Breach of Fiduciary Duty in Washington LLCs When Members or Managers Can Be Held Personally Liable

Limited Liability Companies (LLCs) are a popular choice for businesses in Washington because they offer flexibility, tax benefits, and liability protection. Many people assume that forming an LLC shields them completely from personal responsibility. But under Washington law, members and managers of an LLC can sometimes be held personally liable—particularly when they breach fiduciary duties.

At the Law Office of Erin Bradley McAleer, we represent both business owners and individuals in disputes involving LLCs, including claims of fiduciary misconduct. Here’s what you need to know about fiduciary duties in Washington LLCs and when personal liability may arise.

What Is a Fiduciary Duty?

A fiduciary duty is a legal obligation to act in the best interests of someone else. In the context of LLCs, this typically means a duty of loyalty, care, and good faith owed to the company and its members.

For example:

  • Duty of loyalty requires members or managers to put the LLC’s interests above their own, avoid conflicts of interest, and not usurp company opportunities.
  • Duty of care requires making informed, reasonable decisions when managing the company.
  • Duty of good faith and fair dealing requires honesty and fairness in all company dealings.

Fiduciary Duties in Washington LLCs

Washington’s LLC Act (RCW 25.15) establishes fiduciary duties for managers and, in some cases, members. Unless modified by an LLC operating agreement, managers and managing members generally owe fiduciary duties similar to those owed by corporate directors.

Importantly, members in a member-managed LLC may also owe duties to each other and to the LLC itself, depending on the structure of the business.

Examples of Breach of Fiduciary Duty

Some common situations where a breach may occur include:

  • Using LLC funds for personal expenses.
  • Entering into contracts that benefit a member personally at the expense of the LLC.
  • Withholding important financial information from other members.
  • Competing directly with the LLC’s business.
  • Mismanaging company assets in a reckless or negligent way.

When Personal Liability Arises

Although LLCs are designed to protect individuals from personal liability, courts in Washington may hold members or managers personally responsible if they breach fiduciary duties. This is because fiduciary duties are owed by the individual—not just the company.

Consequences may include:

  • Personal financial liability for losses caused by the breach.
  • Removal from management positions.
  • Court-ordered remedies such as an accounting, restitution, or injunctions.
  • In extreme cases, piercing the LLC veil if the LLC was used to commit fraud or injustice.

Preventing and Defending Fiduciary Claims

For members and managers, the best way to avoid liability is through transparency, proper recordkeeping, and following the LLC’s operating agreement. Having clear agreements in place helps define duties and minimize disputes.

If you are accused of breaching fiduciary duty, you may have defenses such as:

  • Acting within the authority granted by the operating agreement.
  • Relying on professional advice (such as accountants or attorneys).
  • Proving that decisions were made in good faith and with reasonable care (often called the “business judgment rule”).

Contact the Law Office of Erin Bradley McAleer

Disputes involving breach of fiduciary duty can quickly become personal and financially devastating. Whether you are an LLC member seeking accountability or a manager defending your actions, having experienced counsel is critical.

The Law Office of Erin Bradley McAleer represents clients in complex business litigation across Washington, with a focus on protecting rights, reputations, and financial interests. Contact us today for a consultation.