The Delaware General Assembly recently amended Section 18-1104 of the Delaware Limited Liability Company (LLC) Act to provide that unless the LLC operating agreement says otherwise, the managers and controlling members of an LLC owe fiduciary duties of care and loyalty to the limited liability company and its members.  Accordingly, a manager or controlling member would be required to perform his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the company, and with the care that an ordinarily prudent person in a like position would use under similar circumstances.

According to the General Assembly, “Section 8 amends Section 18-1104 to confirm that in some circumstances fiduciary duties not explicitly provided for in the limited liability company agreement apply.  For example, a manager of a manager-managed limited liability company would ordinarily have fiduciary duties even in the absence of a provision in the limited liability company agreement establishing such duties.  Section 18-1101(c) continues to provide that such duties may be expanded, restricted or eliminated by the limited liability company agreement.”  Therefore, subject to the implied contractual covenant of good faith and fair dealing, members of an LLC can expand, restrict, or eliminate their fiduciary duties in the company’s operating agreement.  Click here for the relevant paragraph (c) of Section 18-1101 (Construction and Application of Chapter and Limited Liability Company Agreement).

IP & Business Law Counseling, LLC can help your company prepare and negotiate an LLC operating agreement that appropriately defines the fiduciary duties of the company’s managers and controlling members.