A limited liability company (“LLC”) is one of the most favored forms of business entities because they combine the advantages of a corporation, such as limited liability and protection of their members from investor-level liability, with the advantages of a partnership, such as “pass-through tax treatment.” Additionally, LLCs are characterized by the informality of its organization and internal governance, set forth through an internal contract called the operating agreement. An LLC member can be an individual, a corporation, a partnership, another limited liability company or any other legal entity.
An LLC can be structured as a manager-managed or member-managed LLC. In a manager-managed LLC, the members appoint a manager or managers to run and manage the LLC while the members take on a more passive role. In a member-managed LLC, all the members share in managing the day-today operations of the LLC. The managers or managing members who have been charged with the responsibility of running the LLC are obliged to act in the best interest of the LLC. The duties connected to this obligation are known as fiduciary duties. The key fiduciary duties are the duty of loyalty and the duty of care. These duties are specifically defined by California law, as discussed in more detail below.
Requirements of a Fiduciary Duty