Market Law: Do Fiduciary Obligations Matter?


Fiduciary duties are, at their core, the legal duties that an individual owes to another if the first accepts responsibility for the needs of the second. The English courts created fiduciary obligations several hundred years ago; we inherited them from the English. There are two main types of fiduciary duty: the duty of care and the duty of loyalty. And there is a third type of obligation, called an implied good faith and fair dealing obligation (the “implied obligation”), which is perhaps best described as a “quasi” fiduciary duty. LLC clients often ask me to review operating agreements written by other attorneys and advise them if they need to sign those agreements. After many years of practice, I still find it shocking that a substantial majority of these agreements are completely silent on fiduciary obligations. The reason I’m shocked is that I know from 30 years of practical experience that fiduciary duties are not just legal obligations for which members and officers of business entities can be sued if they do. infringe; they are above all the code of ethics and the team spirit of these entities.

In short, for many LLCs – primarily for multiple member LLCs but also for many single member LLCs – fiduciary duties are often not only the key to business success, but even to the survival of the business. This is why about half of all LLC lawsuits in Delaware courts and in the courts of many other states involve allegations of fiduciary violations.

For these reasons, in this column and in my next few columns, I’ll be summarizing everything I think New Hampshire business owners should know about fiduciary duties. I will begin with an overview of the fiduciary provisions of the New Hampshire LLC Act. I chaired the New Hampshire attorneys committee that drafted this law and, for better or worse, I wrote many of the fiduciary provisions in it myself.

The relevant sections of the New Hampshire Act are Sections 304-C: 106-117. The main content of these sections is summarized below. In the following columns, I will discuss several of these sections in detail. But if you’re a business owner who wants to gain a working understanding of New Hampshire trust law, you should start with the big picture.

The Scope of New Hampshire Trust Law. Section 106 provides that, unless the operating agreement provides otherwise, fiduciary obligations apply not only to managers of multi-member LLCs operated by managers, but also to non-members of such LLCs in the extent to which they exercise management functions; and they apply to all members of multi-member LLCs managed by members. In other words, the scope of the fiduciary provisions of the New Hampshire LLC Act is extraordinarily broad – perhaps broader than that of any other US LLC law.

The flexibility of New Hampshire trust law. Section 107 provides that in their operating agreement, members of an LLC may extend, restrict or even eliminate the fiduciary duties of members and managers. A key question for many New Hampshire business owners is whether and when to exercise these Section 107 options.

The duty of vigilance. Section 108 defines the meaning of duty of care under New Hampshire LLC law. However, it does not address the issue of Article 107 above.

The rule of business judgment. Section 109 provides a “business judgment rule” – that is, a “rebuttable presumption” that a person subject to LLC fiduciary obligations will be deemed to comply with those obligations if acting in good faith. , reasonably and on the basis of adequate information. The rationale for section 109 is that management often involves taking risks. Thus, if managers are wrong about these risks, they should not have to face the burden of proof of demonstrating that their assumption was reasonable.

The duty of loyalty. Article 110 deals with the duty of loyalty. The general duty of loyalty is the duty, in all matters relating to his LLC, to put the LLC first and oneself second. But under New Hampshire law, the duty of loyalty is very complex; to begin with, there are no less than eight subsidiary duties of loyalty, each with its own complexity. Even a brief discussion of the terms and the practical importance of the duty of loyalty will require at least two columns.

The implicit alliance. Section 111 covers the implied commitment. Implied engagement, like the duty of loyalty, is complex and is dealt with at length in the Delaware cases, many of which are likely to be convincing in New Hampshire lawsuits. Thus, the Implicit Alliance also deserves a full column.

Miscellaneous fiduciary arrangements. Finally, sections 112 to 117 provide defenses against fiduciary claims, fiduciary remedies, and fiduciary indemnifications and exonerations.

Next week: what you need to know about due diligence.

John Cunningham is an attorney licensed to practice law in New Hampshire and Massachusetts. He is legal counsel for the law firm McLane Middleton, PA. His practice focuses on LLC law and taxation, LLC formation, and handling LLC litigation and lawsuits. His phone number is (603) 856-7172. His email address is [email protected] His website link is To access all of its Law in the Marketplace columns, visit

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