Clifford Chance

Delaware Alternative Entities: Governing Documents Should Address Fiduciary Duties Carefully

19 November 2012

The fiduciary duties of directors and controlling persons of Delaware corporations are well understood and cannot be varied (although directors' personal liability for breaches of some fiduciary obligations may be eliminated by an appropriate charter provision). By contrast, the fiduciary duties of managers and controlling members of Delaware limited liability companies are less well understood and can be varied. The recent decision of the Delaware Supreme Court in the Auriga case contributes a little to our understanding of LLC related fiduciary obligations, but leaves some important questions unanswered.

In Gatz Properties, LLC v. Auriga Capital Corp., No. 148, 2012 (Del. Supr. Nov. 7, 2012) (Per Curiam), the Supreme Court (affirming the Chancery Court's decision) interpreted an LLC's governing instrument as a contract that imposed fiduciary duties and adopted the equitable standard of entire fairness in a conflict of interest transaction between an LLC and its manager and controlling member.

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