Iowa Code § 489.409
Standards of conduct for members and managers
Redline — January 1, 2012 → current.View current text →
Current — January 1, 2025
As of January 1, 2012
1. A member of a member-managed limited liability company owes to the company and, subject to section 489.901, subsection 2, the other members the fiduciary duties of loyalty and care stated in subsections 2 and 3.
1. A member of a member-managed limited liability company owes to the company and, subject to section 489.801, subsection 2, the other members the fiduciary duties of loyalty and care stated in subsections 2 and 3.
2. The duty of loyalty of a member in a member-managed limited liability company includes all of the following duties:
2. The fiduciary duty of loyalty of a member in a member-managed limited liability company includes all of the following duties:
a. To account to the company and to hold as trustee for it any property, profit, or benefit derived by the member regarding any of the following:
a. To account to the limited liability company and to hold as trustee for it any property, profit, or benefit derived by the member regarding any of the following:
(1) In the conduct or winding up of the company’s activities.
(1) In the conduct or winding up of the limited liability company’s activities and affairs.
(2) From a use by the member of the company’s property.
(2) From a use by the member of the limited liability company’s property.
(3) From the appropriation of a limited liability company opportunity.
(3) From the appropriation of a limited liability company opportunity.
b. To refrain from dealing with the company in the conduct or winding up of the company’s activities as or on behalf of a person having an interest adverse to the company.
b. To refrain from dealing with the limited liability 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.
c. To refrain from competing with the company in the conduct of the company’s activities before the dissolution of the company.
c. To refrain from competing with the limited liability company in the conduct of the company’s activities and affairs before the dissolution of the company.
3. Subject to the business judgment rule as stated in subsection 7, the duty of care of a member of a member-managed limited liability company in the conduct and winding up of the company’s activities is to act with the care that a person in a like position would reasonably exercise under similar circumstances and in a manner the member reasonably believes to be in the best interests of the company. In discharging this duty, a member may rely in good faith upon opinions, reports, statements, or other information provided by another person that the member reasonably believes is a competent and reliable source for the information.
3. The duty of care of a member of a member-managed limited liability company in the conduct or winding up of the company’s activities and affairs is to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or knowing violation of law.
4. A member in a member-managed limited liability company or a manager-managed limited liability company shall discharge the duties under this chapter or under the operating agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing.
4. A member shall discharge the duties and obligations under this chapter or under the operating agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing.
5. It is a defense to a claim under subsection 2, paragraph “b”, and any comparable claim in equity or at common law that the transaction was fair to the limited liability company.
5. A member does not violate a duty or obligation under this chapter or under the operating agreement solely because the member’s conduct furthers the member’s own interest.
6. All of the members of a member-managed limited liability company or a manager-managed limited liability company may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
6. All the members of a member-managed limited liability company or a manager-managed limited liability company may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
7. a. A member satisfies the duty of care in subsection 3 if all of the following apply:
(1) The member is not interested in the subject matter of the business judgment.
(2) The member is informed with respect to the subject of the business judgment to the extent the member reasonably believes to be appropriate in the circumstances.
(3) The member has a rational basis for believing that the business judgment is in the best interests of the limited liability company.
b. A person challenging the business judgment of a member has the burden of proving a breach of the duty of care, and in a damage action, the burden of proving that the breach was the legal cause of damage suffered by the limited liability company.
7. It is a defense to a claim under subsection 2, paragraph “b”, and any comparable claim in equity or at common law that the transaction was fair to the limited liability company.
8. If, as permitted by subsection 6 or subsection 9, paragraph “f”, or the operating agreement, a member enters into a transaction with the limited liability company which otherwise would be prohibited by subsection 2, paragraph “b”, the member’s rights and obligations arising from the transaction are the same as those of a person that is not a member.
9. In a manager-managed limited liability company, all of the following rules apply:
a. Subsections 1, 2, 3, 5, and 7 apply to the manager or managers and not the members.
a. Subsections 1, 2, 3, and 7 apply to the manager or managers and not the members.
b. The duty stated under subsection 2, paragraph “c”, continues until winding up is completed.
b. The duty stated under subsection 2, paragraph “c”, continues until winding up is completed.
c. Subsection 4 applies to the members and managers.
c. Subsection 4 applies to managers and members.
d. Subsection 6 applies only to the members.
d. Subsection 5 applies only to members.
e. The power to ratify under subsection 6 may be exercised only by the members.
f. Subject to subsection 4, a member does not have any duty to the limited liability company or to any other member solely by reason of being a member.
Referred to in
Official source: Iowa Legislature. Reproduced from public-domain Iowa statutes; confirm against the official source for the current text. Not legal advice.