Duty of loyalty
A fiduciary duty requiring managers/members to act in the entity best interest, not self-interest.
Definition
Duty of loyalty is the fiduciary duty requiring managers and members to act in the LLC best interest, not their own. Prohibits self-dealing without disclosure and approval, usurping LLC opportunities, and competing with the LLC.
Context
Cannot be eliminated entirely under § 18-1101; the implied covenant of good faith always applies.
Example
A multi-member LLC manager learns of a business opportunity through their LLC role. Taking it personally would breach the duty of loyalty.
Common pitfalls
- Self-dealing transactions require disclosure and approval.
- Operating Agreement can permit certain self-dealing with proper procedures.