Fiduciary Duties of Managers and Officers in Florida: How Misconduct Becomes Litigation

Managers, members, directors, and officers owe fiduciary duties to the businesses they serve. These obligations are not theoretical. They form the basis of substantial business litigation when disputes arise. When fiduciary duties are misunderstood or ignored, routine business decisions can turn into costly lawsuits.

Understanding how fiduciary duties operate, what conduct triggers claims, and how courts evaluate alleged breaches is essential for business owners, executives, and closely held companies seeking to reduce litigation risk.

Core Fiduciary Duties in LLCs and Corporations

In both limited liability companies and corporations, fiduciaries are generally bound by three primary duties: the duty of loyalty, the duty of care, and the duty of good faith.

The duty of loyalty requires fiduciaries to act in the best interests of the business, not for personal gain. Self-dealing transactions, conflicts of interest, or misuse of company opportunities often give rise to breach of fiduciary duty claims, especially when those actions are not properly disclosed or approved.

The duty of care requires fiduciaries to make informed decisions and exercise reasonable diligence. While the law does not demand perfect outcomes, it requires attention, oversight, and thoughtful decision-making. Failure to review financial information, monitor operations, or address known risks may expose managers and officers to liability.

The duty of good faith requires honesty and proper purpose. Conduct involving concealment, intentional disregard of company interests, or bad-faith decision-making often undermines fiduciary protections.

Why Fiduciary Duty Lawsuits Are Common in Closely Held Businesses

Fiduciary duty lawsuits are especially common in closely held businesses, where ownership and management often overlap. Informal governance, undocumented decisions, and personal relationships blur the lines between individual interests and company interests.

When operating agreements, bylaws, or governance policies lack clarity, disagreements over compensation, control, or strategy escalate into allegations of fiduciary misconduct. These disputes frequently involve minority owner claims or internal power struggles.

Typical Fact Patterns That Lead to Fiduciary Duty Claims

Many fiduciary duty claims follow predictable patterns: diversion of company opportunities, unauthorized compensation, related-party transactions without disclosure, misuse of company funds, and withholding financial records.

Business partner disputes also play a significant role. Claims often involve allegations that controlling members froze out minority owners, denied access to information, or made unilateral decisions that disproportionately benefited themselves.

In many cases, the conduct is not initially viewed as intentional wrongdoing. However, poor documentation and lack of transparency transform internal disagreements into litigation.

How Courts Evaluate Breach of Fiduciary Duty Claims

Courts evaluate fiduciary duty claims by examining both the decision-making process and the substance of the conduct. A central question is whether the fiduciary acted in good faith and with reasonable care under the circumstances.

In corporate cases, courts often apply the business judgment rule, which protects officers and directors when decisions are made in good faith, with due care, and in the honest belief that the action was in the company’s best interest. This protection does not apply where conflicts of interest, fraud, or bad faith are present.

In LLCs, fiduciary duties may be modified or defined by operating agreements. Courts closely analyze those agreements alongside statutory obligations, making careful drafting essential.

Preventing Fiduciary Duty Lawsuits Through Governance

Strong governance is the most effective way to reduce fiduciary exposure. Well-drafted operating agreements, bylaws, and approval processes help define authority, clarify expectations, and establish a record of good faith.

Regular review of governance documents prevents disputes before they arise by aligning decision-making standards and reducing ambiguity.

Partner with The Frazer Firm to address fiduciary duties proactively, reduce litigation risk, and protect both your business and the individuals who lead it.

FREQUENTLY ASKED QUESTIONS

What fiduciary duties do LLC managers and managing members owe in Florida?

Generally, LLC managers and managing members owe duties of loyalty and care, exercised in a manner consistent with the obligation of good faith and fair dealing.

Can an LLC operating agreement limit fiduciary duties?

Often, yes. Florida law allows some modification by contract, but it cannot eliminate good faith and fair dealing or excuse bad faith or intentional misconduct.

When does a fiduciary breach become a lawsuit?

Typically when there is self-dealing or other misconduct that causes measurable harm, especially without proper disclosure or approval.