Fiduciary duties of a sponsor-appointed director at a portfolio company

A private equity board designee owes fiduciary duties to the portfolio company, and in a corporation to its stockholders as a whole, while also owing duties to the fund as a sponsor employee. Scope depends on entity type, state and governing documents. Any personal or firm benefit, including a SourceX referral reward, needs disclosure, recusal where advised and compliance sign-off.

The short answer: duties run to the company, and benefits must be disclosed

A sponsor-appointed director owes fiduciary duties to the portfolio company, and in a corporation to its stockholders as a whole, not only to the fund that appointed them. As an employee or partner of the sponsor, the same person also owes duties to the fund. The exact scope depends on the company's entity type, its state of formation and its governing documents.

That dual position is normal and manageable, but it means any personal or firm benefit tied to a decision the company makes needs care. A referral reward for introducing the company to SourceX is one example: it should be disclosed in writing, run through the company's conflict process with recusal where counsel advises it, and cleared by the sponsor's compliance team before the introduction.

This page describes general principles, not any one state's law, and it does not summarize case law. Ask counsel which rules control for the specific company.

What a board designee's duties generally cover

Corporate law in most US states describes director duties in broadly similar terms, but the details differ by state, and entity type changes the analysis.

Care. Make informed decisions: read the materials, ask questions, take advice where needed and give the board's deliberation real time.
Loyalty. Act in the company's interest rather than your own or a third party's. That includes handling conflicts through disclosure and approval by disinterested directors or stockholders, and not taking for yourself opportunities that belong to the company.
Good faith and oversight. Make a genuine effort to know about and address significant risks.
Confidentiality. Board information belongs to the company. What you may pass to the fund is usually set by the stockholder agreement, information rights and confidentiality terms.

Many portfolio companies are LLCs or limited partnerships rather than corporations. Their governing agreements may define, narrow or, in some states, largely eliminate certain duties, so read the operating or partnership agreement before assuming corporate rules apply.

Where the dual-fiduciary tension shows up

Situation	Where interests can diverge	What to check	Typical outcome to confirm with counsel
Exit timing and sale process	Fund timeline versus the interests of the company or minority holders	Drag-along terms, minority rights, special committee practice	Disclosure and, for some deals, an independent process
Dividend recap or distribution to the sponsor	Cash to the fund versus company liquidity and lenders	Credit agreement covenants and solvency analysis	Board approval with a documented solvency review
Fees to the sponsor or its affiliates	Monitoring or transaction fees paid by the company	Management services agreement and fund fee-offset terms	Approval under the agreed related-party process
Deals with sister portfolio companies	Pricing between two companies the same fund controls	Arm's-length terms and who approves on each side	Disinterested approval and a recorded pricing rationale
Introducing a third-party program that pays you or your firm	Personal or firm benefit from a company decision	Firm policy, fund documents, the company's conflict policy	Written disclosure, and recusal from any vote if advised
Sharing board information with the fund	Fund monitoring versus company confidentiality	Information rights and confidentiality terms	Share only what the documents permit

The distribution row connects to a separate question: whether license proceeds can be paid to the sponsor, which turns on the company's credit agreement.

Why a referral reward needs care even though it costs the company nothing

The structure of the SourceX reward reduces the economic conflict but does not remove the need to disclose. The partner reward is a share of SourceX's fee and is never deducted from what the company receives, and the company sets its own price and terms. Still, the designee benefits only if the company decides to license, and that is exactly the kind of interest a board expects to hear about before it deliberates.

The asset involved is the company's. Material that staff produce within the scope of their employment is generally treated as a work made for hire owned by the employer, as Copyright Office Circular 30 describes, and under 17 U.S.C. 201 copyright ownership can be transferred in whole or in part, with any exclusive right owned separately. The decision to license, the scope, the price and the proceeds all belong to the company. The designee's role is limited to the introduction.

Three further checks apply to many sponsor professionals:

Firm and fund policy. Your firm's compliance policy and the fund's partnership agreement may require that compensation connected to portfolio companies go to the firm or offset management fees. Settle whose name goes on the partner account, yours or the firm's, before registering.
FINRA registration. If you hold registrations through an affiliated broker-dealer, outside-activity rules apply. FINRA reports that the SEC approved new Rule 3290 on outside activities on September 15, 2026, replacing Rules 3270 and 3280, with the effective date to be announced in a Regulatory Notice; until then the existing rules apply. Tell your firm's compliance team before you start.
Tax. Referral payments are generally taxable income to the recipient; IRS Publication 525 explains what counts as income. Confirm the treatment with a tax adviser.

Disclosure and consent good practice

Clear it internally first. Tell your firm's general counsel or chief compliance officer what you plan to do and get written sign-off before you register.
Choose the registrant. Register in your own name or the firm's, as the policy and the fund documents direct.
Disclose in writing to the company. Before the introduction, tell the CEO and the board that you or your firm may receive 25% of the eligible platform fees SourceX collects, capped at $100,000 per referred company, if a deal closes and SourceX is paid.
Let management lead. The CEO or CFO evaluates the opportunity directly with SourceX; you do not negotiate for the company or for SourceX.
Recuse where advised. If the board votes on a license, follow counsel's advice on recusal and have the minutes record the disclosure.
Keep the file. Store the disclosure, the sign-off and the minutes, and revisit them if your role changes, for example if you become chair or the company enters a sale process.

The portfolio company onboarding kit is a natural place to set conflict-disclosure expectations right after close, and portfolio CEOs can read how to work with a private equity sponsor on board matters like this one.

Questions to ask counsel and compliance

Which state's law governs this company's director duties, and is it a corporation, LLC or partnership?
Do the charter, operating agreement or stockholder agreement modify duties or set a conflict procedure?
Does the fund's partnership agreement require fee offsets or firm ownership of portfolio-related compensation?
Should any reward go to me personally, to the firm or to nobody?
Do I need to recuse from a board vote on a license, and how should the minutes reflect it?
Does the company's conflict-of-interest policy require approval by disinterested directors?
Do any FINRA or investment adviser compliance obligations apply to me personally?
How should the arrangement be described to LPs if they ask?

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

How the program works if you are cleared to participate

You introduce; the company decides. SourceX qualifies the company on size, history, data breadth and rights, the company completes a data inventory, price and terms are agreed, buyers review, and the deal closes only when the company signs. You take no part in handling records: no exports, no uploads and no descriptions of anything confidential.

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. Rewards become payable only after the buyer pays and SourceX receives its fee; a meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Read the program terms before registering, and see referral opportunities for private equity operating partners for the partner view.

Next step

Get compliance sign-off and send the written disclosure first. Then register as a partner and make the introduction with your referral link or the referral form. The CEO can check fit against who qualifies before the first call.

Step 1Share your linkSend your personal link to a company you know.
Step 2Company appliesThe company applies itself at /apply.
Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
Step 4You get your rewardYour share of SourceX fees becomes payable.

Common questions

Does a board designee owe duties to the fund or to the company?

Both, but they attach to different roles. In the boardroom, the designee acts for the company and, in a corporation, for all of its stockholders, including minority and management holders. Outside it, as a sponsor employee or partner, the same person serves the fund. Trouble starts when one decision affects both sides, which is why conflict procedures exist and why the company's own documents matter.

Can I introduce a company whose board I sit on to SourceX?

Possibly, but clear it first. Get written sign-off from your firm's compliance team, disclose any reward to the company's CEO and board in writing before the introduction, let management evaluate the opportunity independently, and follow counsel's advice on recusing from any board vote on a license. The company decides whether to proceed, on its own terms.

Should the referral reward go to me or to my firm?

That is set by your firm's policy and the fund's documents, not by preference. Some firms require compensation connected to portfolio companies to go to the firm or to offset management fees charged to LPs. Agree the answer with compliance before registering, then register as the individual or as the firm accordingly, and keep the written sign-off on file.

Does it matter that the reward is never deducted from the company's proceeds?

It narrows the economic conflict, because the company's price and proceeds are the same with or without a referral partner. It does not remove the personal interest, since any reward depends on the company choosing to license. Treat it like any contingent benefit tied to a board decision: written disclosure first, then recusal if counsel advises it.

What changes if the portfolio company is an LLC rather than a corporation?

Start with the operating agreement rather than corporate rules. Many LLC agreements spell out which duties managers and board members owe, some states allow those duties to be modified substantially by contract, and the agreement may set its own approval process for interested transactions. Have counsel read it, and disclose any personal benefit whatever the agreement permits.

Free resources

Working capital calculator — Net working capital, current ratio and quick ratio.
Due diligence checklist generator — A tailored document request list by deal type.
Cash flow calculator — A 12-month cash forecast with shortfalls highlighted.
All free tools · MCP resource center

By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09

Know a US company with valuable proprietary data?

Become a referral partner from anywhere we support, get your link and introduce an owner or authorized decision-maker.

Refer a company →

I own a business

Explore licensing your company's data to AI developers worldwide. Start a short assessment; no uploads needed.

Start an assessment