Eliminating Fiduciary Duties in Delaware LLCs : A Process Focused Approach to the Analysis of Waiver Provisions

Do parties to an alternate business entity are provided sufficient judicial protection during the formation of an operating agreement? On the one hand, the core policy of the Delaware Limited Liability Company Act (“DLLCA”) is “to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.” Thus, parties can provide themselves with adequate protection through the negotiation of the operating agreement. On the other hand, however, parties may not be in a position to negotiate during the drafting of the operating agreement and become unable to back out of the deal. Because the operating agreement does not need to be filed when the LLC is formed, parties may become too invested in the company by the time the operating agreement is drafted, preventing them from finding another business partner and, thereby, removing their bargaining power. Moreover, while the policy of the DLLCA may be to give the maximum effect to the principle of freedom of contract, there is evidence that operating agreements are not highly negotiated and may even be based on form agreements