Operating agreement liability and amendments: which statement is true?

• A. It cannot limit liability for any breaches.
• B. It may eliminate or limit personal liability for money damages arising from breaches of the duty of care, but not for bad faith or pecuniary gain; amendments may not adversely affect a member without consent.
• C. It can remove the duty of care entirely.
• D. Amendments can affect any member without consent.

Answer: (B)

New York LLCs recognize two fiduciary duties: the duty of care and the duty of loyalty. The operating agreement can tailor these duties, but not erase core protections. Specifically, it can limit or eliminate personal liability for monetary damages arising from breaches of the duty of care, effectively shielding a member from negligence-type liabilities. However, this limitation cannot apply to breaches involving bad faith, intentional misconduct, or acts done for the member’s own pecuniary gain that compromise loyalty. In other words, you can contract around the duty of care to limit damages, but you cannot undermine the duty of loyalty or permit self-dealing and bad-faith behavior.

Amendments to the operating agreement follow a protective principle: changes that adversely affect a member’s rights generally require that member’s consent. This ensures that a unilateral rewrite won’t strip away protections or benefits a member relies on.

So the statement aligns with the framework: granting limited liability for duty-of-care breaches while preserving loyalty and prohibiting self-dealing, and requiring consent to amendments that harm a member.