What duties do the members of an LLC owe to each other?

What duties do the members of an LLC owe to each other? Under what principle might the terms of an operating agreement alter these duties?

1 Answer

  • 1 decade ago
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    In most states (LLCs are creatures of state law), members of LLCs most closely approximate shareholders while managers of LLCs approximate officers/directors. Similar to corporations then, member of LLCs have very limited duties to their LLC but managers have duties of care and loyalty similar to those of directors.

    Think of this example: you and Bill Gates both own Microsoft. As you are a shareholder but not an officer or director you have very few duties to other shareholders of Microsoft. However, Bill Gates, not because he is a shareholder, but because he is a board member and an executive, has significant duties of care and loyalty to the corporation. Similarly, purely by being a member of an LLC a member may not have significant duties, but a member-manager has duties of care and loyalty.

    In many jurisdictions, unlike under corporate law, managers of LLC may reduce their fiduciary duties by express agreement in an operating agreement. However, note that this varies from state to state -- in California for instance a manager's ability to disavow fiduciary duties is much more delimited than a Delaware LLCs.

    Hope this helps.

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