United States: Fiduciary Duties Of Managers And Members Under California's Revised Uniform Limited Liability Company Act

Last Updated: December 15 2016
Article by April E. Frisby and Karl E. Foster

When drafting operating agreements, amendments or joinders to operating agreements for limited liability companies formed in the State of California, practitioners should take note of changes to California limited liability company (LLC) law affecting the fiduciary duties of the managers and members.


On January 1, 2014, the California Revised Uniform Limited Liability Company Act ("RULLCA") became effective. Signed into law on September 21, 2012 by Governor Jerry Brown, RULLCA replaces the Beverly-Killea Limited Liability Company Act ("Beverly-Killea"). RULLCA was intended to modernize California LLC law based on more than two decades of legal developments across the United States. Note that Beverly-Killea remains in effect to some extent for LLCs formed before January 1, 2014 for acts or transactions occurring before that date or an operating agreement or other contracts entered into prior to that date.

In defining the fiduciary duties of the managers and members of LLCs, Beverly Killea merely cross-referenced California general partnership law without being more specific. And, although the rules regarding fiduciary duties under RULLCA are opaque at best, RULLCA sets forth certain specific fiduciary duties of managers owed to members and members to each other, and how such fiduciary duties may be modified.


Under RULLCA, fiduciary duties are no longer incorporated by reference from partnership law, but are specifically contained in the act. Note that RULLCA does not state that these are exclusive fiduciary duties, and a court could modify the enumerated fiduciary duties (further, other statutory schemes governing such duties could be relevant) but that discussion is beyond the scope of this article. Further, RULLCA sets forth which duties may be modified by agreement.

The Duties

For a member-managed LLC, the fiduciary duties owed between members are the duty of loyalty and the duty of care. In a manager-managed LLC, the manager owes the duty of loyalty and the duty of care to the members. In general, the members do not owe these duties to each other in a manager-managed LLC solely by virtue of being a member (however, there could be some duties owed by a "controlling member" in a manager-managed LLC that are not discussed in this article). However, both the manager and the members in a manager-managed and a membermanaged LLC owe the duty of good faith and fair dealing to the members.

1. Duty of Loyalty. There are three subsets within the duty of loyalty: (1) the duty to account (and hold as a trustee any property, profit or benefit for the members (including a company opportunity)), (2) the duty to refrain from selfdealing (or acting on behalf of a person having an interest adverse to the company) and (3) the duty not to compete.

2. Duty of Care. The manager (or member in a member-managed LLC) must refrain from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of the law.

3. Obligation of Good Faith & Fair Dealing. Managers and members of LLCs must discharge their duties to the LLC and the members under RULLCA or the LLC's operating agreement and exercise any rights consistent with the obligation of good faith and fair dealing.

Modifying Fiduciary Duties

While RULLCA allows modifications, RULLCA prohibits operating agreements from eliminating all together the duty of loyalty, the duty of care or any other fiduciary duty, and the obligation of good faith and fair dealing.

1. Duty of Loyalty. An operating agreement may identify specific types or categories of activities that do not violate the duty of loyalty if not manifestly unreasonable and specify the number or percentage of members that may authorize or ratify, after full disclosure to all members of all material facts, a specific act or transaction that would otherwise violate the duty of loyalty.

2. Duty of Care. The duty of care may not be unreasonably reduced, but may be modified to the statutory minimum by limiting the duty of care to refraining from grossly negligent or reckless conduct, intentional conduct or a knowing violation of the law.

3. Obligation of Good Faith and Fair Dealing. An operating agreement may specify the standards by which performance of the obligation of good faith and fair dealing is to measured, so long as the standards are not "manifestly unreasonable" at the time the standards are prescribed. For example, standards may be implemented such as "if the manager makes a decision based on the manager's honest belief" or "if a disinterested party knowledgeable in the matter states that such action would be agreed to by persons at arm's length and in comparable circumstances."


Under Beverly-Killea indemnification of members and managers by the LLC was optional. Under RULLCA, indemnification of managers and members is the default rule, but an operating agreement may modify a manager's (or a member's in member-managed LLC) right to indemnification; provided, however, that RULLCA requires each LLC to reimburse for any payment made and indemnify for any debt, obligation or other liability incurred by a member of a member-managed LLC or the manager of a manager-managed LLC in the course of the member's or manager's activities on behalf of the LLC, if, in making the payment or incurring the debt, obligation or other liability, the member or manager complied with his or her fiduciary duties. Further, although beyond the scope of this article, there are other ways to limit liability of managers and members, including by insurance.


In practice, it appears that many practitioners continue to rely on the code and do not modify managers' or members' fiduciary duties in operating agreements. One reason may be that RULLCA is fairly new and the courts have not yet had the opportunity to flesh out these concepts. Further, RULLCA provides that the fiduciary duties of a manager may be modified only with full disclosure and the "informed consent" of the members, which is a murky concept at best. RULLCA does provide, however, that informed consent of a member in a new LLC differs from a member who is deemed to consent to the operating agreement when such party becomes a member of an existing LLC. Accordingly, practitioners should take great care when drafting operating agreements for new LLCs or joinders admitting new members to existing LLCs that the informed consent of the members to modify fiduciary duties is well documented. Additionally, such modifications to the operating agreement should be targeted and specifically authorize certain actions that might otherwise be viewed as conflicting with the duty of loyalty (e.g., engaging in a competing business venture) or the duty of care (e.g., permitting the delegation of certain manager duties to officers or agents).

While the exact meaning of informed consent remains unclear, drawing from other areas of law may give some guidance. Specifically informed consent, at a bare minimum, likely means that practitioners should obtain the written consent of the parties after full written disclosure of the material risks of such modifications. And, if modification of fiduciary duties is intended, each member must be made fully aware of such modifications prospectively. From the practitioner's point of view, this means that in new LLCs, each member must be fully aware of such modifications prior to the effectiveness of an operating agreement, and in existing LLCs with an existing operating agreement, each member must be fully aware of such modifications prior to the effectiveness of any amendment to an operating agreement modifying such terms. Further, each new member in an existing LLC must be made fully aware of such modifications prior to the effectiveness of a joinder admitting it to the LLC.


Prudence dictates that managers and members of California LLCs pay attention to recent changes in the laws affecting California LLCs. The courts have not yet addressed many of the open issues posed by these new laws and such interpretations could lead to varying results and unintended consequences. To avoid pitfalls and potential liability, it is imperative that practitioners use the principles provided in this article to clearly draft governing documents in a manner that will not require a court to make broad leaps of faith to give effect to the intent of the parties.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.