Legal Memorandum: Duties of a Majority Member of an LLC in DE

Issue: What duties are owed to a minority member by the majority member of an LLC under Delaware law?

It may be helpful to state at the outset several general principles of Delaware limited liability company law, particularly with respect to the interpretation and enforcement of the LLC Act, members’ operating agreements and related rights and duties.

First, the Delaware limited liability company is a business entity of relatively recent vintage; the LLC Act was adopted in 1992 and the limited liability company as a business vehicle is a much more modern device than the Delaware corporation which predates the LLC by at least 200 years.  CML V, LLC v. Bax, 28 A.3d 1037, 1045 (Del. 2011).  Indeed, the Delaware Supreme Court did not have occasion to review or construe the LLC Act until just 15 years ago.  Elf Atochem N. Am. Inc. v. Jaffari, 727 A.2d 286, 294 (Del. 1999).  As a result, compared to corporate law, there is relatively little precedent specifically interpreting and applying the Act or Delaware limited liability company law generally.

Second, although sometimes helpful, precedent based on Delaware corporate law does not automatically transfer to aid in the interpretation and enforcement of rights and duties under Delaware limited liability company law.  CML V, LLC v. Bax, 28 A.3d at 1043.  “Ultimately, LLCs and corporations are different; investors can choose to invest in an LLC, which offers one bundle of rights, or in a corporation, which offers an entirely separate bundle of rights.”  Id.; see also Twin Bridges Ltd. P’ship v. Draper, No. 2351-VCP (Del. Ch. Sept. 14, 2007) (“Because the […]