Exculpation
A provision in the Operating Agreement or charter limiting personal liability for fiduciary breaches.
Definition
Exculpation provisions limit personal liability of managers/members for fiduciary duty breaches. Cannot eliminate liability for bad faith, intentional misconduct, or knowing violations. Permitted under 6 Del. C. § 18-1101.
Context
Standard inclusion in Delaware LLC Operating Agreements with passive investors.
Example
A multi-member Operating Agreement exculpates managers from liability for ordinary negligence in business decisions. Bad faith and knowing violations remain liable.
Common pitfalls
- Exculpation does not protect against loyalty breaches.
- Does not eliminate the implied covenant of good faith.