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Home » Commercial Litigation » Understanding your fiduciary duty as a member of an LLC

Understanding your fiduciary duty as a member of an LLC

| Jun 16, 2020 | Commercial Litigation |

Companies are built on trust and relationships. You enter into agreements and contracts with others in order to build your company and expand your customer base. You rely on the other parties to uphold their ends of agreements. Perhaps no relationship is as important as the one between the members, or partners, of a limited liability company (LLC).

You and your fellow owners owe the company a fiduciary duty. This means you treat your company’s interests and assets with the same care as you would your own. Your fiduciary duty actually includes several duties, such as:

  • Duty of care- In your actions regarding the company, you should always act with care for the best interest of the company, including due diligence.
  • Duty of loyalty- You must put your company’s well-being ahead of your own or that of other businesses.
  • Duty of obedience- You must follow both the law and the operating agreement for your company.
  • Duty of disclosure- If you know something that may affect the business, you must tell the rest of your board, partners or shareholders before taking any important steps.
  • Duty of good faith and fair dealing- Honesty and integrity are important to any well-run company. You must deal with your company fairly in everything you do.

Most LLC partners uphold these duties as a matter of course. Unfortunately, sometimes members are tempted to tip the scales in their own favor, rather than looking out for the best interest of the company.

What can you do if your partner is breaching their duty?

If you find that one of your partners has breached their fiduciary duty and damaged the company in some way, you may choose to bring legal action against that partner. A successful case will show that the person:

  • Had a fiduciary duty to the company
  • Breached his or her fiduciary duty
  • The breach caused damages to the company

These cases can be complicated and difficult to prove. You must be able to show that the breach of duty has a direct link to the damages you claim.

Remedies for the damages may come in many forms, including loss of profits, out-of-pocket expenses, fee forfeiture and injunctions, just to name a few. You have a limited amount of time to bring your case, so you should research your legal options right away.

No one wants to find their LLC endangered by the selfish acts of their partners. You can help prevent such problems by ensuring that everyone in your company understands their rights and responsibilities. When problems do arise, however, you have legal options to protect your business.