Duty of care
A fiduciary duty requiring informed and reasonable decision-making.
Definition
Duty of care is the fiduciary duty requiring managers and members to make informed decisions with the care of an ordinarily prudent person. Established in Delaware corporate law and applied by analogy to LLCs (unless modified in the Operating Agreement).
Context
Smith v. Van Gorkom (1985) is the leading Delaware care-duty case.
Example
A multi-member LLC manager approves a major contract without reviewing key terms. A member sues for duty-of-care breach.
Common pitfalls
- Business judgment rule protects informed decisions.
- Operating Agreement can modify care duty under § 18-1101.