family businesses, and joint ventures too.
Common Business Relationships Where Fiduciary Duties Can Exist
- Company directors in relation to the company (and, in some situations, shareholders)
- Partners in relation to each other and the partnership
- Trustees in relation to beneficiaries
- Agents in relation to principals (for example, a sales agent acting on your behalf)
- Employees in certain senior or high-trust roles (especially where they control key client relationships or strategy)
On the flip side, not every commercial relationship creates a fiduciary duty. A typical supplier/customer relationship usually doesn’t, because each side is expected to look after their own interests.
If you’re unsure whether a relationship is fiduciary, it’s worth getting advice early - because the consequences can be expensive and messy if you get it wrong.
What Are The Key Fiduciary Duties (And What Do They Look Like In Practice)?
Fiduciary duties are often described as a bundle of obligations. The exact duties depend on the role and circumstances, but there are a few recurring themes.
1) The Duty Of Loyalty (Act In The Best Interests Of The Other Party)
This is the core fiduciary idea: if you’re the fiduciary, you must act in the best interests of the person or entity you owe duties to.
For example, if you’re a director, you generally need to make decisions you believe are in the best interests of the company - not decisions designed to benefit you personally at the company’s expense.
This is one reason why having governance documents like a Company Constitution and clear shareholder rules can be so helpful. They don’t remove fiduciary duties, but they make decision-making processes and expectations clearer.
2) The Duty To Avoid Conflicts Of Interest
A conflict of interest happens when your personal interests (or duties to someone else) could interfere with your ability to act loyally.
Conflicts aren’t always illegal - but failing to identify and properly manage them can be a breach.
In practice, this might look like:
- A director voting on a contract where their own business is the supplier
- A partner using partnership funds to pay their own private expenses
- A founder negotiating a deal that benefits their side project at the expense of the startup
Many businesses deal with conflicts by requiring disclosure, recording the conflict in writing, and setting rules about when the conflicted person can (and can’t) participate in decisions.
3) The Duty Not To Make Secret Profits
If you’re in a fiduciary role, you generally can’t secretly profit from that position - even if you think the other party “would have been okay with it”.
A classic example is an agent receiving a commission from a third party without telling their principal. Another is someone steering work to a preferred provider because of a personal kickback.
If there’s a legitimate reason for a commission or benefit, the key is usually full disclosure and informed consent (and ideally, documenting it properly).
4) The Duty Of Confidence (Don’t Misuse Confidential Information)
In many fiduciary relationships, you’ll have access to information that isn’t public - pricing, customer lists, strategy, product roadmaps, supplier terms, financials, or internal problems.
A fiduciary duty often overlaps with confidentiality obligations, meaning you shouldn’t:
- use confidential information for your own advantage
- share it with others without permission
- use it to compete unfairly
In day-to-day business, this is where strong contracts matter. For example, confidentiality expectations can be reinforced in a Founders Agreement or a tailored Non-Disclosure Agreement when you’re discussing opportunities with investors, suppliers, or collaborators.
5) The “Corporate Opportunity” Duty (Don’t Take Opportunities For Yourself)
This usually comes up when someone in a high-trust role (often a director, senior employee, or partner) becomes aware of an opportunity through their role and then takes it personally.
For example:
- You’re a director and you learn the company is bidding on a site lease - you then try to sign it in your own name.
- You’re a partner and a major client approaches the partnership - you secretly service the client privately instead.
Even if you believe you “found” the opportunity, if it came to you because of your position, it can still create serious risk.
Fiduciary Duties For Directors, Shareholders, Partners, And Employees
Fiduciary duties aren’t one-size-fits-all. Where you sit in the business matters.
Directors (And People Acting Like Directors)
In New Zealand, directors have duties under the Companies Act 1993, and fiduciary-like obligations are a big part of that overall framework. Even if your business is small, if you’re a director you’re expected to act responsibly and loyally.
Common risk areas for directors include:
- making decisions with undisclosed conflicts
- using company information for personal benefit
- treating the company as an extension of personal finances
- failing to document approvals properly
If your company has multiple owners, a Shareholders Agreement can help reduce friction by clarifying how decisions are made, what happens when someone wants to exit, and what approvals are required for major actions.
Shareholders
Shareholders don’t automatically owe fiduciary duties to each other in the same way directors do. However, in closely held companies (like many NZ SMEs), shareholder conduct can still create fiduciary-style expectations - especially where one shareholder has control and the others are relying on them.
Realistically, if you’re in a small business with co-owners, it’s smart to act as if trust-based obligations matter - because disputes between owners often turn on fairness, transparency, and who benefited from what.
Partners In A Partnership
Partnerships tend to involve high levels of mutual trust. Partners typically owe duties to each other because each partner can bind the business and affect the other partners financially.
If you’re going into business with someone, a proper Partnership Agreement is one of the best ways to set expectations early - particularly around profit sharing, authority, expenses, new opportunities, and exits.
Employees (Especially Senior Employees)
Most employees have duties of fidelity and confidentiality, and in some cases a fiduciary duty can arise where the employee is in a position of significant trust and influence.
For example, a senior manager who controls key client relationships, pricing, or strategy may face higher expectations than a junior employee.
This is one reason why it’s worth getting your Employment Contract right - so confidentiality, conflicts, and post-employment obligations are clearly set out (within what the law allows).
What Happens If Someone Breaches A Fiduciary Duty?
A breach of fiduciary duty is serious because it involves trust. The legal consequences often aim to remove any improper benefit and restore the other party’s position.
Depending on the facts, consequences can include:
- Compensation or damages for loss suffered
- Account of profits (handing over profits gained through the breach)
- Rescission (setting aside a transaction in some circumstances)
- Injunctions (court orders stopping certain conduct)
- Removal from role (for example, removing a trustee or director)
What makes fiduciary disputes so disruptive is that they’re rarely just “about money”. They often involve broken relationships, competing business interests, and allegations of dishonesty or unfair conduct.
That’s why prevention is usually much cheaper than trying to fix things later.
Common Real-World Scenarios That Trigger Claims
- A co-founder starts a competing business using the startup’s supplier contacts
- A director awards contracts to a related company without disclosure
- A departing partner takes clients and claims they were “personal clients”
- An employee uses confidential pricing to undercut their employer after resigning
If any of these sound even remotely like your situation, it’s a sign you should get tailored advice early - ideally before anything escalates.
How Do You Manage Fiduciary Duty Risks In Your Business?
The good news is you don’t need to “lawyer everything to death” to handle fiduciary risks properly. You just need the right structures and habits in place from the start.
1) Be Clear On Roles And Decision-Making
Many fiduciary issues start with confusion: who has authority to do what, and who is accountable to whom?
Some practical ways to reduce that risk include:
- clearly documenting who the directors are and what approvals are required
- setting spending limits and delegation rules
- keeping proper records of major decisions (especially where conflicts exist)
If you’re growing quickly, it’s also worth revisiting your governance documents so they still reflect how the business actually operates.
2) Treat Conflicts As Normal (And Manage Them Transparently)
Conflicts of interest are common in NZ SMEs - especially where owners also work in the business, have other investments, or run multiple ventures.
What matters is how you handle them. As a general rule:
- disclose the conflict early
- record it in writing
- ensure the decision is made fairly (and ideally, by non-conflicted decision-makers where possible)
This is also where a clear internal policy (and consistent culture) can prevent misunderstandings from turning into legal disputes.
3) Put The Right Agreements In Place Early
Contracts can’t eliminate fiduciary duties entirely, but they can:
- clarify expectations and boundaries
- set procedures for approvals and disclosures
- create strong confidentiality obligations
- reduce “he said, she said” situations later
Depending on your structure, helpful documents may include:
- a founders agreement for early-stage startups
- a shareholders agreement for companies with multiple owners
- a partnership agreement if you’re in business as partners
- employment agreements for staff (particularly those with access to sensitive information)
It’s tempting to rely on a generic template when you’re busy launching, but fiduciary disputes tend to involve high-value issues - so getting your documents properly drafted is usually worth it.
4) Handle Confidential Information Like A Business Asset
In today’s business environment, confidential information can be more valuable than physical equipment.
Practical steps that help include:
- limiting access to sensitive information on a need-to-know basis
- using NDAs when sharing information externally
- having clear offboarding processes when someone leaves
- ensuring systems and devices are secured
If your business collects personal information (customer data, mailing lists, health information, staff records), make sure you’re also meeting your privacy obligations under the Privacy Act 2020. Having a tailored Privacy Policy is a common first step for many businesses operating online.
5) Get Advice Before There’s A Fallout
When relationships are still working, it’s much easier to put sensible guardrails in place.
If you wait until there’s already a dispute, you may be trying to fix a problem while people are angry, defensive, or already preparing to leave - and that’s when costs and risks go up quickly.
A quick review of your structure and documents can often highlight where fiduciary risks could arise, and what you can do to reduce them.
Key Takeaways
- A fiduciary duty is a high-level legal obligation to act in someone else’s best interests, usually arising in relationships of trust and reliance.
- In business, fiduciary duties commonly apply to directors, partners, trustees, agents, and sometimes senior employees with significant influence or access to confidential information.
- Key fiduciary duties often include loyalty, avoiding conflicts of interest, not making secret profits, protecting confidential information, and not taking business opportunities for yourself.
- Breaching a fiduciary duty can lead to serious consequences, including paying compensation, handing over profits, court orders, and removal from a role.
- You can reduce fiduciary risk by documenting roles and decision-making, managing conflicts transparently, and putting tailored agreements in place early rather than relying on generic templates.
- If you’re unsure whether fiduciary duties apply in your situation, getting advice early can prevent a costly dispute later.
If you’d like help setting up the right legal foundations for your business - including tailored contracts and governance documents - you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.
