Fiduciary Duties in LLCs and LPs

by Practical Law Corporate & Securities

A Practice Note discussing the default fiduciary duties and contractual duties that may be owed by members and managers of Delaware limited liability companies (LLCs) and by general partners (GPs) of Delaware limited partnerships (LPs). This Practice Note examines the statutory policy of freedom of contract under the Delaware LLC Act and the Delaware Revised Uniform Limited Partnership Act (DRULPA), which allows for the modification or elimination of traditional fiduciary duties. It analyzes how Delaware courts interpret various contractual standards of conduct and exculpation provisions, including those based on good faith, willful misconduct, and gross negligence. Furthermore, this Practice Note addresses the application of the non-waivable implied covenant of good faith and fair dealing, highlighting its narrow scope. The discussion reviews key case law concerning these alternative entities, including special considerations for Master Limited Partnerships (MLPs) and the approval of related-party transactions. This resource provides valuable guidance on best practices for drafting and interpreting LLC and LP agreements to define the rights and obligations of the parties.