What Is A Fiduciary Relationship In Australia?

When you’re building a business in Australia, relationships are everything - with co-founders, directors, contractors, investors, agents and customers. Some of these relationships carry a special layer of legal responsibility called a fiduciary relationship.

Understanding this concept isn’t just “nice to know”. It can shape how you make decisions, manage conflicts and document your deals. It also helps you avoid costly disputes and governance headaches as your business grows.

In this guide, we’ll unpack the fiduciary relationship meaning in plain English, explain where it commonly arises in small businesses, and share practical steps you can take to manage your duties the right way.

What Is a Fiduciary Relationship?

A fiduciary relationship is a legal relationship of trust and confidence, where one party (the fiduciary) must act in the best interests of another (the principal or beneficiary). It’s about loyalty, good faith and putting someone else’s interests ahead of your own in certain contexts.

In business, this often arises where you’ve agreed - explicitly or by conduct - to act for or on behalf of someone else, or to exercise powers that affect their interests. The law then imposes duties to prevent abuse of that position.

Typical hallmarks include:

• A position of trust or confidence.
• A power or discretion that can impact another’s interests.
• A vulnerability or reliance by the principal on the fiduciary’s judgment.

It’s not limited to formal titles. A fiduciary relationship can arise from how you actually behave in practice. That’s why it’s smart to set boundaries and document roles clearly from day one.

Where Do Fiduciary Relationships Arise In Small Businesses?

Fiduciary duties show up more often than many founders expect. Common examples include:

Company Directors and Officers

Directors and certain senior officers typically owe fiduciary duties to the company. These sit alongside statutory duties under the Corporations Act 2001 (Cth) and the company’s internal rules.

Your company’s Company Constitution and board processes should reflect how decisions are made, how conflicts are managed and what approvals are required. Many boards also adopt a Conflict of Interest Policy to make this crystal clear in practice.

Partners and Joint Venturers

Partners typically owe fiduciary duties to each other and the partnership (for example, not making secret profits or diverting opportunities). In joint ventures, fiduciary obligations may arise depending on structure and conduct.

Clear joint venture or partnership documentation helps define roles, limit surprises and set out disclosure obligations and decision-making rules.

Agents and Authorised Representatives

Agents owe fiduciary duties to their principals. If your business appoints sales agents or representatives to act on your behalf, you’re dealing with core principles from the law of agency - including duties of loyalty, avoiding conflicts and accounting for benefits obtained through the agency.

When you let someone act for your business, use written authority (for example, an Authority to Act) and a solid agency or distribution agreement to set boundaries.

Trustees and Beneficiaries

Trustees owe well-established fiduciary duties to beneficiaries. If your business uses a trust (or you’re a trustee of an employee share trust), ensure the trust deed and decisions align with those duties, and keep proper records of trustee resolutions and distributions.

Founders and Co-Founders

Co-founders don’t automatically owe fiduciary duties to each other just because they’re collaborating, but duties can arise based on conduct (for example, if one founder undertakes to act for the others or controls key decisions on their behalf).

To keep expectations aligned, a Shareholders Agreement can set out how decisions are made, how conflicts are handled, and what happens with new opportunities, share issues and exits.

What Are Fiduciary Duties, In Plain English?

While the exact scope depends on the relationship and context, fiduciaries generally owe duties to:

• Act in good faith and for proper purposes.
• Avoid conflicts of interest (including conflicts between personal interest and duty, or between separate duties owed to different parties).
• Not make unauthorised profits or benefits from the position.
• Use powers for the benefit of the principal (not for collateral purposes).
• Provide full and frank disclosure of material information relevant to decisions you’re asking the principal to make.

For company directors, these sit alongside statutory duties like the duty of care and diligence and not to improperly use position or information. Good governance tools - board charters, minutes, and resolutions - help you demonstrate compliance and protect the business.

Directors making business judgments should also be aware of the “business judgment rule” safe harbour under section 180(2) of the Corporations Act, which is explained in Sprintlaw’s guide to the business judgment rule.

How Do These Duties Show Up Day-To-Day?

It’s easy to talk theory; here’s what fiduciary obligations can look like in real decisions.

Conflicts and Related Party Deals

Let’s say your company is considering a contract with a business you (or a director) personally own. There’s an obvious conflict - you’d be on both sides of the deal. The usual approach is disclosure, abstaining from voting, and ensuring an independent, arm’s-length decision process (often supported by external quotes and board minutes).

Many constitutions and shareholder agreements have conflict rules. Where authority to bind the company is delegated, keep in mind section 126 of the Corporations Act (company execution through authorised officers) and align your delegations with board resolutions and role descriptions.

Corporate Opportunities

If a director or senior manager learns of a commercial opportunity because of their role, they generally shouldn’t pursue it personally without the company’s informed consent. That consent should be properly documented - minutes, approvals and, where appropriate, a formal instrument such as a deed.

Side Benefits or Secret Commissions

Any benefit or commission received by a fiduciary due to their position usually belongs to the principal (unless fully disclosed and authorised). This often arises with agents negotiating deals, directors accepting “thank you” payments, or partners pocketing supplier rebates.

Using Confidential Information

Information gained through a fiduciary role shouldn’t be used for personal gain or to the detriment of the principal. Practical controls include well-drafted confidentiality clauses, proper onboarding/offboarding, and limiting access to need-to-know.

Indemnities and Protection

Directors and officers often seek protection through a Deed of Access and Indemnity. This typically covers access to company documents, indemnity against certain liabilities, and D&O insurance maintenance. It’s a good governance layer that works alongside fiduciary duties and statutory requirements - not a replacement for them.

What Happens If Fiduciary Duties Are Breached?

Breaches are serious. Depending on the relationship and facts, remedies can include:

• Compensation for losses caused by the breach.
• Account of profits (the fiduciary must hand over gains earned through the breach).
• Injunctions to stop or prevent the breach.
• Rescission of tainted transactions.

This is why having clear policies, proper approvals and strong record-keeping is so important. If a dispute arises, those documents help show the business acted in good faith and with appropriate care.

Also consider your risk allocation with lenders and suppliers. For example, if directors give personal guarantees, understand how that interacts with duties to the company, especially during restructures or tight cashflow periods.

How To Manage Fiduciary Obligations In Your Business

You don’t need to be a legal expert to manage fiduciary risks well. A few practical steps go a long way.

1) Set The Ground Rules Early

• Adopt a tailored Company Constitution with decision and execution rules that suit your business.
• Document delegations and signing authority in board or manager resolutions (a Directors Resolution Template can help keep this consistent).
• Use written instruments when granting authority - from a simple email authorisation to a formal Authority to Act or deed, depending on the risk and value.

2) Build Clear Decision Processes

• Table conflicts early, record disclosures and abstentions, and get independent input where appropriate.
• Keep minutes that show how the board or managers weighed information and alternatives (this also supports the business judgment rule for directors).
• Use written scopes and comparables for related party transactions to demonstrate arm’s-length pricing.

3) Use The Right Contracts

• With co-founders: a Shareholders Agreement to manage decision-making, new share issues, exits and conflict resolution.
• With agents or distributors: robust agency/distribution terms that limit unauthorised benefits, require accounting of commissions, and set conflict rules grounded in the law of agency.
• With directors and senior officers: a Deed of Access and Indemnity and appropriate confidentiality/IP assignment terms.

4) Train Your Team And Normalize Disclosure

• Make “if in doubt, disclose” your default. This reduces the risk of accidental breaches.
• Adopt a practical Conflict of Interest Policy and include it in onboarding.
• Encourage early questions when employees are asked to act on the company’s behalf or accept benefits from third parties.

5) Align Authority With Corporations Act Requirements

• Ensure your contract execution and delegations line up with section 126 (execution by authorised officers) and your constitution or board resolutions.
• When a higher-risk deal is on the table, consider a formal instrument as a deed for added enforceability and clarity.

FAQs For Busy Founders

Do I always owe fiduciary duties to my co-founders?

Not automatically. It depends on structure and conduct. In a company, directors owe duties to the company itself. Between co-founders, duties can arise if someone undertakes to act for others or exercises control on their behalf. A well-drafted Shareholders Agreement helps clarify expectations.

Can we approve a conflict and still comply?

Often yes, with full disclosure, proper approvals and an arm’s-length approach to pricing and terms. Follow your constitution and policies, and keep thorough minutes. Independent advice can be helpful for higher-risk transactions.

If I’m an agent, can I keep a side commission?

Typically no, unless your principal has given fully informed consent. Agents generally must account for benefits earned through the agency. Put your commission rules in the written agreement and avoid undisclosed benefits entirely.

What if I make a genuine mistake as a director?

If you made an informed business judgment in good faith, the business judgment rule under section 180(2) may assist. The best protection is good process: quality information, conflicts managed, documented decisions - see Sprintlaw’s overview of the business judgment rule.

Key Takeaways

• A fiduciary relationship is about trust and loyalty - when you act for someone else, the law expects you to put their interests first in that role.
• Directors, agents, partners and trustees commonly owe fiduciary duties in Australian small businesses; duties can also arise from conduct.
• Day-to-day, this means managing conflicts, not making unauthorised profits, protecting confidential information and documenting decisions properly.
• Good governance tools - a tailored Company Constitution, board minutes, approvals and a Conflict of Interest Policy - make compliance easier and protect your business.
• Use the right documents for key roles and relationships, such as a Shareholders Agreement, agency terms, Authority to Act and a Deed of Access and Indemnity.
• When in doubt, disclose conflicts early, seek independent input for related party deals and keep clear records to demonstrate good faith and proper purpose.

If you’d like a consultation on fiduciary relationships and how to set up strong governance for your small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.