Fiduciary Duties in a LLC

Entrepreneurs who are organized in a limited liability company may not realize they have fiduciary duties to the company and to their fellow members. When we talk about fiduciary duties in a LLC, we typically mean the duties of care and loyalty — that is, to work in the best interest of the company and its members, and not for one’s own self-interest to the detriment of the company and its members. The issue of fiduciary duties in a LLC usually come up in the context of a member with a controlling interest using that control to benefit himself or herself at the expense of the LLC or fellow members, or the context of a member starting a venture that competes with the LLC.

Different states impose fiduciary duties upon actors in a LLC in different circumstances, although the general rule provides that managers of a manager-managed LLC, and members of a member-managed LLC owe fiduciary duties to the LLC and its members, while non-managing members of a manager-managed LLC do not owe such duties. However, it is unclear whether, in a nominally member-managed LLC that is in practice or by operating agreement managed by fewer than all of the members (such that the LLC effectively has “silent partners”), “non-managing” members are subjected to fiduciary duties. Finally, regardless of how the LLC is managed, some states also impose fiduciary duties upon a member that has a controlling membership interest (such as a majority of the equity or voting interest, depending on how the operating agreement, if any, is written).

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