Superman Figurine to Signify The Duty of Reasonable Care, a Hero Role of an LLC MemberEver think about how your buddy turned business partner could be a game changer for your LLC? Last week we delved into the Duty of Loyalty for LLC members

From solo entrepreneurs to a dynamic duo, every business expansion comes with its own set of responsibilities.

We all know it. Regardless of how we got there, bringing someone on board could be a game-changer. It could be your workstation buddy or that star performer who has given their all for your vision. 

The spotlight today is on Limited Liability Companies (LLCs). Here, 'Members' is the formal term for owners. When you step into the world of LLCs, the first thing that comes your way is the operating agreement. But amidst the legalese, something often fades into the background - the duty of reasonable care an LLC member owes to the LLC. A responsibility worth its weight in gold when it comes to managing an LLC. 

Understanding the Duty of Reasonable Care

The Duty of Reasonable Care is the invisible superhero within an LLC, ensuring members and managers act in good faith. If you're part of an LLC, this is your personal compass, guiding you to make sound, ethical decisions.

Picture this: you're a manager in an LLC. You need to make a decision on a new investment for the company. The Duty of Reasonable Care is your silent partner ensuring you scrutinize the investment for any risks and potential benefits. It's not just about avoiding legal troubles - it's about valuing the trust your fellow members place in you.

Here's what you need to know about this duty:

  1. Acting in Good Faith: Members and managers must act with honesty and integrity in all their dealings on behalf of the LLC. They should prioritize the best interests of the company rather than personal gain or interests.

  2. Exercising Reasonable Care: This involves making informed and prudent decisions. LLC members and managers are not expected to be infallible, but they must make a reasonable effort to understand the implications of their actions.

  3. Responsibility in Decision-Making: Whether it's a major acquisition, financial decision, or any other matter affecting the LLC, a fiduciary (member or manager) should approach it responsibly and prudently.

How to Fulfill the Duty of Reasonable Care

Fulfilling the duty of reasonable care involves several steps:

  1. Stay Informed: Keep yourself informed about the LLC's operations, financial status, and any important decisions to be made.

  2. Document Your Actions: Maintaining records of your actions and decisions can be crucial in demonstrating that you acted responsibly.

  3. Seek Expert Advice: If you're unsure about a decision's consequences, consult with experts, such as legal or financial professionals.

  4. Avoid Conflicts of Interest: Steer clear of any situation where your personal interests may conflict with the LLC's interests.

  5. Regularly Review LLC's Affairs: Periodically review the LLC's financial statements, contracts, and other important documents to ensure everything is in order.

The duty of reasonable care is a fundamental responsibility for LLC members and managers. It involves acting honestly and making informed, prudent decisions in the best interests of the LLC. By fulfilling this duty, members and managers can help ensure the success and longevity of the company.

Do I Need a Business Attorney?

If you or your business want to discuss your duties as members of an LLC or if you need help preparing or updating your LLC operating agreement, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you and your business.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.
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