Louisiana LLC governance: a civil-law fiduciary standard that flips the burden onto a manager who deals with his own company

Most states describe an LLC manager’s duties in general terms and then let the business-judgment rule do the protecting: a manager who makes an informed, good-faith decision is presumed to have met the standard, and a challenger has to overcome that presumption. Louisiana starts the same way, with a prudent-person fiduciary duty, but it adds a rule that changes the balance whenever a manager deals with his own company. If a Louisiana member or manager profits personally from a transaction connected to the LLC, he does not get the presumption. He carries the burden of proving, under strict judicial scrutiny, that the transaction was fair to the company. For a real estate operator whose deals are full of related-party arrangements, that reversal is the thing to understand.

The safe harbor and the strict-scrutiny rule are two halves of the same statute, and which half applies depends on whether the manager had a conflict. This page leads with that split rather than re-teaching the general mechanics on the site’s default rules and freedom of contract guides. In Louisiana, an arm’s-length decision is protected and a self-interested one is presumed suspect until proven fair, which is a sharper line than the common-law states draw.

The prudent-person duty, and the safe harbor that comes with it

Start with the baseline, because Louisiana states it in the statute rather than leaving it to the courts.

A Louisiana member or manager stands in a fiduciary relationship to the LLC and must act in good faith with the care a prudent person would use in a like position.

Under La. R.S. 12:1314(A), a member in a member-managed LLC, or a manager in a manager-managed one, is deemed to stand in a fiduciary relationship to the company and its members and must discharge his duties in good faith with the diligence, care, judgment, and skill an ordinarily prudent person would exercise in a like position. That is the civil-law prudent-administrator standard, and it encompasses both care and loyalty. Louisiana then supplies a safe harbor for ordinary decisions.

A conflict-free decision made in good faith, on adequate information, in the rational belief it serves the company, satisfies the duty.

Under La. R.S. 12:1314(D), a member or manager who makes a business judgment in good faith fulfills the prudent-person duty if he has no conflict of interest in the matter, is informed to the extent he reasonably believes appropriate, and rationally believes the judgment is in the LLC’s best interests. That is the familiar business-judgment protection, and it means an ordinary operating decision, made honestly and on reasonable information, is not second-guessed. The important word is conflict, because the safe harbor is written to apply where the manager has none, and Louisiana treats the conflicted transaction very differently.

The self-dealing rule that puts the burden on the manager

Here is the seam, and it is where Louisiana departs from the common-law states.

A Louisiana manager who profits personally from a transaction connected with the LLC must prove, under strict judicial scrutiny, that the transaction was fair to the company.

Under La. R.S. 12:1314(B), a member or manager may not profit personally from a transaction connected with the LLC, or use its property, unless he proves the fairness of the transaction to the company under strict judicial scrutiny. That is a burden-shifting rule, and it is tougher than the business-judgment presumption a common-law manager enjoys. In a typical state, a challenger attacking a related-party deal must prove it was unfair. In Louisiana, once the manager’s personal profit is shown, the manager must prove it was fair, and the court reviews it strictly rather than deferentially. For the audience this site serves, that matters because the related-party transaction is not an edge case; it is the normal texture of a real estate operation. A manager who leases the LLC’s property to an affiliate he controls, signs a management contract between his companies, or sells an asset between sister entities has profited from an LLC-connected transaction, and in Louisiana he holds the burden of proving each of those was fair to the company. The structuring consequence is documentation: fairness proven under strict scrutiny is built from contemporaneous evidence of market terms, independent valuation, and disclosure, gathered when the deal is done, not reconstructed once it is challenged. The freedom of contract guide covers how far an agreement can adjust duties; the Louisiana point is that the self-dealing standard is demanding enough that the paper trail is the defense.

The defaults that fill the gaps

On distributions and management, Louisiana’s defaults follow the operating agreement, and where it is silent, the statute fills in.

When a Louisiana operating agreement is silent, profits and distributions are allocated by the agreed value of each member’s contribution, and the override must be in writing.

Under La. R.S. 12:1324, allocations of profits and losses, and the distributions that follow, are governed by a written operating agreement, and where the agreement does not provide otherwise in writing, they are allocated based on the agreed value of the contributions each member made. So Louisiana’s default is contribution-weighted, like Indiana’s and Maryland’s, rather than the equal-shares default of a uniform-act state, and the member who contributed more is entitled to more by default. The trap is the word written: an oral understanding to split differently does not override the statute, so a Louisiana LLC that wants any allocation other than by contribution value has to put it in a written operating agreement. Management defaults to the members under La. R.S. 12:1311 unless the articles vest it in managers, and voting rights run through La. R.S. 12:1318. The distributions guide covers why the split should be set deliberately; the Louisiana-specific point is that the default rewards capital and only a written agreement changes it.

The bottom line

Louisiana holds members and managers to a prudent-person fiduciary standard under R.S. 12:1314(A), stated in the statute rather than left to the courts.

A conflict-free, informed, good-faith decision is protected by the business-judgment safe harbor in 12:1314(D), so ordinary operating decisions are not second-guessed.

But a manager who profits from a transaction connected with the LLC must prove its fairness under strict judicial scrutiny under 12:1314(B), which reverses the usual burden on related-party deals.

Because a real estate operation runs on related-party transactions, the practical defense is contemporaneous proof of fair terms, built when the deal is done.

The distribution default under 12:1324 allocates by the agreed value of contributions, and only a written operating agreement changes it, so any other split must be in writing.

What this page does not cover

This page is about the rules that run your company from the inside. How creditors reach a member’s interest, the charging order a court made exclusive, and the 2024 law that protected affiliated companies are on the protection page. Louisiana’s flat income tax, the repealed franchise tax, the community-property treatment of an LLC interest, and the lack of a series LLC are on the structure and cost page. The $100 formation fee and the two-strike dissolution rule are on the filing page.

Last verified August 2026.