Good faith means conducting all transactions, negotiations, and interactions honestly, fairly, and without any intention to deceive, manipulate, or harm others involved.
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Last Updated: January 9, 2026
The term “good faith” is an important legal concept that may come up in the course of running a business. While it sounds straightforward, the definition of “good faith” in a business context can be a little different from what one might expect. This guide will walk through what good faith means and how it can impact a business.
Here’s some important information that business owners should understand to know how good faith can impact their company.
In the context of a contractual relationship, good faith is a particular type of legal duty. Often, this is referred to as the duty of good faith and fair dealing.
According to the Legal Information Institute (LLI), “good faith may require an honest belief or purpose, faithful performance of duties, observance of fair dealing standards, or an absence of fraudulent intent.” In short, good faith describes honesty and fairness in someone’s conduct during the course of a contractual relationship.
The duty of good faith is implied in most contractual agreements. Because this is an implied duty, this means that the legal duty exists even if there are no express terms of the contract stating that the parties agree to act with good faith.
Thus, when entering into contracts for a small business, entrepreneurs should be aware of their duty of good faith even if there’s no specific clause addressing it.
So how might a breach of good faith come up in a business context? Courts assess the duty of good faith and fair dealing on a case-by-case basis. However, some common examples of actions that could constitute a breach of the duty of good faith include:
When in doubt, a business owner should act with honesty and full cooperation to better avoid breaching their duty of good faith.
Understanding the duty of good faith is crucial to the success of a business. When it comes to contractual agreements, not only is it important to understand the explicit terms of the agreement, but it’s also wise to be aware of the implied ones. Failure to comply with the implied duty of good faith can land a business in hot water that can result in potentially damaging legal implications.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
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