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Florida LLC Fiduciary Duties: LLC Member & Manager Duties with Examples

LLC fiduciary dutiesManagers and members of an LLC should familiarize themselves with what their LLC fiduciary duties may be to their company. Understanding these obligations can help reduce the risk of future conflict that could otherwise create personal liability for those with fiduciary responsibilities. 

What are Florida LLC fiduciary duties?

LLC fiduciary duties generally refer to the obligations of members, managers, and other officials representing the interests of a company. In Florida, these obligations arise under both common law (i.e., case law) and corporate law (i.e., Florida's LLC Act). A person's fiduciary duties to an LLC can also exist through contract such as in a Florida LLC operating agreement PDF, employment contract, or other agreement. 

The law recognizes such duties of a fiduciary to an LLC to protect the interests of the LLC and the interests of those who benefit from the LLC (e.g., members, those with profits interests, general partners of an LLP, etc.). 

Is there a difference between Manager managed LLC fiduciary duties & member managed LLC fiduciary duties

A limited liability company must be either manager managed or member managed. The distinction affects the decision-making authority structure of the company. In a manager managed LLC, members of the LLC elect individuals or business entities to handle the daily operations of the company through delegation. In comparison, a member managed LLC is a company where all of its members hold management authority equally. 

While a difference does exist between a member managed vs manager managed LLC, that difference does not necessarily alter or create a difference in the fiduciary duties of the management of the LLC. Under the Florida Limited Liability Company Act, a manager or managing member holds the same fiduciary duties of loyalty and care to the LLC. 

However, the Florida LLC Act also allows the members of a limited liability company to alter or eliminate a fiduciary duty so long as it is not manifestly unreasonable or does not run afoul of other exceptions to this general rule. For example, altering the duty of care to authorize willful or intentional misconduct or a knowing violation of law.

What are the 4 Fiduciary duties of LLC members & managers

Some disagreement exists about the number of fiduciary duties that may apply to the members and managers of an LLC. For our purposes, we have classified those duties into four different parts. However, the duties of good faith and full disclosure are sometimes considered subparts of the duty of loyalty and duty of care. 

1. Fiduciary duty of care

The fiduciary duty of care refers to a manager or member's responsibility to act in good faith with proper diligence in performing their duties for the LLC. Generally, the standard a court will use to determine if a fiduciary has met the requisite level of care is a measure of reasonableness. 

In other words, would a person in similar circumstances as the fiduciary have acted in a comparable fashion? If the answer is yes, then the duty of care was likely met. Failures to uphold the duty of care usually occur when a member, manager or other fiduciary acts negligently, recklessly, or willfully against the best interests of the company. 

In the context of an LLC or or other corporate fiduciary, a defense that often arises when questioning a possible breach of the duty of care is the business judgment rule. This principle of corporate law creates a presumption about the decision-making authority of a corporate officer by assuming they acted in good faith, were well-informed, and in the best interests of the company. 

2. Fiduciary duty of loyalty 

The other primary fiduciary duty that members of an LLC must uphold is the duty of loyalty. As the name implies, this responsibility requires a fiduciary to maintain their allegiance towards the company while serving its interests. Issues concerning the duty of loyalty generally arise when a fiduciary finds themselves in a situation where their interests diverge from the company. In short, upholding the duty of loyalty can be thought of as doing the following: 

  • avoiding acts of self-dealing 
  • refraining from usurping the LLC's business opportunity 
  • avoiding, and at the very least disclosing, conflicts of interest 
  • maintaining the confidentiality of certain trade secrets or other business information
  • refraining from activities that could be seen as in competition with LLC

3. Fiduciary duty of good faith 

Embedded in the duties of loyalty and care is the fiduciary duty of good faith, which is sometimes thought of as its distinct responsibility. The duty of good faith simply refers to the level honesty and candor a manager or managing-member must provide to the LLC through its dealings. This means avoiding acts of deceit or other dishonesties about themselves or their business pursuits on behalf of the LLC. 

4. Fiduciary duty of full disclosure 

Finally, the duty of full disclosure is another obligation that fiduciaries to an LLC may have. This duty can appear in the context of the duty of care (e.g., disclosure to interested parties when making business judgments). It can also find itself in the duty of loyalty (e.g., sharing a potential conflict of interest to other decision makers). Some courts in other jurisdictions like Delaware and New York have recognized the duty of full disclosure as independent from other fiduciary duties. 

LLC manager duties & LLC member duties examples

Below are some hypothetical examples of both LLC manager fiduciary duties & LLC member fiduciary duties for each of the four responsibilities explained above. 

Example of the fiduciary duty of care

One day, an employee at Grocery Store, LLC approaches the manager and informs him that one of the other employees has been harassing them. The manager, in earnest, told the employee that they would speak with the other employee to put an end to the behavior and would make a note of it in the company's file. 

However, the manager became busy that day tending to other matters at the grocery store and never spoke with other employee. The manager also never made a note of the employee's complaint or disclosed the information to the LLC. The harassment continued and the employee made a couple of other efforts to escalate the issue to the manager. Again, the manager ignored the problem.

Eventually, the employee being harassed quit and soon after, filed a lawsuit against the LLC for constructive discharge and discrimination. The harassment the employee suffered was so bad, the LLC ended up spending hundreds of thousands of dollars to settle the claims. The manager potentially breached their duty of care to the company through their mismanagement (i.e., ignoring) of the employee's harassment complaint. 

Example of the fiduciary duty of loyalty

Three friends are equal members in an LLC that buys, rents, and sells real estate. The members are always looking for new properties that might create a valuable business opportunity. Under the terms of their LLC agreement, the members must present all opportunities to the LLC first, and can only take properties outside the LLC if it passes on the prospect. 

One day, Friend A stumbles upon an amazing foreclosure sale of a property that he thinks would make a good rental opportunity. The sale was starting soon, so he tried calling his partners to see if the LLC would want it. Nobody answered and the auction soon started. The friend purchased the property for himself as a result. This may create a difficult issue about the friend's duty of loyalty even though he attempted in good faith to present the business opportunity to the LLC.

Example of the fiduciary duty of good faith

The manager of Grocery Store, LLC was the target of competing companies that wanted him to run their grocery stores. The competitors presented him with great offers. Too good to pass up actually. He accepted one of them on the spot. 

The next day, however, the manager told Grocery Store, LLC about the offers, but did not mention that he had accepted one. The LLC offered him a bonus in an effort to retain him. The manager did not mention that he accepted another job and gladly took the bonus. A few weeks later he gave his notice. The manager's acceptance of the bonus after already accepting another job may present a case of violating his duty of good faith.

Example of the fiduciary duty of full disclosure

During its quarterly meeting, the members of Grocery Store, LLC informed the manager of their need for a new pineapple supplier because their current source is retiring. The members task the manager with finding a new supplier, subject to their final approval. 

Lucky, for the manager he knows just the place. His wife works for a local pineapple farm and he suspects they might be a good replacement. When asking his wife about the pineapple farm, she tells the manager that she could get a referral bonus for bringing a new client to the farm. When going over the numbers, the manager realizes that his wife's pineapple farm will be more expensive than some of the other options, but his wife convinces him that's because their quality is superior and they could charge more for their product. 

Persuaded, the manager makes the recommendation of his wife's pineapple farm to the LLC, but he fails to inform them about his wife working there or the referral bonus she receives from the transaction. Theoretically, the manager would have a fiduciary duty to disclose this information to the board before they made their decision. 

Need help navigating LLC fiduciary duty for your LLC?

The attorneys at Cueto Law Group are always available to help LLCs and the people who run them with issues involving a member or manager's fiduciary duties. 

Contact us today for a consultation about fiduciary duties for your LLC.

FAQs

What happens when fiduciary duties are not fulfilled?

The consequence of not upholding your fiduciary duties is the risk of the LLC pursuing a claim for breach of fiduciary duty Florida. Breach of fiduciary duty claims can create personal liability to the fiduciary and sometimes requires assistance from a law firm to provide legal advice or representation.

Is a fiduciary duty a legal duty?

Yes, a fiduciary duty is a legal duty that a person has to the LLC. The duty can arise from both common law and corporate laws, such as the LLC Act. Sometimes, the legality of a fiduciary duty can be made through the execution of your LLC's operating agreement.

What is the no profit rule for fiduciaries?

The no profit rule refers to the promise a fiduciary makes to not receive any kind of benefit or profits that may arise out of an opportunity from their title as a fiduciary. The no profit rule relates to the duty of loyalty that requires fiduciaries to avoid self dealing.

What are the fiduciary duties of a director?

The fiduciary duties of a director are no different than the duties a manager or member of an LLC may have. The include duties of loyalty and care. Directors are generally associated with the corporation business structure, which slightly differs from LLCs or general partners.