Between 1995 and 2001, the influential National Conference of Commissioners on Uniform State Laws (NCCUSL) promulgated iterations of uniform laws pertaining to partnerships, limited partnerships and limited liability companies. One or more of those acts have been widely adopted by state legislatures.
Each of the three acts—the Uniform Partnership Act (1997) (RUPA), the Uniform Limited Partnership Act (2001) (ULPA (2001)), and the Uniform Limited Liability Company Act (1996) (ULLCA)—contains identical fiduciary duty provisions. The acts all adopt the same standards for the duty of care and the duty of loyalty, and offer parties the same limited rights to opt out of the statutory fiduciary standards.
The recently promulgated Revised Uniform Limited Liability Company Act (RULLCA) offered the NCCUSL the opportunity to begin to correct its past mistakes regarding the fiduciary duties applicable to managers of unincorporated business entities. Unfortunately, the Commissioners squandered this opportunity and, once again in RULLCA, enacted duties that are poorly designed and bound to lead to inefficient and unfair outcomes.
States adopting RULLCA should reject RULLCA's flawed fiduciary duty provisions. States should re-make the fiduciary duty provisions, including the opt-out provisions, in a way that facilitates fair and efficient outcomes. This, in turn, requires states to adopt duty of care and duty of loyalty provisions that fully-informed parties-the LLC owners and their agents or managers-would agree upon in most cases. States should also adjust RULLCA's opt out provisions in a way that promotes full information at the time the parties "agree" to re-make the statutory fiduciary duties. In Part II of this article, I offer an analytical and critical framework within which to evaluate RULLCA's fiduciary duty provisions. The framework is based on simple, uncontroversial principles, which, unfortunately, seem to have been overlooked by the Committee that considered and promulgated RULLCA. In Part III, I use this framework to demonstrate the significant flaws in RULLCA's fiduciary duty provisions and to support the prescription that is suggested.