In the District of Columbia, who owes a fiduciary duty — and what that duty actually is — depends on the entity. A partner’s duties are defined exhaustively by D.C. Code § 29–604.07; an LLC member’s by § 29–804.09; a corporate director’s by § 29–306.30, with a separate liability standard at § 29–306.31; and an officer’s by § 29–306.42. Getting the entity and the section right is the first substantive decision in one of these cases, because the standards are not the same.
Who owes a fiduciary duty in a DC business?
| Entity | Who owes the duty | Governing section |
|---|---|---|
| General partnership | Partner, to the partnership and the other partners | § 29–604.07 |
| Limited liability company | Member of a member-managed LLC (and managers) | § 29–804.09 |
| Corporation | Director | § 29–306.30 (conduct); § 29–306.31 (liability) |
| Corporation | Officer | § 29–306.42 |
What duties does a partner owe?
Note the first four words of the subsection — “the only fiduciary duties”. The statute is deliberately exhaustive, which cuts both ways in litigation.
(a) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c) of this section. (b) A partner’s duty of loyalty to the partnership and the other partners include the following: (1) To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity; (2) To refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and (3) To refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.
D.C. Code § 29–604.07 — General standards of partner’s conduct
What duties does an LLC member owe?
In a member-managed D.C. LLC, the statutory duty of loyalty includes three specific obligations — accounting to the company for property and opportunities, refraining from dealing adversely to it, and refraining from competing with it.
(b) The duty of loyalty of a member in a member-managed limited liability company shall include the duties to: (1) Account to the company and to hold as trustee for it any property, profit, or benefit derived by the member: (A) In the conduct or winding up of the company’s activities and affairs; (B) From a use by the member of the company’s property; or (C) From the appropriation of a limited liability company opportunity; (2) Refrain from dealing with the company in the conduct or winding up of the company’s activities and affairs as or on behalf of a person having an interest adverse to the company; and (3) Refrain from competing with the company in the conduct of the company’s activities and affairs before the dissolution of the company.
D.C. Code § 29–804.09(b)
The partnership and LLC formulations share the same core: an affirmative duty to account and to hold as trustee any property, profit or benefit derived — including from a company opportunity. Where a member has actually taken money, see partner diverting company funds.
What standard applies to a corporate director?
A D.C. corporate director must discharge the role in good faith and in a manner the director reasonably believes to be in the best interests of the corporation.
(a) Each member of the board of directors, when discharging the duties of a director, shall act: (1) In good faith; and (2) In a manner the director reasonably believes to be in the best interests of the corporation.
D.C. Code § 29–306.30(a) — Standards of conduct for directors
⭐ The important structural point: conduct and liability are separate sections. Falling short of § 29–306.30 does not automatically create liability — § 29–306.31 sets a distinct and more demanding threshold for holding a director liable.
(a) A director shall not be liable to the corporation or its shareholders for any decision to take or not to take action, or any failure to take any action, as a director, unless the party asserting liability in a proceeding establishes that:…
D.C. Code § 29–306.31(a) — Standards of liability for directors
And a corporate officer?
An officer owes those same good-faith and best-interests standards plus a duty of care, and must additionally inform a superior officer or the board of material information within the scope of the officer’s functions.
(a) An officer, when performing in such capacity, shall have the duty to act: (1) In good faith; (2) With the care that a person in a like position would reasonably exercise under similar circumstances; and (3) In a manner the officer reasonably believes to be in the best interests of the corporation. (b) The duty of an officer shall include the obligation to inform the: (1) Superior officer to whom, or the board of directors or the committee thereof to which, the officer reports of information about the affairs of the corporation known to the officer, within the scope of the officer’s functions, and known to the officer to be material to the superior officer, board or committee; and (2) Officer’s superior officer, another appropriate person within the corporation, or the board of directors, or a committee thereof, of any actual or probable material violation of law involving the corporation or material breach of duty to the corporation by an officer, employee, or agent of the corporation, that the officer believes has occurred or is likely to occur.
D.C. Code § 29–306.42(a) — Standards of conduct for officers
Who brings the claim — the company or the owner?
This is where fiduciary cases are most often derailed, and the answer differs by entity. A corporate shareholder pursuing a derivative proceeding must satisfy standing requirements:
A shareholder shall not commence or maintain a derivative proceeding unless the shareholder: (1) Was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one that was a shareholder at that time; and (2) Fairly and adequately represents the interests of the corporation in enforcing the right of the corporation. ( July 2, 2011, D.C. Law 18-378, § 2, 58 DCR 1720 .) Section References This section is referenced in § 29-306.09 . Previous § 29–305.50. Definitions. Next § 29–305.52. Demand.
D.C. Code § 29–305.51 — Standing
An LLC member, by contrast, has an express statutory route to a direct action:
(a) Subject to subsection
D.C. Code § 29–808.01 — Direct action by member
Frequently asked questions
Can an operating agreement change these duties?
Operating and partnership agreements can modify a good deal, within statutory limits, and § 29–804.09 itself is expressed subject to other provisions. What your agreement says is therefore a first-order question, not a detail — bring it to the first meeting.
Is breach of fiduciary duty a crime?
Breach of fiduciary duty is a civil claim. The same conduct can separately involve criminal exposure, but that is a distinct question with distinct consequences for the company — see internal investigations.
Does the business judgment rule protect a director here?
D.C. addresses director exposure through § 29–306.31, which sets out when a director may be held liable rather than simply asking whether the conduct was ideal. Read that section alongside § 29–306.30.
What can we recover?
Where the duty is the account-and-hold-as-trustee formulation, the remedy is directed at what the fiduciary derived. Where assets have been moved to third parties, the fraudulent-transfer remedies in § 28–3107 — including appointment of a receiver — may also be available. See court-appointed receiverships.
Why does the answer change depending on the entity?
Because the duties are set by different statutes. A member-managed LLC takes its duty of loyalty from D.C. Code § 29–804.09(b), a corporate director from § 29–306.30(a), and a corporate officer from § 29–306.42 — which is why the first question in these cases is what the entity actually is.
When does the clock start on a fiduciary claim?
Claims of this kind generally run three years under D.C. Code § 12–301(8), the residual period for actions with no limitation specially prescribed. Accrual is fact-specific, and in fiduciary cases the conduct is often concealed by the person who owed the duty.
Where does a claim brought for the company have to be filed, and by whom?
In the Superior Court of the District of Columbia, and by a member who qualifies. D.C. Code § 29–808.03 allows a derivative action to enforce an LLC’s right to be maintained only by a person who is a member when the action is commenced and who was also a member when the conduct occurred, or who derived that status from someone who was.
How is a claim against an officer different from one against a director?
By the content of the duty. D.C. Code § 29–306.42 adds to good faith and best interests an express obligation to inform a superior officer or the board of information material to the corporation and within the scope of the officer’s functions — a reporting duty that has no direct counterpart in § 29–306.30(a).
Who pays the legal costs of a claim brought for the company?
The company funds a special litigation committee if it appoints one under D.C. Code § 29–808.05. For the claimant, there is no general loser-pays rule in the District, so recovery of fees depends on the operating agreement, the bylaws or a statute.
Sources and legal authorities
- D.C. Code § 29–604.07 — General standards of partner’s conduct
- D.C. Code § 29–804.09 — Standards of conduct for members and managers
- D.C. Code § 29–306.30 — Standards of conduct for directors
- D.C. Code § 29–306.31 — Standards of liability for directors
- D.C. Code § 29–306.42 — Standards of conduct for officers
- D.C. Code § 29–305.51 — Standing (derivative proceedings)
- D.C. Code § 29–808.01 — Direct action by member
General information about D.C. law, not legal advice. Which duty applies, and whether a claim is direct or derivative, depends on the entity and the agreement.
Related: Business Ownership Disputes · Partner Diverting Company Funds · Locked Out of the Business · Business Dissolution · Court-Appointed Receiverships · Business Litigation. Call (301) 901-3109 or use the contact page.