Board & governance
Fiduciary Duty
The legal obligation each director owes the association to act in good faith, with reasonable care, and in the association's best interest.
Also called: duty of care · duty of loyalty · director duty
What it means
Fiduciary duty is the legal standard board members are held to as directors of a nonprofit corporation. It typically breaks into three pieces: duty of care (act with the diligence a reasonably prudent director would use), duty of loyalty (put the association's interests ahead of personal interests), and duty of obedience (act within the scope of the governing documents and applicable law). Directors who breach fiduciary duty can lose the protection of the business judgment rule and face personal liability, especially in cases involving self-dealing, conflicts of interest, or knowingly ignoring legal requirements.
Why it matters
Most state nonprofit-corporation statutes — and most D&O insurance policies — protect directors who act in good faith within their fiduciary duty. The protection evaporates when a director knowingly steps outside it. Recusal from votes where you have a personal interest is the simplest way to stay inside the line.
Example
A director's brother bids on the HOA's landscaping contract. If the director discloses the relationship and recuses from the vote, fiduciary duty is preserved. If the director hides the relationship and votes to award the contract, the decision can be voided and the director can face personal liability.
This definition is general orientation, not legal advice. Specific questions about your association should be routed to your attorney or a state-statute resource.
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