ARS Section 29-3409 Standards of Conduct for Members & Managers

ARS Section 29-3409 Standards of Conduct for Members & Managers2018-05-23T12:58:53+00:00

A. A member of a member-managed limited liability company owes to the company and the other members the duties of loyalty and care stated in subsections B and C of this Section.

B. The fiduciary duty of loyalty of a member in a member-managed limited liability company includes the following duties:

1. to account to the company and hold as trustee for the company any property, profit or benefit derived by the member to which the member is not entitled:

(a) in the conduct or winding up of the company’s activities and affairs.

(b) from a use by the member of the company’s property.

(c) from the appropriation of a company opportunity.

2. to refrain from dealing with the company in the conduct or winding up of the company’s activities and affairs as or on behalf of a person having an interest adverse to the company.

3. to refrain from competing with the company in the conduct of the company’s activities and affairs before the dissolution of the company.

4. to disclose to each of the other members that are considering or voting on a decision or transaction regarding the company or one or more of the members’ interests in the company both of the following:

(a) any material conflict of interest on the part of the disclosing member with respect to the decision or transaction.

(b) if a material conflict of interest exists, all material facts relating to the decision or transaction that are within the disclosing member’s knowledge and not known or reasonably available to the affected members.

C. The duty of care of a member of a member-managed limited liability company in the conduct or winding up of the company’s activities and affairs is to refrain from engaging in grossly negligent or reckless conduct or willful or intentional misconduct.

D. A member shall discharge the duties and obligations under this Chapter or under the operating agreement and exercise any right consistently with the contractual obligation of good faith and fair dealing.

E. A member does not violate a duty or obligation under this Chapter or under the operating agreement solely because the member’s conduct furthers the member’s own interest.

F. All the members of a member-managed limited liability company may authorize or ratify, after disclosure of all material facts, a specific act, omission or transaction or specific category of acts, omissions or transactions that otherwise would violate the duty of loyalty, as expanded, limited or eliminated in the operating agreement.

G. It is a defense to a claim under subsection B, paragraph 2 or of this Section and any comparable claim in equity or at common law that the transaction or decision was fair to the limited liability company.

H. If, as allowed by subsection F or q of this Section or the operating agreement, a member enters into a transaction with the limited liability company that otherwise would be prohibited by subsection B, paragraph 2 of this Section, the member’s rights and obligations arising from the transaction are the same as those of a person that is not a member.

I. A manager of a manager-managed limited liability company owes to the company and the members the duties of loyalty and care stated in subsections j and k of this Section.

J. The fiduciary duty of loyalty of a manager in a manager-managed limited liability company includes the following duties:

1. to account to the company and hold as trustee for the company any property, profit or benefit derived by the manager to which the manager is not entitled:

(a) in the conduct or winding up of the company’s activities and affairs.

(b) from a use by the manager of the company’s property.

(c) from the appropriation of a company opportunity.

2. to refrain from dealing with the company in the conduct or winding up of the company’s activities and affairs as or on behalf of a person having an interest adverse to the company.

3. to refrain from competing with the company in the conduct of the company’s activities and affairs before the dissolution of the company.

4. to disclose to each of the other members and managers who are considering or voting on a decision or transaction regarding the company or one or more of the members’ interests in the company both of the following:

(a) any material conflict of interest on the part of the disclosing manager with respect to the decision or transaction.

(b) if a material conflict of interest exists, all material facts relating to the decision or transaction that are within the disclosing manager’s knowledge and not known or reasonably available to the affected members or managers.

K. The duty of care of a manager of a manager-managed limited liability company in the conduct or winding up of the company’s activities and affairs is to refrain from engaging in grossly negligent or reckless conduct or willful or intentional misconduct.

L. A manager shall discharge the duties and obligations under this Chapter or under the operating agreement and exercise any right consistently with the contractual obligation of good faith and fair dealing.

M. A manager does not violate a duty or obligation under this Chapter or under the operating agreement solely because the manager’s conduct furthers the manager’s own interest.

N. All the members of a manager-managed limited liability company may authorize or ratify, after disclosure of all material facts, a specific act, omission or transaction or specific category of acts, omissions or transactions that otherwise would violate the duty of loyalty, as expanded, limited or eliminated in the operating agreement.

O. It is a defense to a claim under subsection j, paragraph 2 or of this Section and any comparable claim in equity or at common law that the transaction or decision was fair to the limited liability company.

P. If, as allowed by subsection N of this Section or the operating agreement, a manager enters into a transaction with the limited liability company that would otherwise be prohibited by subsection J, paragraph 2 of this Section, the manager’s rights and obligations arising from the transaction are the same as those of a person that is not a manager.

Q. In a manager-managed limited liability company, a member does not have any fiduciary duty to the company or to any other member solely by reason of being a member.  Whether and the extent to which a member of a manager-managed limited liability company owes fiduciary duties to the company or the other members depends on the extent to which the member controls or participates in the management or the affairs of the company and shall be determined in accordance with the policies of this Section and laws other than this Chapter.

R. A conflict of interest is material if the conflict would reasonably be expected to affect a member’s or manager’s judgment regarding the decision or transaction under consideration.

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.