By: Richard E. Korb[1] Limited liability companies (LLCs) are the newest and fastest growing business entity in the United States. LLCs are sometimes referred to as a hybrid form of business insofar as they blend elements of several business structures, offering the limited liability of a corporation and the pass-through tax treatment of a partnership, while also providing a flexible management structure that can be organized to accommodate the needs of the business and its members.
The LLC is comprised of members, which is somewhat similar to a shareholder of a corporation or a partner in a partnership. One key distinction is that a member of an LLC can be an individual, another LLC, or any other legal entity. Despite the flexible structure of LLCs and their members, they are defined by a legal classification like all business entities, which can vary on a state-by-state level. An example is the minimum number of members required to form an LLC. In California, just one owner can form an LLC.
Generally, what every LLC state law has in common is the requirement of an operating agreement. This document is essential to all LLCs as it defines the financial and managerial rights and responsibilities between each member and to the LLC. In states where an operating agreement is not required, drafting such a document is still advisable. Otherwise, the LLC will be governed by the law of the state in which it is incorporated, which might not always be beneficial to the company or its members.
With the rising popularity of LLCs and their hybrid business structure, it is important for a company’s members to understand their fiduciary responsibilities. In a corporation, officers and directors have fiduciary responsibilities to the company and to its shareholders, meaning the director or officer owes them a duty of utmost loyalty and care. Both duties (loyalty and care) are broad standards of conduct that encompass the notion of acting within the best interests of the shareholders and corporation in mind. For example, this forbids a director from acting out of self-interest, e.g., a director may not make a decision that would benefit him and/or hurt the corporation without discussing such an issue with the board.
Similar fiduciary duties of loyalty and care are required of the members of an LLC. Members are required to refrain from acting in a manner that could hurt the company. As in a corporation or partnership, members are also required to refrain from competing with the LLC. The duty of care also obligates members to act in the best interest of the company. When considering the questionable behavior of a member, it is important to ask if another person in a similar position under similar circumstances would have acted with a similar degree of care. And similar to officers or directors, the member of an LLC is usually not liable when the company reasonably relies on the advice or counsel of outside professionals such as attorneys or accountants.
So, how are the fiduciary duties of a member of an LLC different from those of a corporate officer or director? First, to understand the fiduciary responsibilities of the members of an LLC, one must first distinguish between a member-managed LLC and a manager-managed LLC. In a member-managed LLC, the members owe duties of loyalty and care to the company and to their fellow members. These duties may be modified within reason, by agreement of the members through a majority vote.
In a manager-managed LLC, members do not generally have fiduciary duties unless such duties are designated by the LLC and its controlling manager. Like a member-managed LLC, the fiduciary duties of a manager include loyalty and care to the company and its members. Additionally, a manager’s duties may be altered with the consent of the members so long as they don’t violate the law or public policy of the state in which it is operating. As Section 16404 of the California Corporations Code states: The fiduciary duties of a manger to the limited liability company and to the members of the limited liability company may only be modified in a written operation agreement with the informed consent of the members.
If a fiduciary duty has been breached by either the LLC or one member to another, a member could be entitled to seek damages in a court of law. For example, in situations where a member has concealed profits, other members or the LLC could be entitled to monetary compensation for the damages. In other situations, the breaching of a fiduciary duty can justify the removal of a guilty member. If a member has been accused of breaching a fiduciary duty or if a member believes that another member in its LLC has breached a duty owed to it, it is advisable to contact an experienced lawyer to analyze the specifics of the situation and give advice for the best course of action. Should you desire a free consultation with an experienced business and trial attorney familiar with LLC issues, please feel free to contact Richard e. Korb, at (510) 524-0903.
[1] RICHARD E. KORB is a seasoned attorney with 30 years of business and real estate litigation and transactional (contracts) experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, bankruptcy and general civil law and he has drafted and negotiated over 250 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters. In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts.
Note: All content in this article or on our website or blog is for informational purposes only. It is not intended to serve as legal advice and no attorney-client relationship shall exist by virtue of its dissemination ©2011 RICHARD E. KORB. Should you wish legal advice, you may contact Richard for a consultation at 510-524-0903.
©Richard Korb. 2011.
RSS
Facebook
LinkedIn
YouTube
46 comments
Florence Poole says:
August 26, 2011 at 5:16 am (UTC 0)
You made a few fine points there. I did a search on the subject and found most people will go along with with your blog.
Guy Recksiek says:
August 30, 2011 at 7:53 pm (UTC 0)
Hi there, just wanted to stop by to let you know about an amazing plugin for wordpress that would help your blog enormously. Check it out for yourself at seopressorplugin.biz. It’s a real timesaver and any internet marketer’s dream plugin. Hope you enojy it!
itunes not detecting apple tv says:
September 1, 2011 at 7:40 pm (UTC 0)
Good blog, but it would be better if in future you can share more about this subject. Keep posting.
the Shift pin Selection says:
September 10, 2011 at 12:48 am (UTC 0)
You are a very bright individual!
watch silvina luna says:
September 14, 2011 at 2:44 pm (UTC 0)
You are a very smart person!
Unlock iPhone 4 says:
September 22, 2011 at 6:32 pm (UTC 0)
I admire your website , it has of lot of information. You just got one perennial visitor of this blog.
Zubari Beograd says:
September 26, 2011 at 6:42 pm (UTC 0)
Of course, what a fantastic blog and enlightening posts, I will bookmark your blog.Best Regards!
alex cross series ebook download free says:
September 27, 2011 at 4:55 am (UTC 0)
Hello.This article was extremely remarkable, particularly because I was searching for thoughts on this topic last Saturday.
Customers Reviews says:
September 27, 2011 at 6:32 am (UTC 0)
Just keep writing good stuff.
hd bifocal aviator sunglasses says:
September 30, 2011 at 4:54 am (UTC 0)
Keep functioning ,great job!
Expert authors in our free article directory itouch support says:
September 30, 2011 at 6:56 am (UTC 0)
There are different opinions on this. I enjoyed your viewpoint.
Golf Courses Portugal says:
October 1, 2011 at 8:50 pm (UTC 0)
Very good written post. It will be valuable to anyone who utilizes it, as well as me. Keep doing what you are doing – i will definitely read more posts.
Pocket Projector Review says:
October 2, 2011 at 4:00 am (UTC 0)
I admire your website , it’s filled of lot of information. You just got a perennial visitor of this site.
Hummmingbird Feeders says:
October 2, 2011 at 6:48 am (UTC 0)
Thank you for sharing your thoughts. Greet!
free online hidden object games says:
October 5, 2011 at 3:46 am (UTC 0)
I can’t thank you more than enough for the articles on your website. I know you place a lot of time and energy into all of them and hope you know how considerably I appreciate it. I hope I’m able to do something identical for another man or woman at some point.
my lead company says:
October 9, 2011 at 9:47 pm (UTC 0)
It’s rare to locate an expert in whom you can have some trust. In the world at present, nobody truly cares about showing others the solution in this matter. How fortuitous I am to have actually found such a wonderful website as this. It is really people like you exactly who make a real difference in this world through the strategies they reveal.
floridahomeinsurancequotes says:
October 10, 2011 at 1:55 am (UTC 0)
I couldn’t have really asked for a better blog. You’re always at hand to give excellent suggestions, going straight to the point for straightforward understanding of your site visitors. You’re undeniably a terrific expert in this area. Thanks a ton for remaining there for folks like me.
desatrasncos says:
October 10, 2011 at 5:08 am (UTC 0)
The ideas you provided here are incredibly valuable. It turned out such an entertaining surprise to see that awaiting me as i woke up this very day. They are continually to the point as well as simple to understand. Thank you so much for the useful ideas you have shared right here.
Festive Lighting Suppliers says:
October 10, 2011 at 1:57 pm (UTC 0)
We so appreciate your site post. There are a multitude of ways we could put it to very good use with a minimum of effort on time and hard earned cash. Thank you so much pertaining to helping make the post give light to many issues we have come across before now.
Arquetas says:
October 10, 2011 at 4:14 pm (UTC 0)
The ideas you have given here are very useful. It absolutely was such an exciting surprise to have that awaiting me when I woke up today. They are always to the point and straightforward to grasp. Warm regards for the innovative ideas you’ve got shared right here.
Wedding Photography Manchester says:
October 10, 2011 at 7:35 pm (UTC 0)
Just about all I can express is, I don’t know what to express! Except needless to say, for the great tips which are shared within this blog. I could think of a million fun tips on how to read the content on this site. I do believe I will eventually take action making use of your tips on areas I could not have been able to deal with alone. You’re so careful to allow me to be one of those to profit from your practical information. Please realize how a great deal I am thankful.
tunbridge wells to heathrow says:
October 10, 2011 at 10:52 pm (UTC 0)
We extremely appreciate your blog post. There are dozens of techniques we could put it to good use by means of minimal effort on time and financial resources. Thank you very much regarding helping make this post give light to many questions we have got before now.
spoznaj ljubezen says:
October 11, 2011 at 12:49 pm (UTC 0)
I just now wanted to tell you how much we appreciate almost everything you’ve discussed to help improve lives of individuals in this theme. Through the articles, I’ve really gone via just a newbie to a pro in the area. It’s truly a honor to your work. Thanks
Donnette Viren says:
October 11, 2011 at 8:42 pm (UTC 0)
Say thanks a lot for your time and energy to have decided to put these things together on this website. Janet and i also very much loved your insight through the articles in certain things. I realize that you have a variety of demands in your timetable hence the fact that a person like you took just as much time just like you did to steer people really like us through this article is definitely highly appreciated.
informatica says:
October 13, 2011 at 3:48 pm (UTC 0)
All I can comment on is, I’m not sure what to say! Except needless to say, for the superb tips which are shared within this blog. I’m able to think of a million fun ways to read the articles or blog posts on this site. There’s no doubt that I will ultimately take a step employing your tips on areas I could not have been able to deal with alone. You are so considerate to let me be one of those to benefit from your valuable information. Please know how great I enjoy the whole thing.
Igre Online says:
October 13, 2011 at 10:32 pm (UTC 0)
You made some good points there. I did a search on the subject matter and found most guys will approve with your website.
Besplatne Igrice says:
October 14, 2011 at 7:59 pm (UTC 0)
I really enjoyed your blog. Its always nice when you find something that is not only informative but entertaining. Outstanding.
Cheap Photographers Manchester says:
October 15, 2011 at 11:51 am (UTC 0)
I couldn’t currently have asked for a better blog. You happen to be ever present to offer excellent advice, going straight to the point for quick understanding of your website visitors. You’re undoubtedly a terrific specialist in this area. Thanks a lot for currently being there for people like me.
mobiliemarketing says:
October 15, 2011 at 11:55 am (UTC 0)
I couldn’t currently have asked for an even better blog. You happen to be ever present to offer excellent guidance, going on to the point for simple understanding of your website visitors. You’re surely a terrific pro in this subject matter. Thanks for always being there for folks like me.
Merchant account says:
October 15, 2011 at 12:58 pm (UTC 0)
Almost all I can point out is, I don’t know what to comment! Except obviously, for the amazing tips that happen to be shared with this blog. I can think of a trillion fun ways to read the content articles on this site. I do believe I will ultimately take action using your tips on those things I could not have been able to take care of alone. You had been so considerate to permit me to be one of those to profit from your beneficial information. Please recognize how significantly I appreciate it.
Running For Weight Loss That Works says:
October 15, 2011 at 7:45 pm (UTC 0)
I couldn’t have asked for a better blog. You are ever present to present excellent information, going right to the point for quick understanding of your visitors. You’re undeniably a terrific pro in this subject. Thanks for remaining there for an individual like me.
unlock iphone 4g says:
October 15, 2011 at 8:15 pm (UTC 0)
Excellent post this will really help me!
Igrice Besplatne says:
October 17, 2011 at 12:09 am (UTC 0)
Hello. excellent job. I did not anticipate this. This is a remarkable story. Thanks!
Pdf Translator says:
October 17, 2011 at 10:14 am (UTC 0)
Great article, thank you. I signed up to your blog RSS.
group buying blog says:
October 27, 2011 at 11:45 am (UTC 0)
Most I can say is, I’m not sure what to express! Except of course, for the superb tips which are shared with this blog. I am able to think of a million fun ways to read the reports on this site. I’m sure I will ultimately take a step using your tips on areas I could never have been able to touch alone. You are so considerate to let me be one of those to benefit from your valuable information. Please realize how great I enjoy the whole thing.
Boston Marketing Consultant says:
October 27, 2011 at 2:34 pm (UTC 0)
It was some sort of pleasure finding your site a short while ago. I got here this day hoping to uncover new things. I was not frustrated. Your ideas with new solutions on this area were topical and a wonderful help to me personally. Thank you for creating time to create these things and for sharing your thinking.
whiplash average payout says:
October 27, 2011 at 3:11 pm (UTC 0)
Thanks, I have recently been seeking for facts about this topic for ages and yours is the best I have located so far.
My Lead Company says:
October 28, 2011 at 5:55 pm (UTC 0)
It really is rare to find an expert in whom you will surely have some confidence. In the world today, nobody actually cares about showing others the best way in this subject matter. How lucky I am to have now found a really wonderful blog as this. It is really people like you exactly who make a true difference in this world through the strategies they discuss.
Generic Viagra says:
October 29, 2011 at 12:34 pm (UTC 0)
Fantastic webpage, thank you for coming up with th is put in
law says:
October 29, 2011 at 3:04 pm (UTC 0)
What would we do minus the magnificent strategies you write about on this site? Who else comes with the fortitude to deal with vital topics for the health of common visitors like me? My spouse and i and my guys are very fortunate to have your web blog among the types we regularly visit. It is hoped you know how very much we get pleasure from your hard work! Best wishes coming from us all.
play flash cool games says:
October 30, 2011 at 12:31 am (UTC 0)
I just now wanted to inform you about how much we appreciate every thing you’ve shared to help enhance the lives of people in this theme. Through the articles, we’ve gone through just a newbie to a specialist in the area. It truly is truly a honor to your initiatives. Thanks
my articles on marketing says:
October 30, 2011 at 3:33 pm (UTC 0)
We so appreciate your blog post. There are so many techniques we could put it to proper use by using a minimum of effort on time and financial resources. Thank you very much with regard to helping make the post give light to many issues we have had before now.
Generic Viagra says:
October 30, 2011 at 7:16 pm (UTC 0)
Fabulous online site!
gold jewelry says:
October 30, 2011 at 10:54 pm (UTC 0)
We so appreciate your site post. You will discover hundreds of tactics we could put it to great use by means of little or no effort in time and resources. Thank you very much regarding helping have the post reply many queries we have encountered before now.
Singapore Construction says:
October 31, 2011 at 3:28 pm (UTC 0)
I couldn’t have really asked for an even better blog. You’re ever present to give excellent guidance, going right to the point for straightforward understanding of your readership. You’re undeniably a terrific professional in this matter. Thanks a lot for remaining there for individuals like me.
seo google says:
October 31, 2011 at 3:53 pm (UTC 0)
Just about all I can comment on is, I am not sure what to really say! Except obviously, for the excellent tips that happen to be shared with this blog. I could think of a million fun strategies to read the content on this site. I believe I will at last make a move using your tips on those issues I could never have been able to deal with alone. You had been so innovative to permit me to be one of those to learn from your beneficial information. Please recognize how much I appreciate it.