Closely held businesses run on trust. When that trust breaks down, whether in a full “business divorce” or a narrower dispute over money and control, breach of fiduciary duty claims are often at the center of the fight.
In Ohio, LLC members may owe fiduciary duties to the company and, in some cases, to other members. These duties commonly include loyalty, care, and good faith. This article explains who owes fiduciary duties under Ohio law, how an operating agreement can change those duties, the most common breaches we see, and the remedies available when a duty is violated.
Who Owes Fiduciary Duties in an Ohio LLC?
The answer depends on how the company is managed. Under R.C. 1706.31, members of a member-managed LLC owe default duties of loyalty and care to the company and to one another. The duty of loyalty generally requires a member to account for company property and profits, to refrain from self-dealing, and to refrain from competing with the company. The duty of care requires a member to refrain from grossly negligent or reckless conduct, intentional misconduct, and knowing violations of the law. Members must also discharge their duties consistent with the implied contractual covenant of good faith and fair dealing.
In a manager-managed LLC, those duties generally fall on the managers instead (R.C. 1706.311). A member who has no management authority ordinarily does not owe fiduciary duties solely by reason of being a member. Identifying the company’s management structure is therefore the first step in evaluating any fiduciary duty claim.
The Operating Agreement Can Change the Rules
Ohio’s Revised Limited Liability Company Act, R.C. Chapter 1706, is built on freedom of contract. Under R.C. 1706.08, a written operating agreement may expand, restrict, or even eliminate fiduciary duties, although it cannot excuse a bad-faith violation of the implied covenant of good faith and fair dealing. Before pursuing or defending a fiduciary duty claim, the operating agreement must be reviewed carefully. A provision buried in the agreement can make or break the case.
Common Breaches in Business Divorces
Breach of fiduciary duty claims often arise where a member or manager:
• Diverts company funds for personal use
• Pays themselves excessive compensation
• Engages in undisclosed self-dealing
• Excludes another member from management
• Uses company assets for personal benefit
• Usurps a business opportunity that belongs to the company
• Competes against the company while still owing a duty of loyalty
These cases rarely involve a single bad act. More often, a pattern emerges over months or years: distributions stop, records become hard to get, and one owner quietly starts treating the company as personal property.
Available Remedies
Ohio courts may award:
• Monetary damages
• Disgorgement of profits
• Injunctive relief
• Accountings of company finances
• Removal of a manager or judicial dissociation of a wrongdoing member (R.C. 1706.411)
• Appointment of a receiver to safeguard company assets in appropriate cases
Disgorgement deserves special mention. Because the duty of loyalty is designed to strip the wrongdoer of ill-gotten gains, a court may order a disloyal member or manager to give up profits even where the company struggles to prove a dollar-for-dollar loss.
Proving the Claim
A breach of fiduciary duty claim generally requires proof of three things: the existence of a duty, a breach of that duty, and an injury proximately caused by the breach. In practice, the fight is usually over the first and third elements, whether a duty was owed at all in light of the operating agreement and management structure, and what the misconduct actually cost the company or the other member.
One early, practical step is a records demand. Under R.C. 1706.33, a member may, on reasonable notice, inspect and copy company records that are material to the member’s rights and duties. A records demand is often the fastest way to test suspicions about company finances before committing to litigation.
Why These Claims Matter
Fiduciary duty claims are frequently central to Ohio business divorce litigation. They can shift leverage, support dissolution claims, and significantly impact outcomes. A credible claim can justify an accounting or the appointment of a receiver, and it frequently drives the parties toward a negotiated buyout on better terms than either side would reach on their own.
When to Speak with an Ohio Business Attorney
You should seek legal advice if:
• You suspect a co-owner is diverting funds or engaging in self-dealing
• You are being frozen out of management, information, or profits
• You have been accused of breaching a fiduciary duty
• You are negotiating an exit and need to understand your leverage
Early intervention can often reduce litigation costs and preserve leverage.
Conclusion
Fiduciary duty disputes turn on the details: the management structure, the operating agreement, and the specific conduct at issue. Ohio law provides meaningful remedies, but the right strategy depends on the facts.
If you believe a business partner has breached fiduciary duties, or you have been accused of a breach, the attorneys at Katz DiCuccio LLP can help you evaluate your options, protect your financial interests, and position you for the best possible outcome. Contact our attorneys at (614) 363-3500 or info@katzdicuccio.com to schedule a consultation.
This article is for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship with Katz DiCuccio LLP.
