Waiving fiduciary duties in a governing agreement is possible, but how far you can go depends entirely on the entity and the state of formation. A Delaware LLC or limited partnership can eliminate fiduciary duties outright. A corporation cannot: it can only exculpate directors and certain officers from monetary damages for duty-of-care breaches, while loyalty claims remain fully actionable. States that have adopted the Revised Uniform Limited Liability Company Act sit in between, allowing modification only within limits a court will police as “manifestly unreasonable.”
The Default Duties Being Waived
Two duties apply to anyone managing a business for others unless the agreement says otherwise. The duty of loyalty requires putting the entity’s interests above personal interests: no conflicts of interest, no diverting corporate opportunities, and full disclosure of any personal financial stake in a transaction. Self-dealing is the textbook breach.
The duty of care focuses on process. Managers must stay reasonably informed, consult experts on complex matters, and investigate before approving major transactions. A bad business outcome is not a breach. Rubber-stamping a deal without reading the financials can be. Courts ask whether the manager acted in good faith with a rational belief that the decision served the entity, and gross negligence is what fails that standard.
Delaware LLCs and Limited Partnerships: Elimination Is On the Table
Delaware’s LLC statute gives drafters extraordinary latitude. The operating agreement may expand, restrict, or entirely eliminate fiduciary duties owed by members, managers, or anyone else bound by the agreement.1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement The agreement may also, separately, eliminate monetary liability for breach of contract and for breach of fiduciary duties of loyalty and care. The only floor is that the agreement cannot eliminate liability for bad-faith violations of the implied covenant of good faith and fair dealing.
Delaware’s limited partnership statute mirrors this. A partnership agreement may expand, restrict, or eliminate any duty a partner owes to the partnership or to other partners, with the same implied-covenant floor.2Justia. Delaware Code 6-17-1101 – Construction and Application of Chapter and Partnership Agreement A general partner in a Delaware limited partnership can compete directly with the partnership, pursue the same deals, and hire away its employees without liability if the agreement authorizes that conduct.
Both statutes rest on the same policy: give maximum effect to freedom of contract. When sophisticated parties negotiate the agreement, Delaware courts enforce the bargain they struck, even when the result looks harsh in hindsight.
States Following the Revised Uniform LLC Act
A number of states take a different position. Under this framework, an operating agreement cannot eliminate the duty of loyalty or the duty of care outright. The parties can modify them, but only within statutory boundaries.
For loyalty, the agreement may identify specific activities or categories of activities that will not be treated as violations, provided those carve-outs are not manifestly unreasonable. It may also specify how many members can authorize or ratify a conflicted transaction after full disclosure. For care, the agreement may reduce but not unreasonably reduce the standard. The obligation of good faith and fair dealing cannot be eliminated, though the agreement may set standards for measuring compliance, again if those standards are not manifestly unreasonable.
The practical difference is significant. A Delaware LLC can include a one-line provision stating that no member or manager owes any fiduciary duty to anyone. An LLC formed in a RULLCA state cannot. A court retains the power to strike provisions that cross the manifestly unreasonable line, judged by the circumstances that existed when the term was added.
Corporations: Exculpation Instead of Elimination
Corporations operate under tighter constraints. A corporation cannot eliminate fiduciary duties from its charter. What it can do is exculpate directors and certain senior officers from personal monetary liability for breaching the duty of care, through a specific provision in the certificate of incorporation.3Justia. Delaware Code 8-102 – Contents of Certificate of Incorporation
The statute draws hard lines around what exculpation cannot cover:
- Duty of loyalty breaches. Self-dealing and conflicts of interest remain fully actionable regardless of any charter provision.
- Acts not in good faith, intentional misconduct, and knowing violations of law. No exculpation is available for conduct beyond honest error.
- Transactions yielding an improper personal benefit. A director or officer who personally profits at the company’s expense cannot hide behind an exculpation clause.
- Officer liability in derivative suits. Exculpation for officers does not apply to claims brought by or on behalf of the corporation, including stockholder derivative actions.
That last point is easy to miss. A director with exculpation protection can defeat both direct and derivative duty-of-care claims. An officer with the same charter provision can only defeat direct claims.3Justia. Delaware Code 8-102 – Contents of Certificate of Incorporation For officers facing a derivative suit over careless decisions, exculpation provides no shield.
Senior officers eligible for exculpation include the CEO, CFO, COO, chief legal officer, controller, treasurer, chief accounting officer, and any named executive officer under SEC rules.
Eliminating a Duty vs. Limiting Liability for Breach
This distinction trips up even experienced practitioners, and getting it wrong leaves a fiduciary exposed to remedies they assumed were off the table.
When an operating agreement eliminates a fiduciary duty, no breach can occur in the first place. There is nothing to sue over. A manager who competes with the LLC has not violated the duty of loyalty because that duty does not exist under the agreement. The question never reaches a courtroom.
Exculpation works differently. The duty still exists, and a director who acts carelessly has still breached it. What the charter provision removes is the remedy of monetary damages. Other remedies survive. Courts retain the power to grant equitable relief, including injunctions and rescission of transactions. A director protected by an exculpation clause cannot be forced to write a check for a careless decision, but a court can still unwind the deal.
The upshot: LLCs and limited partnerships can eliminate duties at the root, leaving members with only the implied covenant and whatever contractual protections the agreement contains. Corporations cannot eliminate duties but can remove the sting of monetary damages for care-based claims.
Renouncing Corporate Opportunities
The most commonly modified aspect of the duty of loyalty is the corporate opportunity doctrine, which ordinarily prevents directors and officers from pursuing business deals that belong to the company. Delaware allows corporations to renounce their interest in specified business opportunities or categories of opportunities through the certificate of incorporation or a board resolution.4Delaware Code Online. Delaware Code Title 8 Chapter 1 Subchapter II
Drafting here matters. Courts distinguish between narrow waivers that target a defined set of opportunities and broad waivers that renounce any claim to any opportunity a director encounters outside their corporate role. A narrow waiver might say that directors who are also partners at a private equity fund may pursue investments in a specific industry without offering them to the company first. A broad waiver might state that any manager may engage in competing businesses of any kind and the corporate opportunity doctrine simply does not apply.
Both approaches can be enforceable, but courts scrutinize broad waivers more skeptically. Even a well-drafted waiver has limits. A provision allowing a manager to pursue outside opportunities does not authorize that manager to redirect the company’s existing assets, client lists, or digital accounts into a personal venture. The line between competing fairly and looting the entity remains, regardless of what the agreement says.
Drafting a Waiver That Holds Up
Courts enforce waivers that leave no room for argument about what was intended. Vague language invites judicial interpretation, and when judges fill gaps, they tend to restore default fiduciary protections. An enforceable waiver addresses three dimensions explicitly.
Identify the specific duty being modified. “Members waive all fiduciary duties” is far less defensible than “the manager has no obligation to present business opportunities in the renewable energy sector to the company before pursuing them independently.” The more precisely the waiver maps to anticipated conduct, the harder it is to challenge.
Specify who benefits. An agreement that eliminates duties for “managers” may not protect a managing member who holds both titles, or a third-party advisor given decision-making authority. Naming each individual or class of fiduciary covered — managers, managing members, general partners, designated officers — prevents gaps plaintiffs will exploit.
Define the scope of permitted conduct. If partners are allowed to invest in competing firms, say so directly. If the manager can approve transactions in which they hold a personal financial interest, spell out the approval process or state that none is required. Leaving permitted activities to inference is where most waiver disputes originate.
When drafting fails these standards, the consequences go beyond losing the waiver. A fiduciary who relied on an unenforceable provision may face disgorgement of all profits earned through the conflicted activity plus compensatory damages to the entity. The cost of ambiguous drafting falls on the person the waiver was supposed to protect.
The Implied Covenant Floor
Every LLC and limited partnership statute that permits fiduciary duty waivers carves out one obligation that cannot be eliminated: the implied covenant of good faith and fair dealing.1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement This sounds like a broad safety net. Recent decisions have narrowed it considerably.
The implied covenant fills gaps in the agreement. It does not override express terms or reintroduce duties the parties deliberately removed. When an LLC agreement eliminates fiduciary duties, authorizes self-interested conduct, and addresses the challenged behavior through specific governance provisions, courts will not let a plaintiff repackage fairness or disclosure claims as implied covenant violations. If the agreement speaks to the issue, there is no gap for the implied covenant to fill.
What the covenant does protect against is conduct the agreement genuinely does not contemplate, the kind of opportunism that falls between the cracks of even a detailed document. It is not a free-floating fairness obligation or an automatic duty to disclose. An agreement that waives fiduciary duties and contains detailed notice provisions for member meetings will not be supplemented with an implied duty to provide additional disclosures beyond what the agreement requires.
Members who sign an operating agreement that eliminates fiduciary duties should not assume the implied covenant will rescue them if the manager later acts in ways they find unfair. The agreement is the deal.
Conduct That Can Never Be Waived
Even the broadest waiver has a floor. No governing agreement can authorize or shield certain categories of conduct, no matter how clearly drafted.
Bad-faith violations of the implied covenant remain actionable in every entity type that permits fiduciary duty waivers. A manager who acts in deliberate bad faith, consciously exploiting a gap in the agreement to harm other members, crosses a line no contractual provision can erase.1Justia. Delaware Code 6-18-1101 – Construction and Application of Chapter and Limited Liability Company Agreement
For corporations, the exculpation statute itself lists the excluded categories: breaches of the duty of loyalty, acts not in good faith, intentional misconduct, knowing violations of law, and transactions yielding an improper personal benefit.3Justia. Delaware Code 8-102 – Contents of Certificate of Incorporation RULLCA states add further restrictions, barring exculpation for breaches of loyalty, receipt of unauthorized financial benefits, intentional harm to the LLC or its members, and intentional criminal violations.
The thread through all of these limits is the same. Parties can rearrange the rules of fair play. They cannot authorize fraud, theft, or deliberate destruction of the business.
Prospective Waivers by Individual Stockholders
Delaware courts have addressed whether individual stockholders can prospectively waive fiduciary duty claims through provisions in investment agreements. Such waivers can be enforceable, but only if they are narrowly tailored to a specific transaction, contained in a written contract with actual consent, clearly stated, agreed to by sophisticated parties who understood the implications, and supported by bargained-for consideration. Even then, a prospective waiver cannot bar claims for intentional breaches.
Courts have signaled deep skepticism about extending these waivers to retail stockholders, employees receiving stock compensation, or situations where the waiver is bundled with a take-it-or-leave-it transaction like a merger letter of transmittal. The further the signer sits from sophisticated, counseled, individually negotiated consent, the less likely a court will enforce the waiver.