On August 1, 2013, the Delaware Assembly passed an amendment to Section 18-1104 of the Delaware LLC Act, expressly providing that corporate director-type fiduciary duties apply by default to LLC managers (and members active in the LLC operations).
The amended statutory language is shown below, with the change underlined.
“§ 18-1104 Cases not provided for in this chapter.
In any case not provided for in this chapter, the rules of law and equity, including the rules of law and equity relating to fiduciary duties and the law merchant, shall govern.”
The amended statue was a response to the Delaware Supreme Court decision, Gatz Properties LLC v. Auriga Capital Corp., C.A. No. 148 (Del. 2012), in which the court stated that the Delaware LLC statute is ambiguous about whether fiduciary duties apply to LLCs by default and urged the Delaware General Assembly to resolve the ambiguity (See bottom of p. 26 in the Decision).
Below is sample language that can be used to limit fiduciary duties for owners and officers of Delaware LLCs and LPs. I’ve modified it slightly because the original language was based on a Delaware Limited Partnership Agreement updated in February 2014, available here.
Duty of Loyalty
(a) The Manager and its principals, partners, directors, officers, members, employees, (the “Manager Agents”) will not be required to devote their full time efforts to the affairs of the Company. The Manager will devote so much of its time and effort in connection with the operations of the Company as in its sole discretion it deems necessary for the management of the affairs of the Company, except as may be required under the Investment Company Act of 1940 and the rules, regulations and orders under the 1940 Act, as amended from time to time, or any successor law.
(b) The Manager and any Member, and any Affiliate of any Member may engage in or possess an interest in other business ventures or commercial dealings of every kind and description, independently or with others, including, but not limited to, acquisition and disposition of Securities, provision of investment advisory or brokerage services, serving as directors, officers, employees, advisors or agents of other companies, Partners of any Partnership, members of any limited liability company, or trustees of any trust, or entering into any other commercial arrangements. No Member will have any rights in or to such activities of any other Member or any Affiliate of any Member or any profits derived from these activities.
(c) The Manager and and the Manager Agents, from time to time may acquire, possess, manage, hypothecate and dispose of Securities or other investment assets, and engage in any other investment transaction for any account over which they exercise discretionary authority, including their own accounts, the accounts of their families, the account of any entity in which they have a beneficial interest or the accounts of others for whom or which they may provide investment advisory or other services.
(d) To the extent that at law or in equity the Manager has duties (including fiduciary duties) and liabilities relating to those duties to the Company or to any other Partner or other Person bound by this Agreement, any such Person acting under this Agreement will not be liable to the Company or to any other Partner or other Person bound by this Agreement for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the Manager otherwise existing at law or in equity, are agreed by the Members to replace the other duties and liabilities of the Manager.
DUTY OF CARE
(a) The Manager, the Manager Agents and the Members will not be liable to the Company or to any of its Members for any loss or damage occasioned by any act or omission in the performance of the Person’s services under this Agreement, in the absence of a final judicial or arbitral decision on the merits from which no further right to appeal may be taken that the loss is due to an act or omission of the Person constituting bad faith, gross negligence or reckless disregard of the Person’s duties under this Agreement.
(b) Managers and Members not in breach of any obligation under this Agreement or under any agreement pursuant to which such Manager or Member subscribed for Membership Interests will be liable to the Company, any Member or third parties only as required by this Agreement or applicable law.