Duties Of A Member And Manager In A New York LLC

• Jurisdiction: New York,United States
• Law Firm: KI Legal
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Corporate Governance, Shareholders
• Author: Mr Andreas Koutsoudakis and Karen Canales-Reyes
• Published date: 03 July 2023

A Limited Liability Company (LLC) is a hybrid business entity having the attributes of both a corporation and a partnership.¹ Owners of LLCs are referred to as members and managers. Depending on whether you hold a member or manager title, the duties and responsibilities may vary day to day. Below are the key differences in duties of a manager versus those of a member in a New York LLC.

Manager Duties in an LLC

In New York, Limited Liability Company Law ' 417(a) provides that the members of an LLC "shall adopt a written operating agreement relating to the business of the company, the conduct of its affairs and the rights and powers of its members." The operating agreement is, therefore, the primary document defining the rights of members, the duties of managers, and the financial arrangements of the limited liability company.² Pursuant to Limited Liability Company Law ' 409, "a manager shall perform his or her duties as a manager . in good faith and with a degree of care that an ordinary prudent person in a like position would use under similar circumstances." The duties owed to other members is symbiotic to the relationship that is owed between partners in a partnership or between shareholders in a corporation and New York courts have consistently held that a managing member of a manager-managed LLC has a fiduciary duty to the other members of the LLC.³

Managers of an LLC are required to perform their duties "in good faith and with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances."⁴ Moreover, NYLLCL ' 411 notes that transactions between the manager and the LLC in which the manager is deemed personally "interested" are statutorily "limited" in that they must be specially approved in accordance with the statute.⁵ While a duty of loyalty is, to some degree, implied in NYLLCL ' 411, the statute does not expressly address any duty of loyalty. As such, the concept of the duty of loyalty is generally derived from precedent and case law. New York courts have held that a common law fiduciary duty of loyalty is generally imposed on all corporate directors and LLC managers, even in the absence of any specific statutory provision addressing the issue. The roots of this duty can be traced to a seminal case known as Meinhard v. Salmon.

While Meinhard centered around a partnership dispute, Justice Cardozo's reasoning and holding has been extended to apply to LLCs as well. In Meinhard, Justice Cardozo noted...