April 13, 2021

Modification of Fiduciary Duties in Limited Liability Companies

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Many commercial disputes involving limited liability companies (LLCs) arise from allegations of breach of fiduciary duties from those within the business. Typically, the structuring of the organization, done through an LLC’s articles of organization and operating agreement, is of utmost importance in establishing the relationships among the parties within the entity and to the entity. Generally, fiduciary duties arise from those relationships, although they also can be implied by law. However, a dispute between or among members and/or managers of an LLC does not always follow a typical path. By agreement, parties can alter certain duties to expand, restrict, or eliminate fiduciary duties owing to either the LLC or the other members and managers, so that the business fits expectations and needs. Any modification must be performed in accordance with the LLC’s state authorizing statute, which may limit which duties can be modified. Finally, in elimination or “exculpation” of fiduciary duties, some states mandate that provisions be made in the LLC’s written operating agreement and that the provisions be set forth “clearly” and “unambiguously” to be upheld and not be rendered void by courts as a matter of public policy.