Articles Tagged with duty of loyalty

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.

Fotolia_86833018_Subscription_Monthly_M-300x200
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

California law imposes fiduciary duties upon the officers and directors of a corporation which requires them to conduct themselves in a certain way with regard to the corporation and its shareholders. A fiduciary duty is the highest duty that the law can require and it requires those upon whom the duty is imposed to act only in the interest of the party to whom the duty is owed. The fiduciary duties of officers and directors of a corporation have been codified in California Corporations Code § 309(a), which reads:

“A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may Integrity word cloud concept with honesty trust related tagsserve, in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a attorney like position would use under similar circumstances.”

 

Continue Reading