Avoid Creating Fiduciary Duties When Eliminating Liability
July 25, 2012
Publication| Limited Liability Company & Partnership Advisory
Pursuant to Section 18-1101(c) of the Delaware Limited Liability Company Act, a limited liability company agreement may expand, restrict or eliminate the fiduciary duties owed by a person to the company, a member, a manager or other person bound by the agreement, subject to certain limitations. Likewise, under Section 18-1101(e) of the act, a limited liability company agreement may limit or eliminate liability for breach of fiduciary duties of a person to the company, a member, manager or other person bound by the agreement, subject to certain limitations.
Members of a limited liability company often take advantage of the contractual flexibility afforded by the LLC Act to modify fiduciary duties and liabilities. However, eliminating fiduciary duties and, at the same time, limiting the liability of a person for breaches of fiduciary duty can lead to difficult interpretive questions. This is one of the issues the Delaware Court of Chancery struggled with in Dawson v. Pittco Capital Partners. These interpretive issues can generally be avoided, however, if fiduciary duty provisions and exculpation provisions are considered in tandem, rather than separately.