Subchapter IV. Relations of Members to Each Other and to Limited Liability Company.
§ 29–804.01. Becoming member.
(a) If a limited liability company is to have only one member upon formation, the person shall become a member as agreed by that person and the organizer of the company. That person and the organizer may be, but need not be, different persons. If different, the organizer shall act on behalf of the initial member.
(b) If a limited liability company is to have more than one member upon formation, those persons shall become members as agreed by the persons before the formation of the company. The organizer [sic] act on behalf of the persons in forming the company and may be, but need not be, one of the persons.
(c) After formation of a limited liability company, a person becomes a member:
(1) As provided in the operating agreement;
(2) As the result of a transaction effective under subchapter IX of this chapter or Chapter 2 of this title;
(3) With the consent of all the members; or
(4) As provided in § 29-807.01(a)(3).
(d) A person may become a member without acquiring a transferable interest and without making or being obligated to make a contribution to the limited liability company.
§ 29–804.02. Form of contribution.
A contribution may consist of property transferred, services performed, or another benefit provided to the limited liability company or an agreement to transfer property, perform services, or provide another benefit to the company.
§ 29–804.03. Liability for contributions.
(a) A person’s obligation to make a contribution to a limited liability company shall not be excused by the person’s death, disability, or other inability to perform personally. If a person does not fulfill an obligation, other than a monetary obligation, the person is obligated to contribute money equal to the value of the part of the contribution which has not been made, at the option of the company.
(b) The obligation of a person to make a contribution may be compromised only by consent of all members. A creditor of a limited liability company which extends credit or otherwise acts in reliance on an obligation described in subsection (a) of this section without notice of a compromise under this subsection may enforce the obligation.
§ 29–804.04. Sharing of and right to distributions before dissolution.
(a) Any distributions made by a limited liability company before its dissolution and winding up shall be in equal shares among members and dissociated members, except to the extent necessary to comply with any transfer effective under § 29-805.02 and any charging order in effect under § 29-805.03.
(b) A person shall have a right to a distribution before the dissolution and winding up of a limited liability company only if the company decides to make an interim distribution. A person’s dissociation shall not entitle the person to a distribution.
(c) A person shall not have a right to demand or receive a distribution from a limited liability company in any form other than money. Except as otherwise provided in § 29-807.05(c), a limited liability company may distribute an asset in kind if each part of the asset is fungible with each other part and each person receives a percentage of the asset equal in value to the person’s share of distributions.
(d) If a member or transferee becomes entitled to receive a distribution, the member or transferee shall have the status of, and shall be entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution. However, the company’s obligation to make a distribution is subject to offset for any amount owed to the company by the member or a person dissociated as a member on whose account the distribution is made.
§ 29–804.05. Limitations on distribution.
(a) A limited liability company shall not make a distribution, including a distribution under § 29-807.05(c), if after the distribution:
(1) The company would not be able to pay its debts as they become due in the ordinary course of the company’s activities and affairs; or
(2) The company’s total assets would be less than the sum of its total liabilities plus, unless the operating agreement permits otherwise, the amount that would be needed if the company were to be dissolved, wound up, and terminated at the time of the distribution, to satisfy the preferential rights upon dissolution, winding up, and termination of members and transferees whose preferential rights are superior to those of persons receiving the distribution.
(b) A limited liability company may base a determination that a distribution is not prohibited under subsection (a) of this section on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances or on a fair valuation or other method that is reasonable under the circumstances.
(c) Except as otherwise provided in subsections (e) and (f) of this section, the effect of a distribution under subsection (a) of this section shall be measured:
(1) In the case of a distribution as defined in § 29-801.02(3), as of the earlier of (i) the date money or other property is transferred or debt incurred by the company or (ii) the date the person entitled to the distribution ceases to own the interest or right being acquired by the company in return for the distribution;
(2) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and
(3) In all other cases, as of the date:
(A) The distribution is authorized, if the payment occurs within 120 days after that date; or
(B) The payment is made, if the payment occurs more than 120 days after the distribution is authorized.
(d) A limited liability company’s indebtedness to a member or transferee incurred by reason of a distribution made in accordance with this section shall be at parity with the company’s indebtedness to its general, unsecured creditors , except to the extent subordinated by agreement.
(e) A limited liability company’s indebtedness, including indebtedness issued in connection with or as part of a distribution, shall not be a liability for purposes of subsection (a) of this section if the terms of the indebtedness provide that payment of principal and interest are made only to the extent that a distribution could be made to members under this section.
(f) If indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness shall be treated as a distribution, the effect of which is measured on the date the payment is made.
(g) In measuring the effect of a distribution under § 29-807.05, the liabilities of a dissolved limited liability company do not include any claim that has been disposed of under § 29-807.03, § 29-807.04, or § 29-807.07.
§ 29–804.06. Liability for improper distributions.
(a) Except as otherwise provided in subsection (b) of this section, if a member of a member-managed limited liability company or manager of a manager-managed limited liability company consents to a distribution made in violation of § 29-804.05 and, in consenting to the distribution, fails to comply with § 29-804.09, the member or manager shall be personally liable to the company for the amount of the distribution that exceeds the amount that could have been distributed without the violation of § 29-804.05.
(b) To the extent the operating agreement of a member-managed limited liability company expressly relieves a member of the authority and responsibility to consent to distributions and imposes that authority and responsibility on one or more other members, the liability stated in subsection (a) of this section shall apply to the other members and not the member that the operating agreement relieves of authority and responsibility.
(c) A person that receives a distribution knowing that the distribution to that person was made in violation of § 29-804.05 shall be personally liable to the limited liability company but only to the extent that the distribution received by the person exceeded the amount that could have been properly paid under § 29-804.05.
(d) A person against which an action is commenced because the person is liable under subsection (a) of this section may implead any:
(1) Other person that is subject to liability under subsection (a) of this section and seek to compel contribution from the person; and
(2) Person that received a distribution in violation of subsection (c) of this section and seek to compel contribution from the person in the amount the person received in violation of subsection (c) of this section.
(e) An action under this section shall be barred if not commenced within 2 years after the distribution.
§ 29–804.07. Management of limited liability company.
(a) A limited liability company shall be a member-managed limited liability company unless the operating agreement:
(1) Expressly provides that:
(A) The company is or will be “manager-managed”;
(B) The company is or will be “managed by managers”; or
(C) Management of the company is or will be “vested in managers”; or
(2) Includes words of similar import.
(b) In a member-managed limited liability company, the following rules shall apply:
(1) Except as otherwise expressly provided in this chapter, the management and conduct of the company shall be vested in the members.
(2) Each member shall have equal rights in the management and conduct of the company’s activities and affairs.
(3) A difference arising among members as to a matter in the ordinary course of the activities and affairs of the company may be decided by a majority of the members.
(4) An act outside the ordinary course of the activities and affairs of the company may be undertaken only with the consent of all members.
(5) The operating agreement may be amended only with the consent of all members.
(c) In a manager-managed limited liability company, the following rules apply:
(1) Except as otherwise expressly provided in this chapter, any matter relating to the activities and affairs of the company shall be decided exclusively by the managers.
(2) Each manager shall have equal rights in the management and conduct of the activities and affairs of the company.
(3) A difference arising among managers as to a matter in the ordinary course of the activities and affairs of the company may be decided by a majority of the managers.
(4) The consent of all members shall be required to:
(A) Sell, lease, exchange, or otherwise dispose of all, or substantially all, of the company’s property, with or without the good will, outside the ordinary course of the company’s activities and affairs;
(B) Approve a merger or domestication under subchapter IX of this chapter or transaction under Chapter 2 of this title;
(C) Undertake any other act outside the ordinary course of the company’s activities and affairs; and
(D) Amend the operating agreement.
(5) A manager may be chosen at any time by the consent of a majority of the members and shall remain a manager until a successor has been chosen, unless the manager at an earlier time resigns, is removed, or dies, or, in the case of a manager that is not an individual, terminates. A manager may be removed at any time by the consent of a majority of the members without notice or cause.
(6) A person need not be a member to be a manager, but the dissociation of a member that is also a manager shall remove the person as a manager. If a person that is both a manager and a member ceases to be a manager, that cessation shall not by itself dissociate the person as a member.
(7) A person’s ceasing to be a manager shall not discharge any debt, obligation, or other liability to the limited liability company or members which the person incurred while a manager.
(d) An action requiring the consent of members under this chapter may be taken without a meeting, and a member may appoint a proxy or other agent to consent or otherwise act for the member by signing an appointing record, personally or by the member’s agent.
(e) The dissolution of a limited liability company shall not affect the applicability of this section. However, a person that wrongfully causes dissolution of the company loses the right to participate in management as a member and a manager.
(f) This chapter shall not entitle a member to remuneration for services performed for a member-managed limited liability company, except for reasonable compensation for services rendered in winding up the activities and affairs of the company.
(g) A limited liability company shall reimburse a member for an advance to the company beyond the amount of capital the member agreed to contribute.
(h) A payment or advance made by a member which gives rise to an obligation of the limited liability company under subsection (g) of this section or under § 29-804.08(a) constitutes a loan to the company which accrues interest from the date of the payment or advance.
§ 29–804.08. Reimbursement, indemnification, advancement, and insurance.
(a) A limited liability company shall reimburse for any payment made, and indemnify for any debt, obligation, or other liability incurred, by a member of a member-managed company or the manager of a manager-managed company in the course of the member’s or manager’s activities on behalf of the company, if, in making the payment or incurring the debt, obligation, or other liability, the member or manager complied with the duties stated in §§ 29-804.05 and 29-804.09.
(b) A limited liability company may purchase insurance on behalf of a member or manager of the company against liability asserted against or incurred by the member or manager in that capacity or arising from that status even if, under § 29-801.07(c)(13), the operating agreement could not eliminate or limit the person’s liability to the company for the conduct giving rise to the liability.
(c) In the ordinary course of its activities and affairs, a limited liability company may advance reasonable expenses, including attorney’s fees and costs, incurred by a person in connection with a claim or demand against the person by reason of the person’s former or present capacity as a member or manager, if the person promises to repay the company if the person ultimately is determined not to be entitled to be indemnified under subsection (a) of this section.
§ 29–804.09. Standards of conduct for members and managers.
(a) A member of a member-managed limited liability company owes to the company and, subject to § 29-808.01(b), the other members the duties of loyalty and care stated in subsections (b) and (c) of this section.
(b) The duty of loyalty of a member in a member-managed limited liability company shall include the duties to:
(1) Account to the company and to hold as trustee for it any property, profit, or benefit derived by the member:
(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; or
(C) From the appropriation of a limited liability company opportunity;
(2) 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; and
(3) Refrain from competing with the company in the conduct of the company’s activities and affairs before the dissolution of the company.
(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 requires the member to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law.
(d) A member in a member-managed limited liability company or a manager-managed limited liability company shall discharge the duties and obligations under this chapter or under the operating agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing.
(e) It shall be a defense to a claim under subsection (b)(2) of this section and any comparable claim in equity or at common law that the transaction was fair to the limited liability company.
(f) All of the members of a member-managed limited liability company or a manager-managed limited liability company may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.
(g) 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.
(h) If, as permitted by subsection (f) of this section or the operating agreement, a member enters into a transaction with the limited liability company which otherwise would be prohibited by subsection (b)(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) In a manager-managed limited liability company, the following rules apply:
(1) Subsections (a), (b), (c), and (e) of this section shall apply to the managers and not the members.
(2) The duty stated under subsection (b)(3) of this section shall continue until winding up is completed.
(3) Subsection (d) of this section shall apply to the members and managers.
(4) Subsections (f) and (g) of this section shall apply only to the members.
(5) A member shall not have any fiduciary duty to the company or to any other member solely by reason of being a member.
§ 29–804.10. Right of members, managers, and dissociated members to information.
(a) In a member-managed limited liability company, the following rules shall apply:
(1) On reasonable notice, a member may inspect and copy during regular business hours, at a reasonable location specified by the company, any record maintained by the company regarding the company’s activities and affairs, financial condition, and other circumstances, to the extent the information is material to the member’s rights and duties under the operating agreement or this chapter.
(2) The company shall furnish to each member:
(A) Without demand, any information concerning the company’s activities and affairs, financial condition, and other circumstances which the company knows and is material to the proper exercise of the member’s rights and duties under the operating agreement or this chapter, except to the extent the company can establish that it reasonably believes the member already knows the information; and
(B) On demand, any other information concerning the company’s activities and affairs, financial condition, and other circumstances, except to the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances.
(3) The duty to furnish information under paragraph (2) of this subsection shall also apply to each member to the extent the member knows any of the information described in paragraph (2) of this subsection.
(b) In a manager-managed limited liability company, the following rules shall apply:
(1) The informational rights stated in subsection (a) of this section and the duty stated in subsection (a)(3) of this section apply to the managers and not the members.
(2) During regular business hours and at a reasonable location specified by the company, a member may obtain from the company, and inspect and copy, full information regarding the activities and affairs, financial condition, and other circumstances of the company as is just and reasonable if:
(A) The member seeks the information for a purpose material to the member’s interest as a member;
(B) The member makes a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information; and
(C) The information sought is directly connected to the member’s purpose.
(3) Within 10 days after receiving a demand pursuant to paragraph (2)(B) of this subsection, the company shall in a record inform the member that made the demand:
(A) Of the information that the company will provide in response to the demand and when and where the company will provide the information; and
(B) If the company declines to provide any demanded information, the company’s reasons for declining.
(4) Whenever this chapter or an operating agreement provides for a member to give or withhold consent to a matter, before the consent is given or withheld, the company shall, without demand, provide the member with all information that is known to the company and is material to the member’s decision.
(c) On 10 days’ demand made in a record received by a limited liability company, a dissociated member shall have access to information to which the person was entitled while a member if the information pertains to the period during which the person was a member, the person seeks the information in good faith, and the person satisfies the requirements imposed on a member by subsection (b)(2) of this section. The company shall respond to a demand made pursuant to this subsection in the manner provided in subsection (b)(3) of this section.
(d) A limited liability company may charge a person that makes a demand under this section the reasonable costs of copying, limited to the costs of labor and material.
(e) A member or dissociated member may exercise rights under this section through an agent or, in the case of an individual under legal disability, a legal representative. Any restriction or condition imposed by the operating agreement or under subsection (g) of this section shall apply both to the agent or legal representative and the member or dissociated member.
(f) The rights under this section shall not extend to a person as transferee.
(g) In addition to any restriction or condition stated in its operating agreement, a limited liability company, as a matter within the ordinary course of its activities and affairs, may impose reasonable restrictions and conditions on access to and use of information to be furnished under this section, including designating information confidential and imposing nondisclosure and safeguarding obligations on the recipient. In a dispute concerning the reasonableness of a restriction under this subsection, the company shall have the burden of proving reasonableness.
