By: Lauren Morales, Esq., Associate Attorney
When it comes to business ownership in Florida, the limited liability company (LLC) is a popular choice. Its appeal lies in its flexible structure, combining partnership-like flexibility with the asset protection of a corporation. Additionally, LLCs benefit from “pass-through” taxation, offering a unique blend of advantages.
One of the significant perks of an LLC is its adaptability. Members can modify default rules within the operating agreement, ensuring it aligns with their evolving needs. However, like any corporate structure, members and managers in an LLC have a responsibility to act in the company’s best interest, a legal obligation known as fiduciary duty.
Understanding Fiduciary Duties
In Florida, LLCs can be manager-managed or member-managed, which impacts decision-making processes but not fiduciary duties. Fiduciary duties are responsibilities that members, managers, or officials have toward the company. These include both the duty of loyalty and the duty of care.
Duty of Care
The duty of care means that members and managers must avoid gross negligence, reckless conduct, willful misconduct, or knowing violations of the law when making decisions on behalf of the LLC. In essence, they should act in good faith and in the LLC’s best interests, especially in significant transactions.
Duty of Loyalty
Alongside the duty of care, members and managers owe a duty of loyalty to the LLC and its members. This means putting the company’s success above personal interests and avoiding conflicts of interest. For instance, they cannot seize profitable opportunities for personal gain that arise through their association with the LLC. However, you can tailor your operating agreement to make the terms favorable to your business purpose.
Consequences of Breach
A breach of fiduciary duty can lead to personal liability claims against the party responsible. To succeed in such a claim, the plaintiff must prove the existence of a fiduciary relationship, demonstrate the breach, and show that the breach caused harm to them or the company. Remedies may include compensation for losses and corrective actions like unwinding transactions or removing the fiduciary.
Members and managers should be aware of their fiduciary duties, including obligations to creditors during financial difficulties. Seeking legal counsel with experience in fiduciary duty matters is essential to protect both your interests and your company’s obligations.
Our firm offers in-person and virtual consultations. If you have questions or concerns regarding fiduciary duties or corporate, please don’t hesitate to call our office at 305-823-2300 or schedule a consultation.