Fiduciary Duties of LLC Members

Fiduciary Duties of LLC Members 

If you are a member of a Limited Liability Company (LLC), you may have special responsibilities to the company and the other members. These are called fiduciary duties. They exist to make sure members act fairly, honestly, and in the best interest of the business. 

Not every member has the same duties. The rules depend on your LLC’s management setup, the operating agreement, and the laws of your state. 

What Fiduciary Duty Means 

The word comes from the Latin for “trust.” A fiduciary is a person who has the power and obligation to act for someone else. In an LLC, it means putting the company’s needs before your own. 

The Main Fiduciary Duties 

Duty of Loyalty 

The duty of loyalty means you must put the LLC first. You should not: 

• Take LLC property or business opportunities for yourself. 

• Enter deals that go against the company’s interests unless everyone knows and agrees. 

• Compete directly with the LLC without permission. 

Duty of Care 

The duty of care means you must act responsibly when making decisions for the company. You should: 

• Make careful and informed choices. 

• Act as a reasonable person would in the same situation. 

• Avoid reckless or illegal behavior. 

Courts often apply the business judgment rule, which protects members who act in good faith and with care, even if the decision later hurts the company. 

Duty of Good Faith and Fair Dealing 

Many states now recognize this duty as well. It requires honesty, fairness, and transparency when dealing with the company and other members. 

How State Laws Differ 

Rules about fiduciary duties are not the same in every state. 

• In Oklahoma, duties of loyalty and care still apply, but the operating agreement can change them.  

• In Texas, a 2025 law allows LLCs to completely remove fiduciary duties in their operating agreements if the language is clear.  

• In Delaware, courts give strong weight to whatever is written in the operating agreement.  

• In Florida, basic fiduciary duties remain in place, although there are some limits on how much they can be changed.  

Changing or Removing Fiduciary Duties 

Many states allow operating agreements to adjust fiduciary duties. In some states, like Texas, they can even be removed entirely if the waiver is clear. 

But no state allows members to avoid responsibility for fraud, intentional wrongdoing, or reckless actions.  

Protection from Liability 

The business judgment rule protects members who act in good faith and make careful, informed decisions. 

Some LLCs use exculpation or indemnification clauses to protect members from certain lawsuits. Courts do not allow these clauses to cover dishonesty, fraud, or bad faith behavior.  

Courts also reject attempts to hide breaches of duty through tricky contract language.  

Practical Tips for LLC Members 

• Read your operating agreement carefully. 

• Be open about conflicts of interest or opportunities that may affect the company. 

• Keep a record of your decisions to show you acted reasonably. 

• Ask a lawyer for advice before changing your operating agreement or when facing fiduciary duty questions.  

Final Takeaway 

It is important for LLC members to address fiduciary duties early on, but it is never too late to review them. Your operating agreement should be updated as your business grows and as state laws evolve. Taking action now can help prevent disputes and protect your company’s future. Reach out to Littleton Legal at (918) 608-1836 to discuss fiduciary duties and ensure your LLC is built on a strong legal foundation. 

FAQs: Fiduciary Duties in LLCs 

Can I compete with my LLC? 

Usually no, unless the operating agreement allows it and other members give full consent. 

Can we remove fiduciary duties in our LLC? 

Yes, in some states like Texas, but the agreement must use clear language. Other states may only allow limits, not full removal. 

What happens if I breach my fiduciary duties? 

You may face lawsuits from other members, financial penalties, or even removal from the company. 

Does the business judgment rule protect me if I make a bad decision? 

Yes, if you acted in good faith, with care, and without conflicts of interest. 

Why do states have different rules?  

Each state sets its own LLC laws. Some favor member freedom (like Texas), while others keep stronger protections for fairness and accountability (like Florida).