Fiduciary Duties and Standards of Conduct for LLC Managers
California LLC Act
Fiduciary Duties and Standards of Conduct for LLC Managers
September 15, 2026 · R|R Insights · CA Business Law Brief
Core Concept
California’s LLC Act imposes fiduciary duties on managers of manager-managed LLCs and on members of member-managed LLCs in their capacity as managers. Under Cal. Corp. Code § 17704.09, the two core fiduciary duties are the duty of loyalty and the duty of care, supplemented by a general obligation of good faith and fair dealing.
The duty of loyalty requires a manager to account to the LLC for any property, profit, or benefit derived from the conduct of LLC business or use of LLC property, to refrain from dealing with the LLC as an adverse party without consent, and to refrain from competing with the LLC. The duty of care requires a manager to act in good faith, in a manner the manager reasonably believes to be in the best interests of the LLC, and with the care an ordinarily prudent person would exercise in a like position (§ 17704.09(c))—essentially the business judgment rule.
Unlike corporations, California LLCs have significant flexibility to modify these duties in the operating agreement. The agreement may restrict or expand the duties—subject to limits: it cannot eliminate the obligation of good faith and fair dealing, eliminate liability for knowing violations of law, or authorize conduct that constitutes fraud or willful misconduct (§ 17704.09(f)).
Key Rules
| Duty of loyalty | Duty of care |
| Manager must account for LLC opportunities, avoid self-dealing, and refrain from competing with the LLC without consent (§ 17704.09(b)). | Act in good faith, in the LLC’s best interest, with ordinary prudence (business judgment rule standard) (§ 17704.09(c)). |
| Good faith and fair dealing | Operating agreement can modify |
| Even if duties are modified by agreement, the obligation of good faith and fair dealing cannot be eliminated (§ 17704.09(d)). | The LLC agreement may restrict, expand, or eliminate duties except as noted above; modifications must be clearly stated (§ 17704.09(f)). |
| Interested-party transactions | Member-managed LLCs |
| A transaction between the LLC and a manager is not voidable if it was fair or approved after full disclosure (§ 17704.09(b)(3)). | In member-managed LLCs, each member owes these duties; passive investors in manager-managed LLCs owe no such duties. |
Applies / Does Not Apply
| ✓ Applies When | ✗ Does Not Apply When |
| Manager invests LLC funds in their own separate venture without consent | Limited investor in manager-managed LLC (no management duties) |
| Manager takes a business opportunity properly belonging to the LLC | Operating agreement expressly authorizes the conduct at issue |
| Investor-member votes to approve a self-dealing transaction after full disclosure | Independent contractor acting for LLC (not a manager) |
In Practice
| Transactional | Litigation |
| When drafting operating agreements, clearly identify whether the LLC is member- or manager-managed. Include an interested-party transaction procedure (disclosure + approval). Consider expanding the duty of loyalty to allow specific outside ventures by named members. For PE-backed LLCs, ensure the PE fund’s nominees are indemnified. | In breach of fiduciary duty claims against LLC managers, focus on self-dealing transactions and usurped opportunities. The business judgment rule provides significant protection for honest business decisions—claimants must show the manager had a personal interest adverse to the LLC or acted in bad faith. |
This brief is for informational purposes only and does not constitute legal advice. For counsel on specific matters, consult qualified legal counsel. © 2026 Reden | Riddell LLP.