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Experience:  28 Years In General Practice,
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If following Arizona Revised Statutes Section 29-681 (D)(1)

Customer Question

Customer: If following Arizona Revised Statutes Section 29-681 (D)(1) and (3) can 3 members authorize via their 3 votes vs 1 vote to have the LLC repurchase the 1 members interest (thus basically a forced sell).agreement, all 4 have 25%, and one of the 4 members is not contributing, participating but doesn't want to sell or leave
JA: Thanks. Can you give me any more details about your issue?
Customer: No operating agreement. 3 of the 4 members, so 75%, want to have vote to repurchase membership interest from the 4th member thus forcing a sell.
JA: OK got it. Last thing — JustAnswer charges a fee (generally around $36) to post your type of question to Legal Experts (you only pay if satisfied). There are a couple customers ahead of you. Are you willing to wait a bit?
Customer: do I have to list my name?
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Submitted: 11 months ago.
Category: Legal
Expert:  Attorney2 replied 11 months ago.

Welcome to JA and thank you for your question. I am an Arizona licensed attorney and it will be my pleasure to assist you.

Expert:  Attorney2 replied 11 months ago.

Can you tell me if there is any documentation that sets out each partner's respective interest?

Customer: replied 11 months ago.
Customer: replied 11 months ago.
Each has 25%
Customer: replied 11 months ago.
Does it make any difference, even without documentation wouldn't then by default be 25% ( 4 members default to 25%)
Expert:  Attorney2 replied 11 months ago.

Great. This is in writing but there is nothing with regard to dissolving the partnership or any other terms? Is there anything in voting rights or does the document set out who is the managing partner(s)?

In the absence of a specific agreement that is when the ARS kicks in and we would be looking at

29-681. Management of limited liability company

D. Except as provided in an operating agreement, the affirmative vote, approval or consent of a majority of the members, or if management of the limited liability company is vested in one or more managers, the affirmative vote, approval or consent of the sole manager or a majority of the managers, is required to:

1. Resolve any difference concerning matters connected with the business of the limited liability company.

2. Authorize the distribution of limited liability company cash or property to the members.

3. Authorize the limited liability company to repurchase all or part of any member's interest in the limited liability company from that member.

Customer: replied 11 months ago.
No operating agreement. Actually nothing in writing that says interest, we just have 4 members and thus each has 25%. I am aware that the default provisions that govern LLC's, if no operating agreement, are found in the Arizona Revised Statutes, Section 29. My question is specific if since 3 of us members want to get rid of the other can we do this pursuant to a vote to have LLC repurchase the shares from the 4th member.
Expert:  Attorney2 replied 11 months ago.

Yes that would apply. Can you see my response above?

Customer: replied 11 months ago.
we can send out notice to all members to have vote and then take vote and even if the 4th member doesn't agree with the price we can still force the sell and thus getting rid of the 4th member.
Expert:  Attorney2 replied 11 months ago.

This sets out the basic procedure http://info.legalzoom.com/remove-member-llc-3492.html

Are you selling for fair market value?

29-1013. Partnership property

Property acquired by a partnership is property of the partnership and not of the partners individually.

Customer: replied 11 months ago.
I found that same link. That was my concern wherein step #2 stated the default provisions of the ULLCA do not provide a voting procedure for forcing members to withdraw, while I then searched and see that Arizona did not adopt the ULLCA they used it as a model, but then Arizona Revised Statute Section 29-681 D 3 basically allows a forced sell (while not a forced withdrawal it still is a way to force out another member, which seems contrary to the ULLCA). I would presume we would do it for fair market value.
Expert:  Attorney2 replied 11 months ago.

You are owners based on your articles of organization, Do you have a copy of your Articles of Organization?

Customer: replied 11 months ago.
29-1031 is under the Revised Uniform Partnership Act, not under the Arizona Limited Liability Company Act so not sure if 29-1031 would be applicable.
Expert:  Attorney2 replied 11 months ago.

Arizona is strange. This may be a helpful link as the legal zoom link is not specific to AZ

Arizona: No Statutory Guidance
By design, the Arizona Act permits flexibility in structuring an LLC. The Arizona Act did not adopt the fiduciary duty language of either the Uniform Partnership Act (UPA) or Uniform Limited Liability Company Act (ULLCA).2 The Arizona Act does not state whether any fiduciary duties3 exist in an LLCit is silent and imposes no express fiduciary duties on LLC members or managers.

Why this lack of certainty? Arizona law in this area is still relatively new, and thus case law has not developed over time to give much guidance. Some argue that the Legislature intended for LLCs to be governed solely by the operating agreement; thus, if the articles of organization or operating agreement do not provide for a fiduciary relationship, then none exists. Others assert that a fiduciary duty is implied in the statute and exists coextensively with the law for corporations and partnerships, unless the operating agreement specifically limits or changes a duty.

Case Law and Legislative Intent
Although Arizona case law on this issue is scarce, an unreported Arizona Court of Appeals case from 2008 suggests that Arizona courts may imply duties where the operating agreement is silent.

In the case, the Arizona Court of Appeals recognized and concluded that a co-manager in an LLC could be liable for breaching uciary duty.4 Citing to the Restatement (Second) of Torts ( 874 cmt. a), the court defined when a fiduciary relationship exists: "A fiduciary relation exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation."5 The court went on to reason that while a co-manager may not be required to exercise fiduciary duties pursuant to a statute and/or an operating agreement, a co-manager by his conduct may nonetheless be required to exercise fiduciary duties if the co-manager assumes such duties.

In addition, an analysis of the legislative intent demonstrates that both the Arizona House and Senate passed the LLC statute with the intent that LLCs have the same liability as a corporation. This provides strong support that a limited liability company manager or member could be liable for failure to observe fiduciary obligations when acting on behalf of the company, just as an officer or director may be liable for failure to act as a fiduciary for a corporation.6http://www.tblaw.com/attorneys/articles/view/fiduciary-duties-in-arizona-limited

Customer: replied 11 months ago.
I found that to, you cited 29-1031, however don't think that is applicable because not under Arizona Limited Liability Act under Revised Uniform Partnership Act. Bot***** *****ne is can we have vote and if get majority can we purchase an non-willing members interest.
Expert:  Attorney2 replied 11 months ago.

I was referring to fiduciary duties with regard to fair market value ad good faith.

Expert:  Attorney2 replied 11 months ago.

http://www.keytlaw.com/azllclaw/changing-members/adding-or-removing-a-member/

Expert:  Attorney2 replied 11 months ago.

As an LLC you would have filed paperwork with the state. I can search those documents if you can provide the name.

Customer: replied 11 months ago.
Okay can you answer this question:Bot***** *****ne is can we have vote and if get majority can we purchase an non-willing members interest under 29-681 D 3. Understanding of course have to get fair market value.
Expert:  Attorney2 replied 11 months ago.

The answer is yes unless the article of organization state otherwise.

Customer: replied 11 months ago.
Okay thanks
Expert:  Attorney2 replied 11 months ago.

Fair market value goes to fiduciary duty

Expert:  Attorney2 replied 11 months ago.

We can hide the name and I can check the articles

Expert:  Attorney2 replied 11 months ago.
  • Amendment to the Articles of Organization. Arizona Revised Statutes Section 29-633 requires Arizona LLCs to amend their Articles of Organization if: (i) a member managed limited liability company adds or removes a member, (ii) a manager managed AZ LLC adds a member who owns 20% or more of the company or a member named in the Articles of Organization terminates membership or if that member’s membership interest goes below 20% ownership, or (iii) a manager managed company adds or removes a manager. For more on this topic, read “When an LLC Must Amend its Articles of Organization.” http://www.keytlaw.com/azllclaw/changing-members/adding-or-removing-a-member/
Expert:  Attorney2 replied 11 months ago.

Are you still online with me?

Expert:  Attorney2 replied 11 months ago.

My apologies I was asking for a copy of the articles of organization.