The Court’s analysis highlights two important points that must be considered when preparing an LLC agreement: 1) if you want the payment of capital contributions to be tied to the percentage of ownership, you must specifically state this in the agreement; 2) your agreement should expressly modify fiduciary duties owed by the managing members — as permitted by the LLC Act — to avoid the application of corporate-like fiduciary duties.

Document: Grove v. Brown, C.A. No. 6793–VCG (Del. Ch. August 8, 2013)

In Grove, a dispute arose among the four members of a limited liability company (“LLC”), who split into two camps. Camp A effected a freeze-out merger based on its belief that it owned a majority interest in the LLC given that Camp B had failed to make its entire capital contribution. Vice Chancellor Sam Glasscock, III, held that Camp A did not own a greater-than-50-percent interest in the LLC because the operating agreement did not make ownership percentage dependent upon the receipt of the capital contribution. Camp A also alleged that Camp B breached its fiduciary duties by usurping a business opportunity belonging to the LLC. The vice chancellor held that Camp B breached its fiduciary duty of loyalty when it formed entities in Delaware and Maryland that competed directly with the LLC.