Officers of a corporation have a fiduciary duty to both the corporation and its shareholders. (See California Officers Need to Be More Careful than Directors.) I recently had to consider, for a limited liability company in California, whether LLC officers have a similar duty.
Section references below have been updated to reflect California’s new LLC law that took effect on January 1, 2014 (see RULLCA Brings New LLC Laws to California in 2014).
I was preparing the operating agreement for a client’s LLC. The client was to be the sole member (equity owner) and manager.
The client wanted his long-time colleague to be the LLC’s president. He asked how his responsibilities, as manager, would compare to those of the president.
The LLC’s business is managed by one or more managers, who may, but need not, be members (Corporations Code Section 17704.07(a)). The manager’s fiduciary duties to the LLC and its members include the duty of loyalty and the duty of care (Corporations Code Section 17704.09).
Officers may be appointed, and will have the responsibilities specified, by the manager or in a written operating agreement (Corporations Code Section 17704.07(u)-(v)). California law does not specify that LLC officers have a fiduciary duty to the LLC or its members.
The last point caused my client some concern. Accordingly, I added to the operating agreement the following provision:
Appointment of any officer will be effective only if such officer agrees, in a signed, written instrument, that he or she owes to the Company and the Members the same fiduciary duty that is owed by the Manager pursuant to Section [17704.09] of the California Corporations Code.
The bottom line: If your LLC will have officers, specify the duties of the LLC officers explicitly in writing.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.