LLC Operating Agreements And Fiduciary Duty

This post is based upon an excellent article in Business Law Today titled, Eliminating Fiduciary Duty Uncertainty - The Benefits of Effectively Modifying Fiduciary Duties in Delaware LLC Agreements. The authors are Paul Altman, Elisa Maas and Michael Maxwell.

The issue is whether members of an LLC owe each other fiduciary duties. In the absence of any explicit disclaimers, Courts have held that the members of an LLC do owe each other a fiduciary duty.

A fiduciary duty is a high duty requiring the members to be loyal to the enterprise and each other. They are not permitted to (a) divert business to another entity; or (b) take excessive compensation or, obviously convert company assets.

There are situations where these fiduciary duties can hinder the members of the LLC. The authors recommend that any disclaimer of any fiduciary duty be explicit and unambiguous.

If the LLC operating agreement is silent, the courts will assume that all of the traditional fiduciary duties apply.

Edward X. Clinton, Jr.

www.clintonlaw.net