LLC Fiduciary Duties

Duty of a Member to a Member-Managed LLC

Under the Illinois Limited Liability Act, an LLC member has fiduciary duties; specifically the duty loyalty, essentially subsumed within which are the duties of care and good faith and fair dealing. A member owes these duties to a member-managed LLC, and to the other LLC members.

The duty of loyalty requires that a member must account to the LLC, and hold as a constructive trustee for the LLC, for any LLC property, profit or benefit which a member derives in any way or in the winding-up of the LLC. This includes any appropriation of a business opportunity of the LLC. For example, if the LLC develops a business opportunity with its assets, a member fiduciary will be estopped from exploiting the opportunity even if the LLC cannot because it is not feasible for the LLC due to its financial condition. A member must not compete with the LLC before the the LLC is dissolved.

The duty of care and of good faith and fair dealing, especially in a wind up situation, in practical terms are minor. It requires that a member act fairly when dealing with the LLC, as – or on behalf of – a party with interests adverse to the LLC. This duty of care is limited to not engaging in intentional, grossly negligent or reckless conduct, or to not knowingly violating the law regarding the LLC. That a member may further its own interest is not a per se breach of fiduciary duty intros context.

Duty of a Member to a Manager-Managed LLC

Non-manager membership status alone in a manager-managed LLC creates no fiduciary duties whatsoever to the LLC or other members. The only situation in which a member in a manager-managed LLC can have any fiduciary duty is when that member acts as a manager and with the manager’s authority, i.e., should a manager delegate his or her authority to a member. In such instance, then the member to whom such authority has been delegated has all the same duties to the LLC and to other members as the managing member.

Duty of a Manager to a Manager-Managed LLC

As we have discussed here, a manager in a manager-managed LLC fiduciary duties of loyalty and care. These are the same duties as a managing member would have in a member-managed LLC.

The LLC lawyers at Lubin Austermuehle have many years of experience defending and prosecuting claims involving LLC members including breach of fiduciary duty and fraud claims and claims involving the freeze-out of members in the federal and state Chancery courts in Illinois in a wide variety of business dispute lawsuits. We are knowledgeable regarding the changes and complexities of LLC law. We are committed to fighting for our clients’ rights in LLC dispute cases at both the trial and appellate court levels. We have successfully defended or prosecuted LLC cases achieving large settlements for our clients or winning them control of their business. Conveniently located in Chicago and Elmhurst, Illinois, we have successfully litigated business separation, accounting and breach of fiduciary duty cases for clients all over the Chicago area. To schedule a consultation with one of our skilled attorneys, you can contact us online or give us a call at 630-333-0333.