Duty of Loyalty

A duty of loyalty is one of three duties owned by shareholders of a corporation or members of an LLC to each other and to the company, pursuant to Oregon corporate law. The duty of loyalty in an Oregon LLC is set forth in the Oregon LLC Act, which provides that “[a] member’s duty of loyalty to a member-managed limited liability company and its other members includes the following: (a) To account to the limited liability company and hold for it any property, profit or benefit derived by the member in the conduct and winding up of the limited liability company’s business or derived from a use by the member of limited liability company property, including the appropriation of a limited liability company opportunity; (b) … to refrain from dealing with the limited liability company in a manner adverse to the limited liability company and to refrain from representing a person with an interest adverse to the limited liability company, in the conduct or winding up of the limited liability company’s business; and (c) To refrain from competing with the limited liability company in the conduct of the business of the limited liability company before the dissolution of the limited liability company.” In essence, the duty of loyalty prevents an owner of a company form engaging in self-dealing or otherwise using his or per position in the company to further personal interests rather than the interests of the company. In an LLC, the parameters of the duty of loyalty can be further defined by members in an Operating Agreement.