Chapter 25-3 OWNERS AND MANAGERS

CHAPTER 25-3
OWNERS AND MANAGERS

25-3-1 Management.

(A) Unless the Articles of Organization vest management in one or more managers, management of the LLC shall be vested in the Owners subject to any provision in the Operating Agreement or this Code restricting or enlarging the management rights and duties of any Owner or group of Owners.

In an Owner-managed liability company, the following rules shall apply, subject to the provisions of the Operating Agreement or this Code:

(1) A difference arising among Owners as to a matter in the ordinary course of the activities of the LLC may be decided by a majority of the Owners.

(2) An act outside the ordinary course of activities of a limited liability company may be undertaken only with the consent of all the Owners.

(B) If the Articles of Organization vest management in one or more managers, management of the business or affairs of the LLC shall be invested in the manager or managers subject to any provisions in the Operating Agreement or this Code restricting or enlarging the management rights and duties of any manager or group of managers. Unless otherwise provided in the Operating Agreement, the manager or managers:

(1) Shall be designated, appointed, elected, removed, or replaced by a vote of a Majority in Interest of the Owners.

(2) Need not be Owners of the LLC nor individuals.

(3) Unless earlier removed or earlier resigned, shall hold office until a successor is elected and qualified.

25-3-2 Duties.

Unless otherwise provided in the Operating Agreement:

(A) No Owner or manager shall act or fail to act in a manner that constitutes any of the following:

(1) A willful failure to deal fairly with the LLC or its Owners in connection with a matter in which the Owner or manager has a material conflict of interest.

(2) A violation of criminal law involving moral turpitude.

(3) A transaction from which the Owner or manager derived an improper personal profit.

(4) Willful misconduct.

(B) Every Owner and manager shall account to the LLC and hold as trustee for it any improper personal profit derived by that Owner or manager without the consent of a majority of the disinterested Owners or managers, or other persons participating in the management of the LLC, from any of the following:

(1) A transaction connected with the organization, conduct, or winding up of the LLC.

(2) A use by an Owner or manager of the property of an LLC, including confidential or proprietary information or other matters entrusted to the person as a result of the person’s status as Owner or manager.

(3) Operating Agreement may impose duties on its Owners and managers that are in addition to, but not in abrogation of, those provided in subsection (A) above.

25-3-3 Limitation of Liability and Indemnification.

(A) In this Section, “expenses” mean expenses of defending a lawsuit, including attorney’s fees, and any civil judgment or penalty, or settlement payment in lieu thereof, paid in connection with a lawsuit against an Owner or manager in such capacity.

(B) An LLC shall indemnify or allow expenses to each Owner and each manager for all reasonable expenses incurred with respect to a proceeding if that Owner or manager was a party to the proceeding in the capacity of an Owner or manager.

(C) The Operating Agreement may alter or provide additional rights to indemnification or allowance of expenses to Owners and managers.

(D) Notwithstanding subsections (B) and (C) above, an LLC may not indemnify an Owner or manager unless it is determined that the Owner or manager did not breach or fail to perform a duty to the LLC as provided in Section 24-3-2.

(E) Unless otherwise provided in the Operating Agreement:

(1) An Owner or manager shall be conclusively presumed not to have breached or failed to perform a duty to the LLC to the extent that the Owner or manager has been successful on the merits or otherwise in the defense of the proceeding.

(2) In situations not described in paragraph (a), above, the determination of whether Owner or manager has breached or failed to perform a duty to the LLC shall be made by the vote of a Majority in Interest of the Owners, excluding any Owner who is a party to the same or related proceeding unless all Owners are parties.

25-3-4 Voting.

(A) Unless otherwise provided in the Operating Agreement or this Section, and subject to subsection (B) below, an affirmative vote, approval, or consent as follows shall be required to decide any matter connected with the business of an LLC.

(1) If management of an LLC is reserved to the Owners, an affirmative vote, approval, or consent by a Majority in Interest of Owners.

(2) If the management of an LLC is vested in one or more managers, the affirmative vote, consent, or approval of more than fifty percent (50%) of the managers.

(B) Unless otherwise provided in the Operating Agreement or this Code, the affirmative vote, approval, or consent of all Owners shall be required to do any of the following:

(1) Amend the Articles of Organization.

(2) Issue an interest in an LLC to any person.

(3) Adopt, amend, or revoke Operating Agreement.

(4) Allow an LLC to accept any additional contribution from an Owner.

(5) Allow a partial redemption of an interest in an LLC under Section 25-5-3.

(6) Value contributions of Owners under Section 25-4-1.

(7) Authorize a manager, Owner, or other person to do any act on behalf of the LLC that contravenes the Operating Agreement.

(C) Unless otherwise provided in the Operating Agreement, if any Owner is precluded from voting with respect to a given matter, the value of the contribution represented by the interest in the LLC with respect to which the Owner would otherwise have been entitled to vote shall be excluded from the total contributions made to the LLC for purposes of determining the fifty percent (50%) threshold under Section 25-1-5(I) for that matter.

(D) Unless otherwise provided in Operating Agreement or this Section, if all or part of an interest in the LLC is assigned under Section 25-6-4, the assigning Owner shall be considered the owner of the assigned interest for purposes of determining the 50% threshold under Section 25-1-5(I) until the assignee of the interest in the LLC becomes an Owner under Section 25-6-6.

25-3-5 Records and Information.

(A) An LLC shall keep at its principal place of business all of the following:

(1) A list, in alphabetical order, of each past and present Owner and, if applicable, manager.

(2) A copy of the Articles of Organization and all amendments to the articles, together with executed copies of any powers of attorney under which any articles were executed.

(3) A copy of the Operating Agreement and all amendments thereto.

(4) A record of all matters referred to in this Code as maintained in such records which are not otherwise specified in the Operating Agreement.

(B) Upon reasonable request, an Owner may, at the Owner’s own expense, inspect and copy during ordinary business hours any LLC record unless otherwise provided in the Operating Agreement.

(C) Owners or, if the management of the LLC is vested in one or more managers, managers shall provide true and full information of all things affecting the Owners to any Owner or to the legal representative of any Owner upon reasonable request of the Owner or the legal representative.

(D) Failure of an LLC to keep or maintain any of the records of information required under this Section shall not be grounds for imposing liability on any person for the debts and obligations of the LLC.

25-3-6 Admission of Owners.

(A) In connection with the formation of an LLC, a person acquiring an LLC interest is admitted as an Owner upon formation unless the Operating Agreement otherwise provides.

(B) After the formation of an LLC, a person acquiring an LLC interest is admitted as an Owner of the LLC as specified in the Operating Agreement or, if not so specified, by consent of all the other Owners, or, if the person is an assignee of another person’s LLC interest, only pursuant to Section 25-6-6.

25-3-7 Dissociation.

(A) A person ceases to be an Owner of an LLC upon the simultaneous occurrence of and at the same time of any of the following events:

(1) The Owner withdraws by voluntary act.

(2) The Owner is removed as an Owner in accordance with the Operating Agreement or this Code.

(3) Unless otherwise provided in the Operating Agreement or by the written consent of all Owners at the time of the event, the Owner does any of the following:

(a) Makes an assignment for the benefit of the creditors.

(b) Files a petition in bankruptcy.

(d) Fails to gain dismissal of any federal bankruptcy or state or tribal insolvency proceeding within 120 days of commencement of an involuntary proceeding.

(4) Unless provided in the Operating Agreement or by the written consent of all Owners, if the Owner is an individual, either of the following occurs:

(a) The Owner’s death.

(b) The entry of an order by a court of competent jurisdiction adjudicating the Owner incompetent to manage the Owner’s person or estate.

(5) Unless otherwise provided in the Operating Agreement or by written agreement or by the written consent of all Owners at the time, if the Owner is a trust, corporation, partnership, or limited liability company upon liquidation, dissolution, or termination.

(B) The Owners may provide in the Operating Agreement for other events the occurrence of which result in a person ceasing to be an Owner of the LLC.

(C) Unless the Operating Agreement provides that an Owner does not have the power to withdraw by voluntary act from an LLC, the Owner may do so at any time by giving written notice to the other Owners or as provided in the Operating Agreement. If the Owner has the power to withdraw but the withdrawal is a breach of the Operating Agreement, the LLC may offset the damages against the amount otherwise distributable to the Owner, in addition to pursuing any remedies provided for in the Operating Agreement or otherwise available under applicable law.