Fiduciary Duties of LLC Members Explained
What fiduciary duties LLC members and managers owe—loyalty and care—under Florida law, who owes them, and how an operating agreement can change them.
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LLC members and managers generally owe two core fiduciary duties—the duty of loyalty and the duty of care—plus an obligation of good faith and fair dealing. In Florida, who owes them depends on whether the LLC is member-managed or manager-managed, and the operating agreement can limit or expand them within legal limits. Here's what those duties mean and how they work.
Fiduciary duties are the legal backbone of trust between business owners. When you co-own an LLC, you're not just business partners—you're held to standards of conduct that protect the company and each other. Understanding them prevents the disputes that tear closely held businesses apart.
What Are Fiduciary Duties?
A fiduciary duty is a legal obligation to act in someone else's best interest—here, the LLC's and the other members'. Florida's Revised LLC Act (Chapter 605) sets the default standards of conduct in §605.04091. They exist to stop the people running a company from enriching themselves at the company's expense.
| Duty | What it requires |
|---|---|
| Loyalty | Put the LLC's interests ahead of your own |
| Care | Act with reasonable diligence; avoid reckless conduct |
| Good faith & fair dealing | Deal honestly in exercising rights and duties |
The Duty of Loyalty
The duty of loyalty is the big one. It generally requires a member or manager to:
- Account to the LLC for any benefit derived from the company's business or its property.
- Avoid self-dealing—no taking the company's money or assets for personal gain.
- Not usurp business opportunities that belong to the LLC.
- Not compete with the company while still a member or manager.
Most "my partner cheated the business" disputes are, at their core, breach-of-loyalty claims—taking a kickback, diverting a client, or steering a deal to a side company.
The Duty of Care
The duty of care sets how carefully you must act when making decisions for the LLC. Under Florida law, it generally means refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. It is not a guarantee of good results—honest business judgment that turns out poorly usually doesn't breach the duty of care. Recklessness and willful misconduct do.
Good Faith and Fair Dealing
Beyond loyalty and care, members and managers must exercise their rights and duties consistently with the obligation of good faith and fair dealing. This contractual duty fills the gaps—it stops someone from technically following the operating agreement while abusing its purpose.
Who Owes the Duties: Member- vs. Manager-Managed
This distinction is critical in Florida:
- Member-managed LLC: the members run the company, so the members owe the fiduciary duties of loyalty and care.
- Manager-managed LLC: the managers owe the duties. Members who are not managers generally do not owe duties of loyalty and care simply for being owners.
How you set this up at formation—covered in our guide to choosing the right structure—directly determines who is on the hook.
Can the Operating Agreement Change Them?
Yes, within limits—and this is why your operating agreement matters so much. Under §605.0105, the agreement may not eliminate the duty of loyalty or the obligation of good faith and fair dealing outright. But it can:
- Identify specific activities that don't violate the duty of loyalty, if not manifestly unreasonable.
- Restrict or expand duties and adjust the standard of care (short of authorizing intentional misconduct or knowing legal violations).
- Set how the duties are enforced among the members.
A well-drafted operating agreement tailors these duties to how your business actually runs—another reason skipping it is one of the most common small-business legal mistakes.
What a Breach Looks Like
Fiduciary-duty claims usually trace back to a few recognizable patterns:
- Self-dealing. A managing member has the LLC lease space from a company they own at inflated rent, pocketing the difference.
- Usurping an opportunity. A member learns of a deal meant for the LLC and takes it personally instead of bringing it to the company.
- Competing. A manager quietly launches a rival business and steers clients to it.
- Reckless mismanagement. A manager ignores the books, commingles funds, or makes knowingly unlawful decisions that harm the company.
Honest mistakes and decisions that simply didn't pan out usually aren't breaches—the line is self-interest, recklessness, or willful misconduct.
What Happens When a Duty Is Breached
When a member or manager breaches a fiduciary duty, the LLC or the other members can generally pursue remedies including damages, an accounting, disgorgement of improper profits, and sometimes removal of the wrongdoer. These claims are a common form of business dispute, and they're fact-intensive—evidence of the self-dealing or recklessness is what carries the case.
Frequently Asked Questions
Do all LLC members owe fiduciary duties?
Not necessarily. In a member-managed LLC, members owe duties of loyalty and care. In a manager-managed LLC, the managers owe them, and non-managing members generally do not—just for being owners.
What is the duty of loyalty in an LLC?
It requires putting the LLC's interests ahead of your own: accounting for company benefits, avoiding self-dealing, not taking the company's business opportunities, and not competing with it while you're a member or manager.
Can an operating agreement waive fiduciary duties?
Not entirely. Under Florida law it can't eliminate the duty of loyalty or good faith, but it can identify permitted activities and reasonably adjust the duties and standard of care. Drafting matters.
What can I do if a business partner breached their duty?
Document the conduct and act promptly. Remedies can include damages, an accounting, returning improper profits, and removal. Talk to an attorney to evaluate a potential claim.
Fiduciary duties are what keep co-owners honest: loyalty, care, and good faith, backed by Florida's LLC Act. Know which duties apply, who owes them, and how your operating agreement shapes them—and you'll protect both the company and your relationship with your partners.
