5: limited liability companies

Allen v. Devon Energy Holdings

Although LLC members generally don't have duties to one another, the court may impose them using the special facts test

B

C

A

D

Special Facts Doctrine

The Special Facts Doctrine provides an exception to the common law rule that insiders owe no duty of disclosure to an investor. The doctrine will protect an injured shareholder if an existing shareholder sells in privity to a director, officer, or insider who has special information about the corporation which would materially impact the investors decision to trade, and the information was not disclosed to the shareholder/member

When is there a formal fiduciary duty between LLC members?

When there's a majority owner/ sole manager and he exercises control over a closely held LLC, and he buys a minority SH's interest or causes the LLC to buy that interest, and the owner/ majority shareholder increases his ownership