MBE Rules · Business Associations
LLC Fiduciary Duties
Cal. Corp. Code § 17704.09
The rule
Managers (and members in member-managed LLCs) owe loyalty and care duties paralleling partnership law; the operating agreement may shape but not eliminate them, and manager-interested transactions require disclosure and disinterested consent.
In plain English
In an LLC, managers and members have fiduciary duties of loyalty and care, similar to those in partnerships. While the operating agreement can modify these duties, it cannot completely eliminate them, and any transactions where a manager has a personal interest must be disclosed and approved by disinterested members.
Worked example
In a member-managed LLC, one member proposes to sell property to the LLC at a price above market value. The member discloses their interest in the transaction to the other members, who then vote to approve it. Since the member disclosed their interest and obtained consent, the transaction is valid.
Memory hook
LLC fiduciary duties: loyalty and care can't be waived, only shaped!
The trap
Exams may present scenarios where students overlook the need for disclosure in manager-interested transactions, leading to incorrect conclusions about the validity of those transactions.
How examiners test it
Questions often involve fact patterns that test the boundaries of fiduciary duties, especially in the context of manager-interested transactions and the role of the operating agreement.
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