August 1, 2014

20

New Articles

Advertisement

August 01, 2014

July 31, 2014

Delaware Supreme Court Alters Fiduciary Duty Landscape for LLCs

Delaware has long been a preferred jurisdiction for organizing corporations and limited liability companies (LLCs). So when the Delaware Supreme Court speaks on important corporate and LLC issues, people listen.

Until recently, it was widely (though not uniformly) believed that, unless restricted or eliminated in an LLC Operating Agreement, the majority member or manager in an LLC owed a fiduciary duty to the other members similar to that of a partner in a partnership.

However, recently the Delaware Supreme Court called into question the existence of default fiduciary duties in Delaware LLCs. In Gatz Properties, LLC v. Auriga Capital Corp., 2012 Del. LEXIS 577 (Del. Nov. 7, 2012), the Delaware Supreme Court found that “the merits of the issue whether the LLC statute does – or does not – impose default fiduciary duties is one about which reasonable minds could differ.” Gatz, 32-33 n. 70.

The Gatz opinion does not resolve whether default fiduciary duties exist in Delaware. However, it highlights that the reasonable minds of the Delaware courts may not agree, which is significant.

Accordingly, those forming Delaware LLCs or investing in Delaware LLCs – particularly minority investors in Delaware LLCs – should carefully review their LLC Agreements on the issue of fiduciary duty. To be appropriately protected, the LLC Agreement should contain some positive statement about the existence and types of fiduciary duties that will be observed.

The Gatz decision could also have implications outside of Delaware, particularly in the many states that follow Delaware’s example of not expressly providing a fiduciary duty standard in their LLC Act.

© 2014 BARNES & THORNBURG LLP

TRENDING LEGAL ANALYSIS


About this Author

At Barnes & Thornburg LLP, our corporate attorneys are dedicated to the single, yet encompassing, goal of helping our clients achieve their business objectives. We bring experience, efficiency, energy and creativity to the single-minded pursuit of this goal.

We offer advice and counseling on a wide range of legal issues facing business in the 21st century. Whether you are a Fortune 500 company, an emerging growth company, or a middle market company positioned in between, we are committed to providing prompt and proactive, value-added service, while placing at your disposal...

317-231-7803