Fiduciary duties of limited liability company members and managers - Next Generation Bar Exam

1. Under ULLCA (2013), how may conduct that would otherwise breach the duty of loyalty be authorized?

   By all of the members after full disclosure, or as the operating agreement provides. Authorization may precede or follow the conduct.

2. Under ULLCA (2013), what may an operating agreement not eliminate?

   The contractual obligation of good faith and fair dealing. The agreement may restrict aspects of the fiduciary duties, but not in a manifestly unreasonable way.

3. A member of a member-managed LLC secretly opens a store that competes with the LLC. What duty has the member breached?

   The duty of loyalty. Members of a member-managed LLC may not compete with the company before its dissolution.

4. Under ULLCA (2013), which persons owe fiduciary duties in a member-managed LLC?

   The members, to the LLC and the other members. In a member-managed LLC, members owe duties like those of general partners.

5. Under ULLCA (2013), what rule applies to a manager's decisions challenged under the duty of care?

   The business judgment rule. The care duty is subject to the business judgment rule.

6. Which state's LLC statute permits an operating agreement to eliminate fiduciary duties entirely?

   Delaware. Delaware still preserves the implied covenant of good faith and fair dealing.

7. Under ULLCA (2013), which persons owe fiduciary duties in a manager-managed LLC?

   The managers; members do not owe duties solely by reason of membership. Members who exercise managerial authority under the operating agreement may owe duties to that extent.

8. A member of a manager-managed LLC, who holds no management role, opens a competing business. On what ground has the member not breached a fiduciary duty?

   A member of a manager-managed LLC owes no fiduciary duty solely by reason of being a member. Duties run from those who manage, not from passive members.

9. Under ULLCA (2013), what does the duty of care require?

   Refraining from grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law. Ordinary negligence is not a breach.

10. Under ULLCA (2013), what does the duty of loyalty require?

    Accounting for LLC benefits, not dealing as an adverse party, and not competing before dissolution. The components parallel the duty of loyalty of general partners.

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