¶ 2101
Overview
Scope of the chapter. This chapter examines the fiduciary duties that the law imposes on those who manage or control an LLC when the operating agreement does not displace them. It identifies the sources of those duties in Delaware, under the uniform act and in several other states; the persons who owe them; the persons to whom they run; the content of the duty of loyalty, including the rules on self-dealing, company opportunities and competition; the duty of care and the standard by which it is measured; the place of good faith; the duties that persist through dissociation and winding up; and the remedies for breach. The modification and elimination of these duties by agreement, and the implied covenant of good faith and fair dealing, are examined in chapter 22. Exculpation, indemnification and advancement are examined in chapter 23, and the procedures for approving conflicted transactions in chapter 24.
Why default duties matter. Many LLC agreements, particularly those of sponsor-controlled ventures and publicly traded entities, eliminate or restate fiduciary duties. A large number do not. Agreements prepared from forms, agreements of family and closely held businesses, short-form agreements adopted at formation and never replaced, and oral or implied agreements frequently say nothing about duties at all. In each of those cases the default duties govern. Even a carefully drafted agreement that modifies duties is read against the default: a provision that restricts a duty presupposes the duty, and an ambiguous provision is resolved in favor of preserving it (see supra ¶ 340.03). The default duties are therefore the starting point for every fiduciary analysis, whatever the agreement ultimately provides.
Two models. The Delaware act states no fiduciary duties. It imports them from equity through § 18-1104, and the content of the duties is supplied by case law developed for corporations, limited partnerships and trusts. The uniform act states the duties in the statute itself. Section 409 identifies the duties of loyalty and care, defines their content and allocates them between members and managers by a "switching" rule. The difference matters in three respects. The Delaware duties are open-ended and may expand with equity, while the uniform act's duty of loyalty is stated in three specific components. The Delaware duty of care is measured by gross negligence through the business judgment rule, while the uniform act states a standard of gross negligence or recklessness directly. And the Delaware duties may be eliminated by agreement, while the uniform act duties of loyalty and care may be altered only within the limits of § 105 (see supra ¶ 330).
Organization. The chapter proceeds in nine parts: the sources of the default duties (¶ 2110); the persons who owe them (¶ 2120); the persons to whom they are owed and the enforcement of claims (¶ 2130); the duty of loyalty in self-dealing transactions and the entire fairness standard (¶ 2140); company opportunities and competition (¶ 2150); the duty of care (¶ 2160); good faith (¶ 2170); disclosure, dissociation and winding up (¶ 2180); and remedies and planning (¶ 2190).