Relations of Members to Each Other and to Limited Liability Company

A.R.S. tit. 29, ch. 7, art. 4

in effect

A.R.S. § 29-3401 Becoming a member; transferable interest; ownership of interest in limited liability company

29-3401. Becoming a member; transferable interest; ownership of interest in limited liability company A. At the time of formation, a limited liability company must have at least one member. If a company is to have only one member on formation, the person becomes a member by agreeing to be a member and by being identified as the member in the articles of organization. The member and the organizer may be, but are not required to be, different persons. If the member and organizer are different persons, the organizer acts on behalf of the initial member. B. If a limited liability company is to have more than one member on 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 is not required to be, one of the persons. C. After formation of a limited liability company, a person becomes a member by any of the following: 1. As provided in the operating agreement. 2. As the result of a transaction effective under article 10 of this chapter. 3. By agreeing to become a member, with the affirmative vote or consent of all the members. 4. As provided in section 29-3701, subsection A, paragraph 3. D. A person may become a member without either: 1. Acquiring a transferable interest. 2. Making or being obligated to make a contribution to the limited liability company. E. A transferable interest may be held by two or more natural persons as joint tenants with right of survivorship or by a married couple as community property with right of survivorship. Except as otherwise provided in this section, an assignment or issuance of a transferable interest to two or more natural persons creates a tenancy in common, except an assignment or issuance to a married couple. F. A joint tenancy with right of survivorship is created when a written operating agreement expressly declares that two or more natural persons hold a transferable interest as joint tenants with right of survivorship or in joint tenancy with right of survivorship. A joint tenancy with right of survivorship may also be created by a written assignment of a transferable interest to two or more natural persons, who may include one or more assignors, or by the articles of organization, if the written assignment or the articles have been signed by each joint tenant and contain the express written declaration that the joint tenants hold the assigned transferable interest as joint tenants with right of survivorship or in joint tenancy with right of survivorship. G. An estate in community property with right of survivorship is created when a written operating agreement expressly declares that a married couple holds a transferable interest as community property with right of survivorship. An estate in community property with right of survivorship may also be created by a written assignment of a transferable interest to a married couple, who may include one or both assignor spouses, or by the articles of organization, if the written assignment or the articles have been signed by each spouse and contain the express written declaration that the married couple holds the assigned transferable interest as community property with right of survivorship. H. All co-owners of a transferable interest held as joint tenants with right of survivorship, as community property or as community property with right of survivorship own an equal undivided interest in the transferable interest. Each co-owner of a transferable interest, whether the transferable interest is held as tenants in common, joint tenants with right of survivorship, community property or community property with right of survivorship, shall have only the rights of a transferee with respect to the interest, both during the lifetime and following the death of any other co-owner, unless and until the co-owner becomes a member in accordance with subsection C of this section. I. If a transferable interest is held by two or more persons in joint tenancy with right of survivorship or by a married couple as community property with right of survivorship, after the death of a co-owner of the transferable interest all of the following apply: 1. The surviving co-owner or co-owners of the transferable interest shall succeed to the ownership of the decedent's interest in the transferable interest without further action by the limited liability company or the other members and shall have only the rights of a transferee with respect to the interest, unless and until the co-owner or co-owners are admitted as a member or members in accordance with subsection C of this section. 2. The decedent's interest in the hands of the surviving co-owner or co-owners shall continue to be subject to all obligations and liabilities to which that interest was subject immediately before the death under the terms of the operating agreement or other agreement among one or more members or third parties. 3. If there is more than one surviving co-owner of a transferable interest held in joint tenancy with right of survivorship, after the death of a co-owner the surviving co-owners shall continue to own the transferable interest in equal shares as joint tenants with right of survivorship. J. The distribution, voting, approval and other management rights with respect to a transferable interest that is co-owned by two or more persons, whether the transferable interest is held as tenants in common, joint tenants with right of survivorship, community property or community property with right of survivorship, shall be the same as if the interest were held by only one person. K. Each co-owner of a transferable interest who becomes a member may exercise all voting, approval and other management rights of a member, including the right to approve an amendment to the operating agreement, with respect to an interest held as tenancy in common, joint tenancy with right of survivorship, community property or community property with right of survivorship. L. The limited liability company is entitled to rely in good faith on the act of a member that purports to be taken in the exercise of any voting, approval or other management right, including the right to approve an amendment to the operating agreement relating to a transferable interest that is co-owned by the member with one or more other persons, whether the transferable interest is held as tenants in common, joint tenants with right of survivorship, community property or community property with right of survivorship. M. If a co-owner of a transferable interest held as joint tenants with right of survivorship or community property with right of survivorship transfers part or all of the co-owner's share of the transferable interest, the right of survivorship is extinguished and the co-owners of the transferable interest after the transfer hold their shares of the transferable interest as tenants in common. In the case of community property with right of survivorship, the right of survivorship is also extinguished as provided in section 14-2803 or 14-2804 or on the delivery to the limited liability company, at its principal address, of an affidavit entitled "affidavit terminating right of survivorship" that is executed by either spouse under oath stating the spouse's intent to terminate the right of survivorship and describing the affected transferable interest. The delivery of the affidavit does not extinguish the community property interest of either spouse. N. A limited liability company is not required to give effect to any creation or extinguishment of a right of survivorship until the company has received written notice of the change in the form of ownership or of the creation or the extinguishment of a right of survivorship at its principal address. O. With respect to a transferable interest owned in joint tenancy with right of survivorship, tenancy in common or community property with or without right of survivorship, if a charging order from a court of competent jurisdiction is obtained against a co-owner's share of the transferable interest, it shall attach only to that co-owner's share or portion of the transferable interest and not to the share or portion of the other co-owner or co-owners.

A.R.S. § 29-3402 Form of contribution

29-3402. Form of contribution A contribution may consist of property transferred to, services performed for or another benefit provided to the limited liability company or an agreement to transfer property to, perform services for or provide another benefit to the company.

A.R.S. § 29-3403 Liability for contributions

29-3403. Liability for contributions A. A person's obligation to make a contribution to a limited liability company is not enforceable unless the obligation is set forth in a record signed by the person or as otherwise provided in section 29-3502, subsection H. A person's obligation to make a contribution to the company is not excused by the person's death, disability, termination or other inability to perform personally. B. If a person does not fulfill an obligation to make a contribution other than money, the person is obligated at the option of the limited liability company to contribute monies equal to the value of the part of the contribution that has not been made. C. The obligation of a person to make a contribution may be compromised only by the affirmative vote or consent of all the members. If a creditor of a limited liability company extends credit or otherwise acts in reliance on an obligation described in subsection A of this section without knowledge or notice of a compromise under this subsection, the creditor may enforce the obligation.

A.R.S. § 29-3404 Sharing of and right to distributions before dissolution

29-3404. Sharing of and right to distributions before dissolution A. Any distribution made by a limited liability company before its dissolution and winding up must be in equal shares among members and persons dissociated as members, except to the extent necessary to comply with a transfer effective under section 29-3502 or charging order in effect under section 29-3503. B. A person has 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 does not entitle the person to a distribution. C. A person does 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 section 29-3707, subsection D, a company may distribute an asset in kind only 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 has the status of, and is 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.

A.R.S. § 29-3405 Limitations on distributions

29-3405. Limitations on distributions A. A limited liability company may not make a distribution, including a distribution under section 29-3707, if after the distribution either of the following applies: 1. The company would not be able to pay its debts as the debts become due in the ordinary course of the company's activities and affairs. 2. The company's total assets would be less than the sum of its total liabilities. B. A limited liability company may base a determination that a distribution is not prohibited under subsection A of this section on: 1. Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances. 2. A fair valuation or other method that is reasonable under the circumstances. C. Except as otherwise provided in subsection E of this section, the effect of a distribution under subsection A of this section is measured: 1. In the case of a distribution that is a redemption or other purchase by a limited liability company of a transferable interest or that is a transfer to a member in return for the member's relinquishment of any right to participate as a member in the management or conduct of the company's activities and affairs or to have access to records or other information concerning the company's activities and affairs, as of the earlier of either of the following: (a) The date that money or other property is transferred or debt is incurred by the limited liability company. (b) The date that 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. 3. In all other cases, as of the date of either of the following: (a) The distribution is authorized, if the payment occurs not later than one hundred twenty days after that date. (b) The payment is made, if the payment occurs more than one hundred twenty 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 is 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 as a distribution, is not a liability for the purposes of subsection A of this section if the terms of the indebtedness provide that payment of principal and interest is made only if and to the extent that payment of a distribution could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is made. F. In measuring the effect of a distribution under section 29-3707, the liabilities of a dissolved limited liability company do not include any claim that has been disposed of under section 29-3704, 29-3705 or 29-3706.

A.R.S. § 29-3406 Liability for improper distributions

29-3406. Liability for improper distributions A. A person that receives a distribution that violates section 29-3405 is 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 to that person under section 29-3405. B. An action under this section is barred unless commenced not later than three years after the distribution.

A.R.S. § 29-3407 Management of limited liability company

29-3407. Management of limited liability company A. Management of a limited liability company is reserved to its members unless the articles of organization provide that the company is managed by one or more managers. B. In a member-managed limited liability company, the following apply: 1. Except as expressly provided in this chapter, the management and conduct of the company are vested in the members. 2. Within the ordinary course of the company's activities and affairs, each member has the right to manage and conduct the company's activities and affairs. 3. Except as otherwise provided in this chapter, a majority in interest of the members shall decide any of the following: (a) Matters that are outside the ordinary course of the company's activities and affairs but within the company's purpose. (b) Matters on which there exists a known difference among members. (c) Whether to make an interim distribution before dissolution and winding up. (d) Whether to make an advance to a member or manager under section 29-3408, subsection C. 4. The affirmative vote or consent of all the members is required to do any of the following: (a) Undertake, or authorize a member or other person to undertake, an act outside the scope of the company's purpose, as stated in the operating agreement, or that otherwise violates the operating agreement. (b) Amend the operating agreement. (c) Authorize an amendment to the articles of organization that changes the company from a member-managed limited liability company to a manager-managed limited liability company. (d) Issue a transferable interest in the company to any person. (e) Take any action requiring the approval of all members under this chapter. C. In a manager-managed limited liability company, the following apply: 1. Except as expressly provided in this chapter, the right to manage the company is vested in the manager or managers. 2. Within the ordinary course of the company's activities and affairs, each manager has the right to manage and conduct the company's activities and affairs. 3. Except as otherwise provided in this chapter, a majority of the managers shall decide any of the following: (a) Matters that are outside the ordinary course of the company's activities and affairs but within the company's purpose. (b) Matters on which there exists a known difference among managers. (c) Whether to make an interim distribution before dissolution and winding up. (d) Whether to make an advance to a member or manager under section 29-3408, subsection C. 4. The affirmative vote or consent of all members is required to do any of the following: (a) Undertake, or authorize a manager, member or other person to undertake, an act outside the scope of the company's purpose, as stated in the operating agreement, or that otherwise violates the operating agreement. (b) Amend the operating agreement. (c) Authorize an amendment to the articles of organization that changes the company from a manager-managed limited liability company to member-managed limited liability company. (d) Issue a transferable interest in the limited liability company to any person. (e) Take any action requiring the approval of all members under this chapter. 5. A manager may be chosen at any time by the affirmative vote or consent of a majority in interest of the members and remains 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 affirmative vote or consent of a majority in interest of the members without notice or cause. 6. A person is not required to be a member to be a manager, but the dissociation of a member that is also a manager removes the person as a manager. If a person that is both a manager and a member ceases to be a manager, that cessation does not by itself dissociate the person as a member. 7. A person's ceasing to be a manager does not discharge any debt, obligation or other liability to the limited liability company or members that the person incurred while a manager. D. An action requiring the vote or consent of members or managers under this chapter may be taken without a meeting if the action is approved by the minimum number of members or managers required to approve the action. A member may appoint a proxy or other agent to vote, 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 does 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 and that person may not be included in determining whether a majority in interest of the members or, in the case of a manager-managed limited liability company, a majority of the managers has voted for or consented to any matter or action. F. A limited liability company shall reimburse a member for an advance to the company beyond the amount of capital the member agreed to contribute. G. A member is not entitled to remuneration for services performed for a member-managed limited liability company except for reasonable compensation for services rendered in winding up the activities of the company.

A.R.S. § 29-3408 Reimbursement; indemnification; advancement; insurance

29-3408. Reimbursement; indemnification; advancement; insurance A. A limited liability company shall reimburse a present or former member of a member-managed company or manager of a manager-managed company for any payment made by the member or manager in the course of the member's or manager's activities on behalf of the company if the member or manager complied with sections 29-3405, 29-3407 and 29-3409, in each case as modified by the operating agreement, in making the payment. B. A limited liability company shall indemnify and hold harmless a person with respect to any claim or demand against the person and any debt, obligation or other liability incurred by the person by reason of the person's former or present capacity as a member or manager if the claim, demand, debt, obligation or other liability does not arise from the person's breach of the operating agreement or section 29-3405, 29-3407 or 29-3409, in each case as modified by the operating agreement. C. A limited liability company may advance reasonable expenses, including attorney 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, but the person must repay the company if the person ultimately is determined not to be entitled to be indemnified under subsection B of this section. D. A limited liability company may reimburse, indemnify and hold harmless a present or former member of a member-managed company or manager of a manager-managed company for any payment and with respect to any claim, demand, debt, obligation or other liability, except that the approval of all members, after disclosure of all material facts, is required to reimburse, indemnify or hold harmless a person with respect to any act, omission or transaction by the person that constitutes a violation of the operating agreement or section 29-3405, 29-3407 or 29-3409, in each case as modified by the operating agreement. E. A limited liability company may purchase and maintain insurance on behalf of a member or manager against liability asserted against or incurred by the member or manager in that capacity or arising from that status even if, under section 29-3105, subsection C, paragraph 6, the operating agreement could not eliminate or limit the person's liability to the company for the conduct giving rise to the liability.

A.R.S. § 29-3409 Standards of conduct for members and managers

29-3409. Standards of conduct for members and managers 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 wilful 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 4 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 wilful 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 4 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.

A.R.S. § 29-3410 Records to be kept; rights to information and records of member, manager and person dissociated as member

29-3410. Records to be kept; rights to information and records of member, manager and person dissociated as member A. A limited liability company shall keep all of the following: 1. A current list of the full name and last known address of each member and manager. 2. A copy of the articles of organization and all amendments to the articles of organization. 3. A copy of all current and prior written operating agreements and amendments to all current and prior written operating agreements. 4. Any record of a member's obligation to make a capital contribution to the company. 5. A copy of the company's federal, state and local income tax returns and reports, if any, for the three most recent years. 6. A copy of the company's financial statements, if any, for the three most recent years. B. During regular business hours and at a reasonable location specified by the limited liability company, a member or manager may inspect and copy the records described in subsection A of this section and any other company record regarding the activities, affairs, financial condition and other circumstances of the company as is just and reasonable if all of the following apply: 1. The member or manager seeks the records for a purpose reasonably related to the rights and duties of the member or manager under the operating agreement or this chapter. 2. The member or manager makes a demand in a record received by the company describing with reasonable particularity the records sought and the purpose for seeking the records. 3. The records sought are directly connected to the member's or manager's purpose. C. Not later than ten days after receiving a demand pursuant to subsection B, paragraph 2 of this section, the limited liability company shall inform in a record the member or manager that made the demand of: 1. The records that the company will make available in response to the demand and when and where the company will make the records available. The time and location may not be unreasonable under the circumstances. 2. The reasons for declining if the company declines to provide any demanded records. D. Whenever this chapter or the operating agreement provides for a member or manager to vote on or give or withhold consent to a matter, before the vote is cast or consent is given or withheld, the limited liability company, without demand, shall provide the member or manager with all information that is known to the company and all records in the company's possession that are material to the member's or manager's decision except to the extent the company reasonably believes that the member or manager already knows the information or is in possession of the records. E. To the extent that some or all of a limited liability company's records are maintained by a member or manager, the member or manager shall make those records available to the company as necessary for the company to satisfy its obligations pursuant to this section. F. Subject to subsection L of this section, on ten days' demand made in a record received by a limited liability company, a person dissociated as a member may have access to the records to which the person was entitled while a member if all of the following apply: 1. The records pertain to the period during which the person was a member. 2. The person seeks the records in good faith. 3. The person satisfies the requirements imposed on a member by subsection B of this section. G. A limited liability company shall respond to a demand made pursuant to subsection F of this section in the manner provided in subsection C of this section. H. 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. I. A member or person dissociated as a member may exercise the 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 K of this section applies both to the agent or legal representative and to the member or person dissociated as a member. J. Subject to sections 29-3502 and 29-3504, the rights under this section do not extend to a person as transferee. K. In addition to any restriction or condition stated in its operating agreement, a limited liability company may impose reasonable restrictions and conditions on access to and use of information to be furnished and records to be made available under this section, including designating information and records confidential and imposing nondisclosure and safeguarding obligations on the recipient. In a dispute concerning the reasonableness of a restriction under this subsection, the company has the burden of proving reasonableness. L. If a dispute arises regarding a member's or manager's right under this section to obtain information or inspect or copy a record, or regarding whether any restriction imposed by the limited liability company on a member's or manager's right to obtain, inspect, copy or use any such information or record is unreasonable, the court may award the successful party reasonable expenses, including reasonable attorney fees and costs.

Source: Arizona State Legislature (azleg.gov)URL: https://www.azleg.gov/arsDetail/?title=29Fetched: 10/31/2026