Massachusetts LLC governance: the state with the strictest fiduciary duty in the country, and the unanswered question of whether your LLC inherits it

Most states start an LLC’s members off owing each other very little and let the operating agreement add duties if the parties want them. Massachusetts may do the opposite. It is the home of the strictest fiduciary standard in American business law, the rule from Donahue v. Rodd Electrotype that the participants in a close company owe one another the “utmost good faith and loyalty,” a duty borrowed from partnership law and stricter than anything Delaware imposes. The open question, and it is genuinely open, is whether that strict duty attaches to the members of a Massachusetts LLC by default. If it does, a Massachusetts LLC with a silent operating agreement is one of the highest-duty environments in the country, which is protective for a passive investor and a serious exposure for an active manager.

That uncertainty is the thing to understand about Massachusetts governance, and this page leads with it rather than re-teaching the general mechanics on the site’s default rules and freedom of contract guides. In Massachusetts the operating agreement does not just fine-tune duties. It may be the only thing standing between a member and the strictest duty in the country.

The strictest duty in the country, and the question it raises for LLCs

Start with the doctrine, because everything else follows from how far it reaches.

Massachusetts imposes a partnership-grade duty of utmost good faith and loyalty on the owners of a close company, and whether it binds LLC members by default is unsettled.

In Donahue v. Rodd Electrotype, the Supreme Judicial Court held that shareholders in a Massachusetts close corporation owe one another the same duty partners owe, the utmost good faith and loyalty, a standard stricter than the ordinary corporate duty and stricter than Delaware’s. The question for LLCs is whether that duty carries over to members by default. The courts have circled it without settling it. In Allison v. Eriksson the Supreme Judicial Court confirmed that LLC members can owe fiduciary duties, but decided the case on a provision in the operating agreement rather than on the default. Lower courts in cases like Pointer and Freedman have applied Donahue principles to LLCs. Commentators describe the LLC fiduciary-duty law as largely undeveloped. So the honest answer is that a Massachusetts LLC member may owe, and be owed, the strictest fiduciary duty in the country by default, and no decision has squarely confirmed or denied it.

What the operating agreement can do about it

Given the uncertain default, the agreement is where the duty actually gets set, and Massachusetts limits how far you can go.

A Massachusetts operating agreement may expand or restrict fiduciary duties, but it cannot eliminate the duty of good faith and fair dealing.

M.G.L. c. 156C, § 63 says a member’s or manager’s duties, including fiduciary duties, may be expanded or restricted by the operating agreement, and protects a member who relies in good faith on the agreement’s terms. Read the verbs: expanded or restricted, not eliminated. Massachusetts lets you dial the duty down, but the implied covenant of good faith and fair dealing survives any drafting, and it is not clear how far a court will let an agreement restrict the strict Donahue duty if that duty applies. That puts Massachusetts in the middle of the spectrum, more permissive than a state that locks its duties in place, less permissive than Delaware, Arizona, or Washington, which let an agreement eliminate loyalty and care outright. The practical consequence is specific: an active manager who wants room to pursue other ventures needs the operating agreement to restrict the duty expressly, because the default may be the strictest duty in the country, and a passive investor benefits from leaving the default untouched.

The defaults that fill the rest

For the mechanics the duty question does not reach, Massachusetts sets ordinary defaults worth overriding deliberately.

A Massachusetts LLC is member-managed with equal management rights by default, and the significant decisions tend to require unanimity.

Under M.G.L. c. 156C, § 24, management is vested in the members unless the operating agreement provides for managers, and members have equal management rights regardless of what they contributed. Ordinary decisions run on a majority, while significant actions like amending the operating agreement or admitting a new member tend to require unanimous consent, so a single member can block a major change unless the agreement sets a lower threshold. Massachusetts also allows an oral operating agreement, but given how much rides on the duty question, an unwritten agreement is a poor foundation. The through-line is that Massachusetts governance is unusually duty-heavy, and the document is where an owner decides how much duty to keep, because the statute and the case law leave the default set high and unresolved.

The bottom line

Massachusetts is the home of the strictest fiduciary standard in the country, the Donahue duty of utmost good faith and loyalty owed among the owners of a close company.

Whether that strict duty binds LLC members by default is unsettled, so a Massachusetts LLC with a silent agreement may be one of the highest-duty environments anywhere.

The operating agreement may expand or restrict fiduciary duties under M.G.L. c. 156C, § 63, but it cannot eliminate the duty of good faith and fair dealing.

Massachusetts sits in the middle of the waiver spectrum, more permissive than a lock-in state and less than Delaware, and how far it will let an agreement restrict the Donahue duty is untested.

Management defaults to the members with equal rights under § 24, and significant actions tend to require unanimity, so the agreement should set the thresholds and the duty level deliberately.

What this page does not cover

This page is about the rules that run your company from the inside. How outside creditors reach a member’s interest, the bare charging order, and the declared homestead are on the protection page. The millionaires surtax on a big sale, the deeds excise, and the missing series LLC are on the structure and cost page. Why Massachusetts is the most expensive state to form and keep an LLC is on the filing page.

Last verified August 2026.