2005 North Carolina Code - General Statutes Article 3 - Membership and Management.

Article 3.

Membership and Management.

Part 1. Membership.

§ 57C‑3‑01.� Admission of members.

(a)������ Unless the articles of organization of a limited liability company provide otherwise, each person executing the articles of organization of a limited liability company in the capacity of a member, and each person who is otherwise named in the articles of organization as a member of the limited liability company, becomes a member at the time that the filing by the Secretary of State of the articles of organization of the limited liability company becomes effective.

(b)������ A person may be admitted as a member of a limited liability company:

(1)������ In the case of a person acquiring a membership interest directly from the limited liability company, (i) upon being so identified by the organizers of the limited liability company in accordance with G.S. 57C‑2‑20(c) or (ii) upon compliance with the articles of organization or operating agreement or, if the articles of organization or operating agreement do not so provide, upon the unanimous consent of the members; and

(2)������ In the case of an assignee of an interest of a member, upon compliance with the provisions of G.S. 57C‑5‑04(a).

(c)������ Nothing in this Chapter precludes a person from being a member of a limited liability company because that person has not made, and has no obligation to make, any contributions to the limited liability company and has no right to receive any distributions from the limited liability company or share in any profits or losses of the limited liability company. (1993, c. 354, s. 1; 1999‑189, s. 4.1; 2000‑140, s. 101(t); 2001‑387, s. 64.)

 

§ 57C‑3‑02.� Cessation of membership.

Unless otherwise provided in this Chapter, the articles of organization, or a written operating agreement, a person who has ceased to be a member shall have only the rights of an assignee as provided in G.S. 57C‑5‑02, but shall not be released from his liability to the limited liability company under G.S. 57C‑4‑02 (liability for contribution) and G.S. 57C‑4‑07 (liability upon wrongful distribution). A person ceases to be a member of a limited liability company upon the happening of any of the following events of withdrawal:

(1)������ The person's voluntary withdrawal from the limited liability company as provided in G.S. 57C‑5‑06;

(2)������ The person's removal as a member in accordance with the articles of organization or an operating agreement;

(3)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, the person's:

a.�������� Making an assignment for the benefit of creditors;

b.�������� Filing a voluntary petition in bankruptcy;

c.�������� Being adjudged bankrupt or insolvent or having entered against him an order for relief in any bankruptcy or insolvency proceeding;

d.�������� Filing a petition or answer seeking for him any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation;

e.�������� Seeking, consenting to, or acquiescing in, the appointment of a trustee or receiver for, or liquidation of the person or of all or any substantial part of that person's properties; or

f.��������� Filing an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the person in any proceeding described in this subdivision;

(4)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, the continuation of any proceeding against the person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, for 120 days after the commencement thereof or the appointment of a trustee, receiver, or liquidator for the person or all or any substantial part of the person's properties without the person's agreement or acquiescence, which appointment is not vacated or stayed for 120 days or, if the appointment is stayed, for 120 days after the expiration of the stay during which period the appointment is not vacated;

(5)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member who is an individual, the individual's:

a.�������� Death; or

b.�������� Adjudication by a court of competent jurisdiction as incompetent to manage his person or property;

(6)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member who is acting as a member by virtue of being a trustee of a trust, the termination of the trust (but not merely the substitution of a new trustee);

(7)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member that is a domestic or foreign partnership, a domestic or foreign limited partnership, or another domestic or foreign limited liability company, the dissolution and commencement of winding up of the partnership, limited partnership, or limited liability company;

(8)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member that is a domestic or foreign corporation, the dissolution of the corporation or the revocation of its charter; or

(9)������ Unless otherwise provided in the articles of organization or a written operating agreement or with the consent of all other members, in the case of a member that is an estate, the distribution by the fiduciary of the estate's entire interest in the limited liability company. (1993, c. 354, s. 1; 1995, c. 351, ss. 5, 6; 2001‑387, s. 65.)

 

§ 57C‑3‑03.� Voting of members.

Except as provided in the articles of organization or a written operating agreement, the affirmative vote, approval, agreement, or consent of all members shall be required to:

(1)������ Adopt or amend an operating agreement;

(2)������ Admit any person as a member;

(3)������ Sell, transfer, or otherwise dispose of all or substantially all of the assets of the limited liability company prior to the dissolution of the limited liability company.

(4)������ Repealed by Session Laws 1999‑456, s. 51. (1993, c. 354, s. 1; 1999‑456, s. 51.)

 

§ 57C‑3‑04.� Members' access to information; records.

(a)������ Each member has the right, subject to such reasonable standards (including standards governing what information and documents are to be furnished, at what time and location and at whose expense) as may be set forth in the articles of organization or a written operating agreement, to obtain from the limited liability company from time to time upon reasonable demand for any purpose reasonably related to the member's interest as a member:

(1)������ Information regarding the status of the business and the financial condition of the limited liability company;

(2)������ Promptly after becoming available, a copy of the limited liability company's federal, State, and local income tax returns for each year;

(3)������ A current list of the name and last known business, residence, or mailing address of each member;

(4)������ A copy of the articles of organization and any written operating agreement and all amendments thereto, together with copies of any written powers of attorney pursuant to which the articles of organization, operating agreement, and all amendments thereto have been executed;

(5)������ Information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each member, and the property and services that each member has agreed to contribute in the future, and the date on which each became a member; and

(6)������ Such other information regarding the affairs of the limited liability company as is just and reasonable.

(b)������ A limited liability company may maintain its records in other than written form if the form is capable of conversion into written form within a reasonable time.

(c)������ Any demand under this section shall (i) be in writing, (ii) be made in good faith and for a proper purpose, and (iii) describe with reasonable particularity the purpose and the records or information desired.

(d)������ Failure of the limited liability company to keep or maintain any of the records or information required pursuant to this section shall not be grounds for imposing liability on any person for the debts and obligations of the limited liability company.

(e)������ The managers shall have the right to keep confidential from members who are not managers, for such period of time as the managers deem reasonable, any information which the managers reasonably believe to be in the nature of trade secrets or other information the disclosure of which the managers in good faith believe is not in the best interest of the limited liability company. The authority authorized in this subsection may be vested in directors instead of managers to the extent provided in the articles of organization or a written operating agreement. (1993, c. 354, s. 1; 2001‑387, s. 66; 2001‑487, s. 62(i).)

 

§ 57C‑3‑05.� Members bound by operating agreements.

A member shall be bound by any operating agreement, including any amendment thereto, otherwise valid under this Chapter and other applicable law, (i) to which the member has expressly assented, or (ii) which was in effect at the time the member became a member and either was in writing or the terms of which were actually known to the member, or (iii) with respect to any amendment, if the member was bound by the operating agreement as in effect immediately prior to such amendment and such amendment was adopted in accordance with the terms of such operating agreement. The articles of organization or written operating agreement may require that all agreements of the members constituting the operating agreement be in writing, in which case the term "operating agreement" shall not include oral agreements of the members.� Except to the extent otherwise provided in a written operating agreement, a limited liability company shall be deemed for all purposes to be a party to the operating agreement of its member or members. (1993, c. 354, s. 1; 1999‑189, s. 4.2; 2000‑140, s. 101(t).)

 

§§ 57C‑3‑06 through 57C‑3‑19.� Reserved for future codification purposes.

 

Part 2. Managers.

§ 57C‑3‑20.� Determination of managers; management.

(a)������ Unless the articles of organization provide otherwise, all members by virtue of their status as members shall be managers of the limited liability company, together with any other persons that may be designated as managers in, or in accordance with, the articles of organization or a written operating agreement. If the articles of organization provide that all members are not necessarily managers by virtue of their status as members, then those persons designated as managers in, or in accordance with, the articles of organization or a written operating agreement shall be managers, but for any period during which no such designation has been made or is in effect, all members shall be managers.

(b)������ Except to the extent otherwise provided in the articles of organization or a written operating agreement, management of the affairs of the limited liability company shall be vested in the managers. Subject to any provisions in the articles of organization or a written operating agreement or this Chapter restricting, enlarging, or modifying the management rights and duties of any manager or managers, or management procedures, each manager shall have equal rights and authority to participate in the management of the limited liability company, and management decisions shall require the approval, consent, agreement, or ratification of a majority of the managers. (1993, c. 354, s. 1; 1999‑189, s. 4.3; 2000‑140, s. 101(t); 2001‑387, s. 67.)

 

§ 57C‑3‑21.� Qualification, designation, and removal of managers.

Subject to G.S. 57C‑3‑20(a), the articles of organization or a written operating agreement may set forth the number and qualification of managers and the manner in which they are to be designated, removed, and replaced. Unless otherwise provided in the articles of organization, a written operating agreement, or this Chapter:

(1)������ Managers need not be members and, unless otherwise required by G.S. 57C‑3‑20(a), members need not be managers;

(2)������ Designation of managers (other than those managers who are such by virtue of their status as members) shall be evidenced in a written operating agreement, as amended from time to time;

(3)������ Upon designation as manager and the person's consent to such designation, the designated person shall serve as manager until the earliest to occur of (i) the person's resignation, (ii) any event described in G.S. 57C‑3‑02 with respect to the manager, (iii) any event specified in the articles of organization or written operating agreement that results in a manager ceasing to be a manager, or (iv) in the case of a person designated as a manager in a written operating agreement, the amendment of the written operating agreement removing the person's designation as a manager. (1993, c. 354, s. 1; 1995, c. 351, s. 7; 2001‑487, s. 62(j).)

 

§ 57C‑3‑22.� Duties of managers.

(a)������ The provisions of this section are all subject to G.S. 57C‑3‑30.

(b)������ A manager shall discharge his duties as manager in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner the manager reasonably believes to be in the best interests of the limited liability company. In discharging his duties, a manager is entitled to rely on information, opinions, reports, or statements, including, but not limited to, financial statements or other financial data, if prepared or presented by:

(1)������ One or more employees of the limited liability company whom the manager reasonably believes to be reliable and competent in the matters presented;

(2)������ Legal counsel, certified public accountants, or other persons on matters the manager reasonably believes are within the person's professional or expert competence; or

(3)������ A committee of managers of which the manager is not a member if the manager reasonably believes the committee merits confidence.

(c)������ A manager is not acting in good faith if the manager has actual knowledge concerning the matter in question that makes reliance otherwise permitted by subsection (b) of this section unwarranted.

(d)������ A manager is not liable for any action taken as a manager, or any failure to take any action, if the manager performs the duties of his office in compliance with this section.

(e)������ Except as otherwise provided in the articles of organization or a written operating agreement, every manager must account to the limited liability company and hold as trustee for it any profit or benefit derived without the informed consent of the members by the manager from any transaction connected with the formation, conduct, or liquidation of the limited liability company or from any personal use by the manager of its property.

(f)������� Except to the extent otherwise provided in the articles of organization or a written operating agreement, each director and executive shall be subject to the same requirements and afforded the same rights as are provided in this section for a manager when the director or executive exercises authority in the management of a limited liability company's affairs that would otherwise be vested in the managers pursuant to G.S. 57C‑3‑20(b). (1993, c. 354, s. 1; 2001‑387, s. 68.)

 

§ 57C‑3‑23.� Agency power of managers.

Every manager is an agent of the limited liability company for the purpose of its business, and the act of every manager, including execution in the name of the limited liability company of any instrument, for apparently carrying on in the usual way the business of the limited liability company of which he is a manager, binds the limited liability company, unless the manager so acting has in fact no authority to act for the limited liability company in the particular matter and the person with whom the manager is dealing has knowledge of the fact that the manager has no authority. An act of a manager that is not apparently for carrying on the usual course of the business of the limited liability company does not bind the limited liability company unless authorized in fact or ratified by the limited liability company. (1993, c. 354, s. 1; 2001‑487, s. 62(l).)

 

§ 57C‑3‑24.� Delegation of authority of managers.

(a)������ The authority of a manager or the managers to act on behalf of the limited liability company may be delegated by such manager or the managers to persons other than managers if and to the extent a written operating agreement so provides. The delegation of authority may be general or limited to specific matters.� The act of any such person within the scope of the authority so delegated shall be as effective to bind the limited liability company as would the act of such manager or the managers, unless the delegation has been revoked and the person with whom such person is dealing has actual knowledge of the fact that the delegation has been revoked.

(b)������ The creation of, delegation of authority to, or action by a manager's delegate does not alone constitute compliance by a manager with the standards of conduct described in G.S. 57C‑3‑22.

(c)������ Each person acting on behalf of the limited liability company within the scope of authority delegated by a manager or the managers pursuant to subsection (a) of this section, or reasonably and in good faith believing himself to be so acting, shall be entitled, with respect to such acts, to the same limitation on personal liability as is afforded to a manager pursuant to G.S. 57C‑3‑30.� A limited liability company may, but is not required to, provide persons acting on behalf of the limited liability company within the scope of the authority delegated by a manager or the managers pursuant to subsection (a) of this section with the same limitation on personal liability and rights to indemnification as are, or may be, afforded to managers pursuant to G.S. 57C‑3‑31 and G.S. 57C‑3‑32. (1993, c. 354, s. 1.)

 

§ 57C‑3‑25.� Identity of managers, authentication of records, and execution of documents.

(a)������ Any person dealing with a limited liability company or a foreign limited liability company may rely conclusively upon its most recent annual report and any amendments to it on file with the Secretary of State as to the identity of its managers, except to the extent the person has actual knowledge that a person identified therein as a manager is not a manager.

(b)������ The documents, if any, constituting the operating agreement of a limited liability company or a foreign limited liability company authorized to transact business in this State, and records of the actions of its members, managers, directors, or executives may be authenticated by any manager of the domestic or foreign limited liability company. Any person dealing with the domestic or foreign limited liability company may rely conclusively upon the certificate or written statement of a manager authenticating the documents and records except to the extent the person has actual knowledge that the certificate or written statement is false.

(c)������ Any document or instrument required or permitted by law to be filed, registered, or recorded with any public authority and to be executed by a limited liability company or a foreign limited liability company authorized to transact business in this State shall be sufficiently executed for such purpose if signed on its behalf by one of its managers. (1993, c. 354, s. 1; 1997‑475, s. 6.8; 2001‑487, s. 62(m).)

 

§§ 57C‑3‑26 through 57C‑3‑29.� Reserved for future codification purposes.

 

Part 3. Liability.

§ 57C‑3‑30.� Liability to third parties of members, managers, directors, and executives; parties to actions; governing law.

(a)������ A person who is a member, manager, director, executive, or any combination thereof of a limited liability company is not liable for the obligations of a limited liability company solely by reason of being a member, manager, director, or executive and does not become so by participating, in whatever capacity, in the management or control of the business. A member, manager, director, or executive may, however, become personally liable by reason of that person's own acts or conduct.

(b)������ A member of a limited liability company is not a proper party to proceedings by or against a limited liability company, except where the object of the proceeding is to enforce a member's right against or liability to the limited liability company.

(c)������ The liability of members, managers, directors, and executives of a limited liability company formed and existing under this Chapter shall at all times be determined solely and exclusively by this Chapter and the laws of this State.

(d)������ If a conflict arises between the laws of this State and the laws of any other jurisdiction with regard to the liability of members, managers, directors, or executives of a limited liability company formed and existing under this Chapter for the debts, obligations, and liabilities of the limited liability company, this Chapter and the laws of this State shall govern in determining the liability. (1993, c. 354, s. 1; 2001‑387, s. 69.)

 

§ 57C‑3‑31.� Mandatory indemnification of managers, directors, executives, and members.

(a)������ Unless otherwise provided in the articles of organization or a written operating agreement, a limited liability company must indemnify every manager, director, and executive in respect of payments made and personal liabilities reasonably incurred by the manager, director, and executive in the authorized conduct of its business or for the preservation of its business or property.

(b)������ Unless otherwise provided in the articles of organization or a written operating agreement, a limited liability company shall indemnify a member, manager, director, or executive who is wholly successful, on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a member, manager, director, or executive of the limited liability company against reasonable expenses incurred by the person in connection with the proceeding. (1993, c. 354, s. 1; 2001‑387, s. 70.)

 

§ 57C‑3‑32.� Limitation of liability of managers, directors, executives, and members and permissive indemnification of managers, directors, executives, and members; insurance.

(a)������ Subject to subsection (b) of this section, the articles of organization or a written operating agreement may:

(1)������ Eliminate or limit the personal liability of a manager, director, or executive for monetary damages for breach of any duty provided for in G.S. 57C‑3‑22 (other than liability under G.S. 57C‑4‑07); and

(2)������ Provide for indemnification of a manager, member, director, or executive for judgments, settlements, penalties, fines, or expenses incurred in a proceeding to which the member, manager, director, or executive is a party because the person is or was a manager, member, director, or executive. For purposes of this subdivision, the words "expenses", "proceeding", and "party" shall have the meanings set forth in G.S. 55‑8‑50(b).

(b)������ No provision permitted under subsection (a) of this section shall limit, eliminate, or indemnify against the liability of a manager, director, or executive for (i) acts or omissions that the manager, director, or executive knew at the time of the acts or omissions were clearly in conflict with the interests of the limited liability company, (ii) any transaction from which the manager, director, or executive derived an improper personal benefit, or (iii) acts or omissions occurring prior to the date the provision became effective, except that indemnification pursuant to subdivision (2) of subsection (a) of this section may be provided if approved by all the members. As used in this subsection, "improper personal benefit" does not include reasonable compensation or other reasonable incidental benefit for or on account of service as a manager, director, executive, officer, employee, independent contractor, attorney, or consultant of the limited liability company.

(c)������ A limited liability company may purchase and maintain insurance on behalf of an individual who is or was a manager, director, executive, officer, employee, or agent of the limited liability company, or who, while a manager, director, executive, officer, employee, or agent of the limited liability company is or was serving at the request of the limited liability company as a director, executive, officer, partner, member, manager, trustee, employee, or agent of a person, against liability asserted against or incurred by the person in that capacity or arising from the person's status as a manager, director, executive, officer, employee, or agent, whether or not the limited liability company would have the power to indemnify the person against the same liability under any provision of this Chapter. (1993, c. 354, s. 1; 1995, c. 351, ss. 8, 9; 1999‑189, s. 4.4; 2000‑140, s. 101(t); 2001‑387, s. 71.)