RELATIONS OF MEMBERS TO EACH OTHER AND TO LIMITED LIABILITY COMPANY.

SDCL tit. 47, ch. 47-34A, art. 47-34A-Article4

in effect

SDCL § 47-34A-401 Becoming a member.

47-34A-401. Becoming a member. (a) If a limited liability company is to have only one member upon formation, the person becomes 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 acts on behalf of the initial member. (b) If a limited liability company is to have more than one member upon formation, those persons become members as agreed by the persons before the formation of the company. The organizer acts 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 Article 9; (3) With the consent of all the members; or (4) If, within 90 consecutive days after the company ceases to have any members: (A) The last person to have been a member, or the legal representative of that person, designates a person to become a member; and (B) The designated person consents to become a member. (d) A person may become a member without acquiring a distributional interest and without making or being obligated to make a contribution to the limited liability company. SL 1998, ch 272, § 401; SL 2013, ch 233, § 6.

SDCL § 47-34A-401.1 Form of contribution.

47-34A-401.1. Form of contribution. A contribution of a member of a limited liability company may consist of tangible or intangible property or other benefit to a limited liability company, including money, promissory notes, services performed, other agreements to contribute money or property, or contracts for services to be performed. SL 2013, ch 233, § 7.

SDCL § 47-34A-402 Liability for contributions.

47-34A-402. Liability for contributions. (a) A person's obligation to make a contribution to a limited liability company is not excused by the person's death, disability, or other inability to perform personally. If a person does not make the required contribution, the person or person's estate is obligated to contribute money equal to the value of that part of the contribution which has not been made at the option of the company. (b) A creditor of a limited liability company which extends credit or otherwise acts in reliance on an obligation described in subsection (a), and without notice of any compromise under § 47-34A-404.1(c)(5), may enforce the obligation. SL 1998, ch 272, § 402; SL 2013, ch 233, § 8.

SDCL § 47-34A-403 Member's and manager's rights to payments and reimbursement.

47-34A-403. Member's and manager's rights to payments and reimbursement. (a) A limited liability company shall reimburse a member or manager for payments made and indemnify a member or manager for liabilities incurred by the member or manager in the ordinary course of the business of the company or for the preservation of its business or property. (b) A limited liability company shall reimburse a member for an advance to the company beyond the amount of contribution the member agreed to make. (c) A payment or advance made by a member which gives rise to an obligation of a limited liability company under subsection (a) or (b) constitutes a loan to the company upon which interest accrues from the date of the payment or advance. (d) A member is not entitled to remuneration for services performed for a limited liability company, except for reasonable compensation for services rendered in winding up the business of the company. (e) A limited liability company may purchase and maintain insurance on behalf of a member or manager of the limited liability company against liability asserted against or incurred by the member or manager in that capacity or arising from that status even if the operating agreement could not eliminate or limit the person's liability to the company for the conduct giving rise to the liability. SL 1998, ch 272, § 403; SL 2013, ch 233, § 9.

SDCL § 47-34A-404.1 Management of limited liability company.

47-34A-404.1. Management of limited liability company. (a) In a member-managed company: (1) Each member has equal rights in the management and conduct of the company's business; and (2) Except as otherwise provided in subsection (c), any matter relating to the business of the company may be decided by a majority of the members. (b) In a manager-managed company: (1) Each manager has equal rights in the management and conduct of the company's business; (2) Except as otherwise provided in subsection (c), any matter relating to the business of the company may be exclusively decided by the manager or, if there is more than one manager, by a majority of the managers; and (3) A manager: (i) Must be designated, appointed, elected, removed, or replaced by a vote, approval, or consent of a majority of the members; and (ii) Holds office until a successor has been elected and qualified, unless the manager sooner resigns or is removed. (c) The only matters of a member-or manager-managed company's business requiring the consent of all of the members are: (1) The amendment of the operating agreement under § 47-34A-103; (2) The authorization or ratification of acts or transactions under § 47-34A-103(b)(2)(ii) which would otherwise violate the duty of loyalty; (3) An amendment to the articles of organization under § 47-34A-204; (4) The compromise of an obligation to make a contribution under § 47-34A-402(b); (5) The compromise, as among members, of an obligation of a member to make a contribution or return money or other property paid or distributed in violation of this chapter; (6) The making of interim distributions under § 47-34A-405(a), including the redemption of an interest; (7) The admission of a new member; (8) The use of the company's property to redeem an interest subject to a charging order; (9) The consent to dissolve the company under § 47-34A-801(a)(2); (10) A waiver of the right to have the company's business wound up and the company terminated under § 47-34A-802(b); (11) The consent of members to merge with another entity under § 47-34A-904(c)(1); and (12) The sale, lease, exchange, or other disposal of all, or substantially all, of the company's property with or without goodwill. (d) Action requiring the consent of members or managers under this chapter may be taken without a meeting. (e) A member or manager may appoint a proxy to vote or otherwise act for the member or manager by signing an appointment instrument, either personally or by the member's or manager's attorney-in-fact. SL 1998, ch 272, § 404.1.

SDCL § 47-34A-404.2 Classes and voting.

47-34A-404.2. Classes and voting. Nothing in this chapter prohibits the articles of organization from establishing classes or groups of one or more members having certain expressed relative rights, powers, or duties, including voting rights and the articles of organization may provide for the future creation, in the manner provided in the articles of organization, of additional classes or groups of members having certain relative rights, powers, or duties, including voting rights, expressed either in the regulations or at the time of creation. The rights, powers, or duties of a class or group may be senior to those of one or more existing classes or groups of members. SL 1998, ch 272, § 404.2.

SDCL § 47-34A-405 Sharing of and right to distributions.

47-34A-405. Sharing of and right to distributions. (a) Any distributions made by a limited liability company before its dissolution and winding up must be in equal shares. (b) A member has no right to receive, and may not be required to accept, a distribution in kind. (c) If a member becomes entitled to receive a distribution, the member has the status of, and is entitled to all remedies available to, a creditor of the limited liability company with respect to the distribution. SL 1998, ch 272, § 405.

SDCL § 47-34A-406 Limitations on distributions.

47-34A-406. Limitations on distributions. (a) A distribution may not be made if, after the distribution is made: (1) The limited liability company would not be able to pay its debts as they become due in the ordinary course of business; or (2) The company's total assets would be less than the sum of its total liabilities plus 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 whose preferential rights are superior to those receiving the distribution. (b) A limited liability company may base a determination that a distribution is not prohibited under subsection (a) 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 in the circumstances. (c) Except as otherwise provided in subsection (e), the effect of a distribution under subsection (a) is measured: (1) In the case of distribution by purchase, redemption, or other acquisition of a distributional interest in a limited liability company, as of the date money or other property is transferred or debt incurred by the company; and (2) In all other cases, as of the date the: (i) Distribution is authorized if the payment occurs within one hundred twenty days after the date of authorization; or (ii) Payment is made if it occurs more than one hundred twenty days after the date of authorization. (d) A limited liability company's indebtedness to a member incurred by reason of a distribution made in accordance with this section is at parity with the company's indebtedness to its general, unsecured creditors. (e) Indebtedness of a limited liability company, including indebtedness issued in connection with or as part of a distribution, is not considered a liability for purposes of determinations under subsection (a) if its terms provide that payment of principal and interest are made only if and to the extent that payment of a distribution to members could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest on the indebtedness is treated as a distribution, the effect of which is measured on the date the payment is made. (f) In subsection (a), "distribution" does not include amounts (i) constituting reasonable compensation for present or past services or (ii) reasonable payments made in the ordinary course of business under a bona fide retirement plan or other benefits program. SL 1998, ch 272, § 406; SL 2013, ch 233, § 10.

SDCL § 47-34A-407 Liability for improper distributions.

47-34A-407. Liability for improper distributions. (a) Any member of a member-managed company, or a manager of a manager-managed company who votes for or assents to a distribution made in violation of § 47-34A-406, the articles of organization, or the operating agreement is personally liable to the company for the amount of the distribution which exceeds the amount that could have been distributed without violating § 47-34A-406, the articles of organization, or the operating agreement if it is established that the member or manager did not perform the member's or manager's duties in compliance with § 47-34A-409. (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) applies to the other members and not the member that the operating agreement relieves of authority and responsibility. (c) A member of a manager-managed company who knew a distribution was made in violation of § 47-34A-406, the articles of organization, or the operating agreement is personally liable to the company, but only to the extent that the distribution received by the member exceeded the amount that could have been properly paid under § 47-34A-406. (d) A member or manager against whom an action is brought under this section may implead in the action all: (1) Other members or managers who voted for or assented to the distribution in violation of subsection (a) and may compel contribution from them; and (2) Members who received a distribution in violation of subsection (b) and may compel contribution from the member in the amount received in violation of subsection (b). (e) A proceeding under this section is barred unless it is commenced within two years after the distribution. SL 1998, ch 272, § 407; SL 2013, ch 233, § 11.

SDCL § 47-34A-408 Members' and managers' right to information.

47-34A-408. Members' and managers' right to information. (a) A limited liability company shall provide managers and members and the respective agents and attorneys of members access for proper purposes to its records, if any, at the company's principal office or other reasonable locations specified in the operating agreement. The company shall provide former members and their respective agents and attorneys access for proper purposes to records pertaining to the period during which they were members. The right of access provides the opportunity to inspect and copy records during ordinary business hours. The company may impose a reasonable charge, limited to the costs of labor and material, for copies of records furnished. (b) A limited liability company shall furnish to a manager: (1) Without demand, information concerning the company's business or affairs reasonably required for the proper exercise of the manager's performance of the manager's duties under the operating agreement or this chapter; and (2) On demand, other information concerning the company's business or affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances. (c) A limited liability company shall furnish to a member, and to the legal representative of a deceased member or member under legal disability: (1) Without demand, information concerning the company's business or affairs reasonably required for the proper exercise of the member's rights and performance of the member's duties under the operating agreement or this chapter; and (2) On demand, other information concerning the company's business or affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances. (d) A member has the right upon written demand given to the limited liability company to obtain at the company's expense a copy of any written operating agreement. SL 1998, ch 272, § 408; SL 2010, ch 218, § 1.

SDCL § 47-34A-409 General standards of member's and manager's conduct.

47-34A-409. General standards of member's and manager's conduct. (a) The only fiduciary duties a member owes to a member-managed company and, subject to § 47-34A-1101(b), its other members are the duty of loyalty and the duty of care imposed by subsections (b) and (c). (b) A member's duty of loyalty to a member-managed company and its other members is limited to the following: (1) To account to the company and to hold as trustee for it any property, profit, or benefit derived by the member in the conduct or winding up of the company's business or derived from a use by the member of the company's property, including the appropriation of a company's opportunity; (2) To refrain from dealing with the company in the conduct or winding up of the company's business as or on behalf of a party having an interest adverse to the company; and (3) To refrain from competing with the company in the conduct of the company's business before the dissolution of the company. (c) A member's duty of care to a member-managed company and its other members in the conduct of and winding up of the company's business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. (d) A member shall discharge the duties to a member-managed company and its other members under this chapter or under the operating agreement and exercise any rights consistently with the obligation of good faith and fair dealing. (e) A member of a member-managed company does not violate a duty or obligation under this chapter or under the operating agreement merely because the member's conduct furthers the member's own interest. (f) A member of a member-managed company may lend money to and transact other business with the company. As to each loan or transaction, the rights and obligations of the member are the same as those of a person who is not a member, subject to other applicable law. (g) This section applies to a person winding up the limited liability company's business as the personal or legal representative of the last surviving member as if the person were a member. (h) In a manager-managed company: (1) A member who is not also a manager owes no duties to the company or to the other members solely by reason of being a member; (2) A manager is held to the same standards of conduct prescribed for members in subsections (b) through (f); (3) A member who pursuant to the operating agreement exercises some or all of the rights of a manager in the management and conduct of the company's business is held to the standards of conduct in subsections (b) through (f) to the extent that the member exercises the managerial authority vested in a manager by this chapter; and (4) A manager is relieved of liability imposed by law for violation of the standards prescribed by subsections (b) through (f) to the extent of the managerial authority delegated to the members by the operating agreement. SL 1998, ch 272, § 409; SL 2013, ch 233, § 12.

SDCL § 47-34A-410 Actions by members.

47-34A-410. Actions by members. (a) A member may maintain an action against a limited liability company or another member for legal or equitable relief, with or without an accounting as to the company's business, to enforce: (1) The member's rights under the operating agreement; (2) The member's rights under this chapter; and (3) The rights and otherwise protect the interests of the member, including rights and interests arising independently of the member's relationship to the company. (b) The accrual, and any time limited for the assertion, of a right of action for a remedy under this section is governed by other law. A right to an accounting upon a dissolution and winding up does not revive a claim barred by law. SL 1998, ch 272, § 410.

SDCL § 47-34A-411 Good faith reliance upon information.

47-34A-411. Good faith reliance upon information. A member or manager of a limited liability company shall be fully protected in relying in good faith upon the records of the limited liability company and upon such information, opinions, reports, or statements presented to the limited liability company by any of its other managers, members, officers, employees, or committees of the limited liability company, or any other person, as to matters the member or manager reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the limited liability company, including information, opinions, reports, or statements as to the value and amount of the assets, liabilities, profits, or losses of the limited liability company or any other facts pertinent to the existence and amount of assets from which distributions to members might properly be paid. SL 2010, ch 218, § 14.

Source: South Dakota Legislature (sdlegislature.gov)URL: https://sdlegislature.gov/Statutes/47-34A-Article4Fetched: 10/20/2026