One of the features of Washington’s new LLC Act is a clarification of the fiduciary duties owed by members and managers. The Act provides that the only fiduciary duties members of a member- managed LLC and a manager of a manager-managed LLC are the duties of loyalty and care. Members in a manager-managed LLC do not owe fiduciary duties.
The duty of loyalty is limited to:
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- Account to the LLC and hold as trustee for the LLC any profit, or benefit derived by the manager or member with respect to the LLC’s activities, including the appropriation of an LLC opportunity;
- To refrain from dealing with the LLC on behalf of a party having an adverse interest to the LLC; and
- To refrain from competing with the LLC.
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The duty of care is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of the law.
An LLC Agreement may modify the above referenced fiduciary duties provided they do not eliminate or limit the implied contractual duty of good faith and fair dealing.
While it is easy to recite the above referenced rules, putting them into practice can be extraordinarily difficult. Nevertheless, it is critical that all LLC members and managers have a clear understanding of their fiduciary duties owed to the Company and to each other. At Beresford Booth we counsel our clients on their duties every day. We would be pleased to assist you as well.