/fuh-DISH-ee-air-ee DOO-teez of KAIR and LOY-uhl-tee/·doctrine
Also known as:fiduciary duty of care · fiduciary duty of loyalty · duty of care · duty of loyalty · fiduciary duty
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
1
An obligation imposed on members of a member-managed LLC in the conduct or winding up of the company's activities requiring them to refrain from grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law.
2
Sense 1
1
Sense 1
An obligation imposed on members of a member-managed LLC in the conduct or winding up of the company's activities requiring them to refrain from grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law.
Sources & Authorities· 1 primary source
Select any source to read its text and confirm it supports the definition.
Uniform Acts
Sense 2
2
Sense 2
An obligation imposed on members of a member-managed LLC requiring them to account to the company and hold as trustee any benefit derived from diverting a corporate opportunity that arose in the conduct of the company's affairs.
Sources & Authorities· 1 primary source
Select any source to read its text and confirm it supports the definition.
An obligation imposed on members of a member-managed LLC requiring them to account to the company and hold as trustee any benefit derived from diverting a corporate opportunity that arose in the conduct of the company's affairs.
Each sense below has its own examples, sources, and questions.
Examples3
Foreseeable Plaintiff in Fiduciary Context
Floyd Franklin as a corporate director approved a risky expansion plan that foreseeably endangered only a narrow group of investors within the zone of danger. When an outside creditor later suffered losses from the plan's failure Floyd argued no duty ran to that creditor. The court applied the foreseeable plaintiff rule and held that Floyd owed no fiduciary duty of care to the creditor because that party stood outside the range of reasonably foreseeable risk at the time of the decision.
Partnership Agreement Restrictions
Faith Fitzgerald a partner proposed an amendment that would eliminate the duty of care for all partners. The other partners refused. The statute barred the partnership agreement from altering or eliminating the duty of care except as otherwise provided in subsection (d).
Emotional Harm from Fiduciary Breach
Francisco Frost a fiduciary negligently managed trust assets in a way that created an unreasonable risk of emotional disturbance to the beneficiary. The beneficiary suffered bodily harm solely through fright. The rule imposed liability on Frost because the duty of care was designed to protect against that very risk.
Frequently Asked1
What standard defines the duty of care for LLC members?+
The duty of care requires a member of a member-managed LLC to refrain from grossly negligent or reckless conduct willful or intentional misconduct or knowing violation of law in the conduct or winding up of the company's activities.
Supporting sources
Examples3
Loyalty Duty in Member Managed LLC
Felix Franco a member of a member-managed LLC diverted a corporate opportunity to his own side business. The company sued to recover the profits. Under the loyalty duty Franco had to account to the company and hold the benefit as trustee because the opportunity arose in the conduct of the company's affairs.
Contractual Limits on Fiduciary Duties
Frontier Capital as general partner in a limited partnership sought to eliminate its duty of loyalty through an amendment to the partnership agreement. The limited partners objected. The statute prevented the agreement from altering or eliminating the duty of loyalty except under narrow conditions listed in subsection (d).
Promoter Disclosure Requirement
Freya Freeman a promoter sold her own property to the corporation to be formed without disclosing the profit to all contemplated original investors. After formation the corporation sued to recover the secret profit. The promoter's fiduciary relationship required full disclosure and approval from every person contemplated as part of the original financing scheme.
Frequently Asked2
Can a partnership agreement eliminate the duty of loyalty?+
A partnership agreement may not alter or eliminate the duty of loyalty except as otherwise provided in the statute's narrow exceptions for specific acts after full disclosure and ratification.
Supporting sources
What must a promoter disclose when selling property to a forming corporation?+
A promoter must make full disclosure of any secret profit and obtain approval from all persons contemplated as part of the original financing scheme or the corporation may recover the profit for breach of fiduciary duty.
Supporting sources
377 U.S. 426 (1964)Business Associations
…proposing the merger. The complaint was in two counts, the first based on diversity and claiming a breach of the directors' fiduciary duty to the stockholders. The second count alleged a violation of § 14(a)[^maj-1] of the Securities Exchange Act of 1934 with reference to the proxy solicitation material. The trial court held…
Secured TransactionsValidity of security agreements and rights of parties (§ 9-201, et seq.) · Collateral in secured party’s possession (§§ 9-207, 9-208)UBEIntermediate