The fiduciary duty waiver and its limits

A fiduciary duty is the highest obligation the law recognizes between two parties: the duty to act in the other’s best interest, to put their interests ahead of your own. By default, a sponsor managing your money owes you fiduciary duties of loyalty and care. But in Delaware, where most syndication entities are formed, the operating agreement can restrict or eliminate those duties almost entirely, and most sponsor-drafted agreements do exactly that. This is, by a wide margin, the single most consequential clause in a Delaware operating agreement, because it resets the sponsor’s baseline obligation to you from “act in your interest” to “do whatever the contract permits.” Understanding what can be waived, and the one thing that cannot, is understanding the true nature of the relationship you are entering.

What fiduciary duties are, and Delaware’s power to waive them

The default fiduciary duties are two. The duty of loyalty requires the sponsor to act in the deal’s and the investors’ interest rather than its own, no self-dealing, no taking opportunities that belong to the deal, no favoring itself at the investors’ expense. The duty of care requires the sponsor to manage with reasonable diligence and prudence. Together they are the legal embodiment of “you are managing my money, so you must be loyal and careful with it.”

Delaware, uniquely and deliberately, lets these duties be contracted away. Under 6 Del. C. §18-1101(c), an LLC agreement may expand, restrict, or eliminate fiduciary duties. This flows from Delaware’s foundational policy of freedom of contract in LLC agreements: the parties can order their relationship however they choose. So a Delaware operating agreement can say, in effect, that the sponsor owes no fiduciary duties at all, only the specific contractual obligations written into the document. And Delaware courts enforce this, provided the waiver is done in plain and unambiguous language, ambiguous or half-hearted waiver language leaves the default duties in place, so sponsors who want to eliminate the duties do so explicitly. The result is that in a typical Delaware syndication, the sponsor’s real obligations are not the rich default fiduciary duties most investors assume, but only whatever the contract spells out.

Delaware’s §18-1101(c) lets an operating agreement restrict or eliminate the default fiduciary duties of loyalty and care, so a sponsor-drafted agreement can reduce the sponsor’s obligation from “act in your interest” to “comply with the contract,” provided the waiver is plain and unambiguous.

The one floor that cannot be waived

There is a limit, and it is the most important thing an investor can know about a fiduciary waiver, because it is the last protection standing after everything else is contracted away. Delaware’s §18-1101(e) preserves one obligation that cannot be eliminated no matter what the agreement says: the implied contractual covenant of good faith and fair dealing. Even an agreement that waives every fiduciary duty in the plainest possible language cannot waive this covenant.

The implied covenant is narrower than a fiduciary duty. It does not require the sponsor to act in your best interest; it requires only that the sponsor not act in bad faith to deprive you of the fruits of the bargain you actually struck, not exercise a contractual discretion arbitrarily or to defeat the deal’s evident purpose. It fills gaps the contract did not address and stops the sponsor from using the letter of a waived-duty agreement to do something the parties would obviously never have agreed to. For a minority investor in a Delaware LLC where the fiduciary duties have been waived and dissolution is nearly impossible to obtain, the implied covenant is often the only remaining legal theory, the substitute remedy when the fiduciary claim has been contracted away. It is a floor, not a full protection, but it is the floor that cannot be drafted through.

Delaware’s §18-1101(e) preserves one unwaivable obligation, the implied covenant of good faith and fair dealing, which does not require loyalty but forbids the sponsor from acting in bad faith to deprive investors of the benefit of their bargain, and it is often the only remaining remedy after duties are waived.

What it looks like in the agreement

The fiduciary waiver appears in the management or duties section, and by design it is written in plain, unambiguous language (because ambiguity would fail to waive the duties). These are illustrative, not language to copy.

A sponsor-favorable waiver eliminates the duties entirely:

To the fullest extent permitted by law, the Manager shall owe no fiduciary or other duties (including any duty of loyalty or care) to the Company or any Member, and the Manager’s obligations shall be limited to those expressly set forth in this Agreement and the implied contractual covenant of good faith and fair dealing.

This is a complete, plainly drafted waiver: no loyalty, no care, only the express contract terms and the unwaivable implied covenant it correctly acknowledges it cannot escape. The sponsor has reduced its obligation to the contract itself. Notably, this is common and enforceable in Delaware, so seeing it is not unusual, but recognizing what it does, stripping the loyalty and care duties down to the contract, is essential.

An LP-favorable version preserves core duties:

The Manager shall owe the Members the duties of loyalty and care, except that the Manager may engage in the activities and transactions expressly permitted by this Agreement, including [specified affiliate transactions], without breaching such duties.

This keeps the fiduciary duties intact but carves out specific, disclosed activities (the affiliate transactions the deal contemplates), rather than eliminating the duties wholesale. The sponsor still owes loyalty and care as a baseline, with defined exceptions, rather than owing nothing but the contract. Reading the fiduciary clause means determining whether it preserves the duties with carve-outs (LP-favorable) or eliminates them entirely down to the contract (sponsor-favorable), and confirming the implied covenant is acknowledged as surviving.

A sponsor-favorable clause plainly eliminates all fiduciary duties, leaving only the contract and the implied covenant, while an LP-favorable one preserves loyalty and care with specific carve-outs for disclosed activities, so read whether duties are eliminated wholesale or preserved with exceptions.

Where leverage draws the line

The pattern holds, on the clause that matters most. Institutional LPs negotiate the fiduciary provision carefully, often preserving core duties (especially loyalty) with specific disclosed carve-outs rather than accepting a wholesale waiver, because they understand that eliminating the duties leaves them with only the contract’s express terms and the thin implied covenant. Retail investors get whatever the sponsor drafted, which in a Delaware deal is very commonly a full or near-full waiver, and they almost never grasp that the agreement has quietly reduced the sponsor’s obligation from “loyalty” to “the contract.” This is the clause where the gap between what a retail investor assumes (my sponsor owes me a fiduciary duty) and what is true (my sponsor owes me only what the contract says) is widest.

For the retail investor, the fiduciary waiver is the clause to understand above all others, even though you cannot change it. Recognize that a Delaware syndication has probably waived the sponsor’s fiduciary duties; read the clause to see how completely; and understand that your real protections are therefore the specific terms written into the agreement (the consent rights, the removal right, the liability standard, the conflict rules) plus the unwaivable implied covenant, not a general duty of loyalty you assumed existed. This reframes the entire document: because the baseline duty is gone, every specific protective clause matters more, since the contract’s express terms are most of what you have. The fiduciary waiver is why reading the rest of the agreement carefully is not optional, it is the whole game, because the agreement is the relationship.

Institutions preserve core duties with carve-outs; retail investors typically get a full Delaware waiver and rarely realize the sponsor now owes only the contract, so the retail investor must understand that the express clauses plus the implied covenant, not an assumed duty of loyalty, are the real protections.

The bottom line

• A fiduciary duty is the obligation to act in your interest, and by default a sponsor owes duties of loyalty and care.
• In Delaware, §18-1101(c) lets the operating agreement restrict or eliminate those duties almost entirely.
• Most sponsor-drafted Delaware agreements waive the fiduciary duties, reducing the sponsor’s obligation to the contract.
• The one unwaivable floor is the implied covenant of good faith and fair dealing, which forbids bad-faith conduct.
• Because the baseline duty is often gone, the agreement’s express protective clauses are most of what you actually have.

For the drafter’s side of the same principle, read the operating agreement manual on duty waivers. For the conflicts a waiver pre-authorizes, see conflicts of interest. For the full picture, start at the syndication hub.

Last verified August 2026.