ARS Section 29-3105 Operating Agreement; Scope, Function & Limitations

ARS Section 29-3105 Operating Agreement; Scope, Function & Limitations2018-05-22T11:54:05+00:00

A. Except as otherwise provided in subsections C and D of this Section:

1. The operating agreement governs all of the following:

(a) relations among the members as members and between the members and the limited liability company.

(b) the rights and duties under this Chapter of a person in the capacity of manager.

(c) the activities and affairs of the company and the conduct of those activities and affairs.

(d) the means and conditions of amending the agreement.

2. the operating agreement may contain any provision that is not contrary to law.

3. in the event of a conflict between a provision of the operating agreement and this Chapter, the provision of the operating agreement governs.

B. To the extent the operating agreement does not provide for a matter described in subsection A of this Section, this Chapter governs the matter.

C. An operating agreement may not:

1. vary the law applicable under Section 29-3104.

2. vary a limited liability company’s capacity under Section 29-3109 to sue and be sued in the limited liability company’s own name.

3. vary any requirement, procedure or other provision of this Chapter pertaining to:

(a) statutory agents.

(b) the Commission, including provisions pertaining to records authorized or required to be delivered to the Commission for filing under this Chapter.

4. vary the provisions of Section 29-3204.

5. eliminate the contractual obligation of good faith and fair dealing or the duty to refrain from willful or intentional misconduct under Section 29-3409.

6. limit or eliminate a person’s liability for any violation of the contractual obligation of good faith and fair dealing or conduct involving willful or intentional misconduct.

7. unreasonably restrict the duties and rights of members and managers under Section 29-3410, but the operating agreement may impose reasonable restrictions on the availability and use of information obtained under Section 29-3410 and may define appropriate remedies, including liquidated damages, for a breach of any reasonable restriction on use.

8. vary the causes of dissolution specified in Section 29-3701.A.4(b) and Section 29-3701.A.5.

9. unreasonably restrict the right of a member to maintain an action under Article 8 of this Chapter, except that the operating agreement may require a member maintaining a direct action under Section 29-3801 to plead and prove an actual or threatened injury that is not solely the result of any injury suffered or threatened to be suffered by the company.

10. vary the provisions of Section 29-3805, but the operating agreement may provide that the company may not have a special litigation committee.

11. vary the required contents of a plan of merger, a plan of interest exchange, a plan of conversion, a plan of domestication or a plan of division under Article 10 of this Chapter.

12. except as otherwise provided in Section 29-3106 and Section 29-3107.B, restrict the rights under this Chapter of a person other than a member or manager.

13. reduce or eliminate the restrictions on distributions under Section 29-3405.A.

D. Subject to subsection C, paragraphs 5 and 6 of this Section, without limiting other terms that may be included in an operating agreement, the following apply:

1. to the extent that, at law or in equity, a member or manager or other person has duties, including the duty of care, the duty of loyalty and any other fiduciary duty, to a limited liability company, to another member or manager or to another person that is a party to or is otherwise bound by an operating agreement, the member’s, manager’s or other person’s duties may be expanded, limited or eliminated by the operating agreement.

2. an operating agreement may provide for the limitation or elimination of any or all liabilities for breach of the operating agreement or breach of duties, including the duty of care, the duty of loyalty and any other fiduciary duty, as expanded, limited or eliminated in the operating agreement, of a member, manager or other person to a company or to another member or manager or another person that is a party to or is otherwise bound by the operating agreement.

3. an operating agreement may specify a method by which a specific act, omission or transaction, or a specific category of acts, omissions or transactions, that would otherwise violate a duty, including the duty of care, the duty of loyalty and any other fiduciary duty, as expanded, limited or eliminated in the operating agreement, may be authorized or ratified. A general provision in an operating agreement that provides for management by one or more members or managers, without more, is not sufficient to specify a method for authorization or ratification under this paragraph.

4. an operating agreement may specify a method by which a member, manager or other person may be reimbursed, indemnified or held harmless, or by which the liability of a member, manager or other person may be limited or eliminated, for a specific act, omission or transaction, or a specific category of acts, omissions or transactions, that would otherwise violate a duty, including the duty of care, the duty of loyalty and any other fiduciary duty, as expanded, limited or eliminated in the operating agreement. A general provision in an operating agreement that provides for management by one or more members or managers, without more, is not sufficient to specify a method for reimbursing, indemnifying or holding harmless a person or limiting or eliminating a person’s liability under this paragraph.

E. Subject to the limitations of subsection C, paragraphs 5 and of this Section, an operating agreement may define some or all of the fiduciary duties of a member, manager or other person that is a party to or is otherwise bound by an operating agreement to be the same as the fiduciary duties of a director, officer or shareholder of a corporation formed under the laws of this state, in which case, unless the operating agreement provides otherwise, all laws of evidence and evidentiary presumptions and other laws that apply to the fiduciary duties of a director, officer or shareholder of a corporation formed under the laws of this state apply to such duties.

Note:  This statute is effective for all Arizona LLCs formed after August 31, 2019, and all Arizona LLCs after August 31, 2020.  The text above shows the statute as of April 10, 2018.  To see if the Arizona legislature modified this statute after April 10, 2018, go the the Arizona legislature's website for Title 29, Chapter 7.