On March 20, 2013, legislation proposing to amend the Delaware
Limited Liability Company Act, 6 Del. C. §§
18-101, et. seq. (DLLCA) was submitted to the Corporation
Law Section of the Delaware State Bar Association. If the proposed
legislation is enacted, the amendments, in addition to implementing
certain technical changes, would confirm that LLC managers owe
fiduciary duties where the LLC agreement is silent.
In our February 25, 2013 Corporate and Securities
Private Equity Fund Considerations in Light of Delaware's LLC
Debate," we outlined the Delaware debate over whether the
DLLCA imposes default fiduciary duties for LLC managers and
predicted that, given the attention the issue had been given, the
Delaware General Assembly may provide a resolution to this
To recap, the DLLCA, prior to these proposed amendments, did not
expressly provide for fiduciary duties for LLC managers where the
LLC Agreement does not explicitly provide for managers to have
fiduciary duties. The Delaware Supreme Court also had never ruled
whether LLC managers owe fiduciary duties absent an express
imposition in an LLC agreement. Although the Supreme Court had
never formally ruled on the issue, Chief Justice Myron T. Steele,
in his article "Judicial Scrutiny of Fiduciary Duties in
Delaware Limited Partnerships and Limited Liability
Companies," 32 Del. J. Corp. L. 1 (2007), argued that LLC
managers do not owe traditional fiduciary duties, unless the LLC
agreement so specifies. He based his conclusion on three main
justifications: (1) freedom of contract; (2) the fact that LLCs did
not exist at common law; and (3) the DLLCA's silence on the
By contrast, the Court of Chancery, in two separate 2012
opinions, held that LLC managers do owe fiduciary duties to LLC
members, unless waived, restricted, or eliminated by the LLC
agreement. The Court of Chancery based its holdings on (1) the
DLLCA's mandate that rules of law and equity shall govern where
the DLLCA is silent, (2) the definition of fiduciary and the role
of an LLC manager, and (3) the history of the DLLCA.
The 2013 proposed amendments to the DLLCA effectively resolve
this debate if they are ultimately adopted by the legislature and
signed into law by the governor, becoming effective on August 1,
2013. The proposed amendments specifically provide that a manager
of a manager-managed LLC owes fiduciary duties even in the absence
of a LLC agreement provision establishing those duties. It is
important to note, however, that drafters of LLC agreements may
still utilize the contractual freedom provided by Section 18-1101
to eliminate, restrict, or modify LLC managers' fiduciary
duties in the LLC agreement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Since the Regulation A+ effective date last month, a number of websites have emerged that promote "Regulation A+ crowdfunding" contributing even further to the confusion in the market regarding "crowdfunding."