July 09, 2020 Articles

The High Risks of Neglecting Fiduciary Duties in Start-Up Firms

How high-growth start-up companies and their directors, including venture capital firm designees, could face huge liabilities if they don’t start taking their fiduciary duties seriously with respect to corporate governance.

By Christopher W. Tackett

Creating systems, teams, and processes to ensure compliance is the bread and butter by which corporate boards meet their fiduciary duties. Long-standing institutional corporations have largely embedded these imperatives into their DNA to protect against liability and have built internal legal teams to ensure continued compliance. Conversely, meeting fiduciary duties from a corporate governance perspective and financial perspective often appears murky in the expanding arena of hypergrowth venture-backed start-up companies. Successful start-up founders are typically idea-driven individuals who take countless steps to build their businesses from an operational standpoint. As a matter of necessity, company founders do typically manage to get corporate formation documents in place early on to attract or satisfy potential early investors.

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