Fiduciary Duties in a Limited Liability Company

Minnesota’s Limited Liability Company Act (“MLLCA”) requires that governors and directors of Minnesota limited liability companies owe fiduciary duties to the company itself. The two main duties are the duty of care and the duty of loyalty.

Duty of Care

Minnesota statute 322B.663 states a governor and manager must act with “the care and ordinarily prudent person in a like position would exercise under similar circumstances.”

Thus, the standard is to act with the care of “an ordinarily prudent person in a like position” in “similar circumstances.” But what exactly does this mean? Unfortunately, Minnesota courts have been less than helpful in providing any guidance with respect to LLCs specifically. Only two Minnesota cases have even cited the statute and neither case discussed the statute in any detail. However, while LLCs and corporations have differences (governors vs. directors, managers vs. officers, members vs. shareholders, and membership interests vs. stock), the standard of conduct for LLC governors is the same as the standard of conduct for a corporation’s officer. Fortunately, there are a number of Minnesota cases analyzing the standard of conduct of an officer under the Minnesota Business Corporation Act.

A few of the cases have explained the duty under Minn. Stat. 302A.361, the Minnesota Business Corporation Act’s counterpart to Minn. Stat. § 322B.663, as:

  • Corporate officers holding positions of trust should be held to strict accountability, and the law must be so administered that they will never be allowed to profit by disobeying it. Shearer v. Barnes, 118 Minn. 179, 136 N.W. 861 (1912).
  • Managing officers of a corporation are held to high degree of diligence and good faith. Backus v. Finkelstein, 23 F.2d 357 (D. Minn. 1927).
  • The managing officer of a corporation is a trustee for the stockholders, and is bound to act with the utmost good faith, and on a sale of the assets to the managing officer the evidence should clearly justify the conclusion that it was made in good faith. Eckberg v. Swedish-American Pub. Co., 114 Minn. 196, 130 N.W. 1029 (Minn. 1911).
  • Under Minnesota common law and statutes, the liability of director and officer of corporation to shareholder is predicated on breach of fiduciary relationship which involves mainly a lack of good faith. McMenomy v. Ryden, 276 Minn. 55, 148 N.W.2d 804 (1967).

Duty of Loyalty

The duty of loyalty requires governors and directors of an LLC to “discharge the duties of the position in good faith, in a manner he or she reasonable believes to be in the best interests of the limited liability company.” Minn. Stat. § 322B.663.

In the case of Villiainen v. American Finnish Workers Soc., the Minnesota Supreme Court held that it was illegal for any officer or director of a corporation to impair his duty of undivided loyalty to a corporation by exercising his official duties for the benefit of any individual or group other than the corporation itself. 236 Minn. 412, 53 N.W.2d 112. However, a governor who acts with the required care and loyalty “is not liable by reason of being or having been a governor of the limited liability company.”


This article was written by attorney Maureen A. Carlson.