Responsibilities of a manager under a Delaware LLC
Steven D. Goldberg, Esq. Wilmington, DE
sgoldberg@stevendgoldberg.com
http://www.stevendgoldberg.com
Contact me if you need assistance in forming/organizing a Delaware business entity or any matter of Delaware law. Delaware Forms and Publications are available at http://www.delawarellclaw.com
The Delaware LLC Act does not contain a specific section defining the responsibilities of the manager of a Delaware LLC. The Act defines the manager and provides default rules regarding specified management functions, however as is the general case with the Delaware Act, it looks to the company agreement to define the rights, liabilities and responsibilities of the manager. The lack of clear guidance within the act points up the importance of a properly and professionally drafted company agreement.
Section 18-101(7) provides that the LLC company agreement is the agreement “of the member or members as to the affairs of a limited liaility company and the conduct of its business.” The section further provides that a “… manager of a limited liability company … is bound by the limited liability company agreemeent whether or not …the manager…executes the limited liability company agreement.” Sub section (10) defines the manager as “…a person who is named as a manager of a limited liability company…in a limited liability company agreement…”
What these sections do not address is how the “manager” accepts its position. As by definition the manager is not a party to the company agreement, it needs to have executed an instrument acknowledging its agreement to become the manager. In my practice we do that by a letter agreement which we annex to the company agreement. The manager ceases to be a manager at the time provided in the agreement. However Section 18-602 provides that a manager may resign at any time, but if the resignation constitutes a violation of the company agreement the manager is answerable to the company in damages.
Section 18-402 states the default rule that the management of a LLC is vested with its members as is the case with a general partnership. The caveat of the section is that the agreement may vest the management in whole or in part in one or more managers, each of whom shall have the authority to bind the company unless otherwise provided in the agreement. The manager is chosen in the manner provided in the company agreement, and holds the offices and has the responsibilities accorded a manager in the agreement.
A person may be both a member and a manager of the LLC. Under 18-403 a manager may make a contribution to the capital of the LLC and share in the profits as a member. A person who is both a manager and a member, subject to the LLC agreement, has the rights and powers of a manager and subject to the LLC agreement, is subject to the restrictions and liabilities of being a member.
Exactly what are the rights and powers of the manager? The Delaware Act provides little guidance other than referring to the company agreement. We know that 18-402 grants to the manager the the authority to “manage in whole or in part” the LLC as provided in the LLC agreement. We also know that under 18-407 the manager has, subject to the LLC agreement, the power and authority to delegate the “rights and powers to manage and control the business and affairs of the limited liability company…” This power to delegate presupposes that the manager is vested with such management and control authority on behalf of the LLC.
Under Section 18-802 a manager may petition the Court of Chancery for a judicial dissolution of the LLC. Under 18-802, unless otherwise provided in the agreement, the manager may wind up the affairs of the LLC.
A Delaware court would find that the manager of a Delaware LLC has fiduciary duties to the company and its members. Section 18-1101 permits the company agreement to limit or eliminate those fiduciary duties, provided “that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.”
I have an active Delaware business practice as well as a practice in Delaware’s State and Federal courts. If you or your client have a business matter or a matter which you wish to litigate in Delaware or has a matter pending in Delaware, we would appreciate the opportunity to consult with you regarding our representation. Please remember that we do not accept representation without a written engagement letter.
