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If I am the sole member and manager of an LLC, do I have any fiduciary duty to the LLC? Would there be anything legally wrong with my intentionally wasting the company's money or doing something similarly pointless and harmful to the business, considering I'm the only actual person (as in human, not legal person) who is harmed in any way?

2 Answers 2

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@Rick aptly answers your first question (and I totally agree with his answer including his conclusion that the cited provisions apply to single member LLCs). So, I'll touch on issues associated with your second one.

Would there be anything legally wrong with my intentionally wasting the company's money or doing something similarly pointless and harmful to the business, considering I'm the only actual person (as in human, not legal person) who is harmed in any way?

If the way you use the money wastefully is considered by a court to be a de facto distribution by the LLC to you, its sole member, and this renders it insolvent (as defined in ORS 63.229 (Limitations on distributions), you could have personal liability for the distribution to the company. See ORS 53.235. Creditors of the company could then garnish that obligation to collect their debts owed to the company from you (a garnishment is technically a right to obtain money or property from someone who owes a debt to a judgment debtor, usually a bank or employer, but not always as in this case).

Intentionally wasting the company's money would probably constitute a "fraudulent transfer" on the part of the LLC which could expose you to liability to third-party creditors if those actions left the company unable to pay its debts as they came due, or with assets with a fair market value that was lower than the fair market value of its current and currently anticipated liabilities. This parallel liability would arise under the Oregon Fraudulent Transfers Act and related provisions of Oregon law found at ORS 95.200 to 95.310.

If you were anticipating or in the process of divorcing, it could constitute economic waste that could be held against you (treating the wasted assets as if they still existed and were allocated to your in a property division).

Likewise, if the waste reduced your income for child support purposes, a court would seriously consider imputing the income you could have had if you had not acting in that matter to the income you actually had, in order to calculate your child support obligation.

And, you might be disallowed a deduction for the waste of the company's money, rather than having it treated as an expense, which could increase your income tax and self-employment tax liability.

But, to the extent that you are the sole owner of the company, no creditor, spouse or child has rights impaired by your actions, and you don't claim the wasted assets as income tax deductions, there would be no one with standing to complain about your conduct in court.

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Can you have a fiduciary duty to your own business?

Yes, but it's limited to a duty of loyalty and the duty of care, defined by Oregon Revised Statutes ORS 63.155 - Duties and standard of conduct:

(1) The only fiduciary duties a member owes to a member-managed limited liability company and its other members are the duty of loyalty and the duty of care, set forth in subsections (2) and (3) of this section.

Subsection (2) says:

A member’s duty of loyalty to a member-managed limited liability company and its other members includes the following:

  • (a) To account to the limited liability company and hold for it any property, profit or benefit derived by the member in the conduct and winding up of the limited liability company’s business or derived from a use by the member of limited liability company property, including the appropriation of a limited liability company opportunity;

  • (b) Except as provided in subsections (5) and (6) of this section, to refrain from dealing with the limited liability company in a manner adverse to the limited liability company and to refrain from representing a person with an interest adverse to the limited liability company, in the conduct or winding up of the limited liability company’s business; and

  • (c) To refrain from competing with the limited liability company in the conduct of the business of the limited liability company before the dissolution of the limited liability company.

And subsection (3) says:

A member’s duty of care to a member-managed limited liability company and the other members in the conduct and winding up of the business of the limited liability company is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law.

Note that subsection (4) says:

A member shall discharge the duties to a member-managed limited liability company and the other members under this chapter or under any operating agreement of the limited liability company and exercise any rights consistent with the obligation of good faith and fair dealing.

Subsection (5) says:

A member of a member-managed limited liability company does not violate a duty or obligation under this chapter or under any operating agreement of the limited liability company merely because the member’s conduct furthers the member’s own interest.

And subsection (6) says:

A member of a member-managed limited liability company may lend money to or transact other business with the limited liability company, provided that any loan or transaction between the member and the limited liability company must be:

  • (a) Fair to the limited liability company;

  • (b) Authorized by an operating agreement; or

  • (c) Authorized or ratified by a majority of the disinterested members or by a number or percentage of members specified in the operating agreement after full disclosure of all material facts.

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  • I'm not sure this answers the question. All these quotes seem to be directed at multi-member LLCs.
    – bdb484
    May 20 at 20:51
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    Possibly but the Act defines A “Limited liability company” or “domestic limited liability company” means an entity that is an unincorporated association that has one or more members and is organized under this chapter.
    – Rick
    May 20 at 21:00

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