4. Ask students about running businesses on the Internet. Is it easier to start a business in “virtual” space
than in “real” space? Is it less (or more) expensive? What are the applicable laws? Perhaps most important
from a business person’s perspective, is it possible to turn a profit? How? Are there different consid-
erations for choosing an organizational form for doing business on the Net than there are for doing business
elsewhere? If so, what are they?
EXPLANATION OF A SELECTED FOOTNOTE IN THE TEXT
Footnote 6: Leslie Polk and his children, Yurii and Dusty Polk and Lezanne Proctor, formed Polk
Plumbing, LLC. After a couple of years, Yurii quit the firm, and Leslie “fired” Dusty and Lezanne. He denied them
access to the firm’s books and offices but continued to operate the business. Dusty and Lezanne filed a suit in an
Alabama state court against Leslie, claiming breach of fiduciary duty. The court submitted the claim to a jury with the
instruction that in Alabama employment relationships are at will. The court also told the jury that they could not
consider the plaintiffs’ “firing” as part of their claim. The jury awarded the plaintiffs $1 each in damages. They
appealed, arguing that the jury instructions were prejudicial.
Could the operating agreement of an LLC reduce or eliminate the fiduciary duties that a member-
manager might owe to the firm? Although state law differs on which duties apply, and to whom, the answer to this
question is generally no. Members of an LLC are free to reach certain agreements as to their rights and
responsibilities, but they most likely could not agree to unreasonably restrict a member's right to information, to
eliminate a manager's duty of loyalty, or to unreasonably reduce the duty of care.
Why wouldn’t a manager always owe a fiduciary duty to the members of an LLC? One would think that
the principle of fiduciary duties by a manger to the members of an LLC would go without saying. But, there is a
Suppose that Leslie owned a majority of the shares in Polk Plumbing. Could his “firing” of Dusty and
Lezanne still be considered evidence of a breach of fiduciary duty? Explain. Yes, Leslie’s firing of Dusty and
Lezanne would be subject to consideration of a breach of fiduciary duty even if Leslie owned a majority of the shares
in the LLC. The operating agreement provides for such a “recall or replacement” only on the vote of a majority of the
members—not at the behest of members holding a majority of the shares.