Single Member LLC Fiduciary Duties and Alternative Dispute Resolution

Because I recommend Potential Manager provisions for Single Member LLCs, I want both the single owner/member and the designated potential manager to understand if the potential manager acts as LLC manager then the potential manager will have fiduciary duties (and thus potential liability) to the LLC and the single owner/member for actions taken or not taken when the potential manager is “acting” manager. For more information on these fiduciary duties, go to Fiduciary Duties and LLC Owner/Member Liability.

To protect the Potential Manager, who, after all, is doing the LLC a service by agreeing to act as LLC manager if needed, I recommend reducing the level of managerial fiduciary duties to the lowest levels allowed by law and taking the court system out of any action by the LLC or the single owner/member against an LLC manager by providing for both mediation and arbitration provisions in the LLC Operating Agreement. For more information on my mediation and arbitration provisions go to ADR - Mediation and Arbitration.

When I organized "Form" LLCs I didn't offer either of these features in Single Member LLCs.

“It is ancient learning that one who answers to act, even though gratuitously, may thereby become subject to the duty of acting carefully, if he acts at all.” Judge Benjamin N. Cardozo, Slanzer v. Shepard, 233 N.Y. 236, 239, 135 N.E. 275 (1922).