Unless otherwise provided in an operating agreement:
A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure to act on behalf of the limited liability company unless the act or omission constitutes gross negligence or willful misconduct;
Every member and manager must account to the limited liability company and hold as trustee for it any profit or benefit derived by that person without the consent of more than one-half (½) by number of the disinterested managers or members, or other persons participating in the management of the business or affairs of the limited liability company, from any transaction connected with the conduct or winding up of the limited liability company or any use by the member or manager of its property, including, but not limited to, confidential or proprietary information of the limited liability company or other matters entrusted to the person as a result of his or her status as manager or member; and
One who is a member of a limited liability company in which management is vested in managers under § 4-32-401 and who is not a manager shall have no duties to the limited liability company or to the other members solely by reason of acting in the capacity of a member.
History.
Acts 1993, No. 1003, § 402.
Research References
ALR.
Construction and Application of Limited Liability Company Acts — Issues Relating to Derivative Actions and Actions Between Members of Limited Liability Company. 48 A.L.R.6th 1.
Ark. L. Rev.
A License to Lie, Cheat, and Steal? Restriction or Elimination of Fiduciary Duties in Arkansas Limited Liability Companies, 60 Ark. L. Rev. 643.
Case Notes
Fiduciary Duty of Loyalty.
Duty of loyalty that Chapter 7 debtor owed to his LLC and its other member under Arkansas law pre-existed and was independent of wrongful conduct that gave rise to state court judgment against him. Bankruptcy court erred by failing to give collateral estoppel effect to finding that debtor acted in fiduciary capacity, as his fiduciary duty of loyalty as determined by state court was equivalent to finding that he acted in fiduciary capacity as required for nondischargeability.
Clear Sky Props. LLC v. Roussel (In re Roussel), 504 B.R. 510 (E.D. Ark. 2013).
Suit Against Other Members
Although § 4-32-304 only prohibited a suit by a third party against one member of a limited liability company for another member's actions, a first member of a water park limited liability company had no cause of action against a second member or a manager where they did not commit gross negligence or willful misconduct. The sale of certain property in dispute was not effectuated by the member or the manager of the water park limited liability company.
K.C. Props. of N.W. Ark., Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280 S.W.3d 1 (2008).
Where the creditors and debtors were members of a limited liability company (LLC), although both Arkansas case law and subdivision (2) of this section supported the creation of a fiduciary relationship between members of the LLC and the LLC even in the absence of an express or technical trust, that relationship did not necessarily extend to other members of the LLC. Although the payment by the LLC of the debtor wife's professional dues was not authorized by the operating agreement, the creditors could not, in their own right, claim a fraudulent appropriation that would give rise to embezzlement under 11 U.S.C. § 523(a)(4), as they failed to assert a direct injury separate and distinct from any injury suffered by the LLC.
Lewis v. Spivey (In re Spivey), 440 B.R. 539 (Bankr. W.D. Ark. 2010).
K.C. Props. of N.W. Arkansas, Inc. v. Lowell Inv. Partners, LLC, 280 S.W.3d 1 (Ark. 2008). · cites it 6דThe Arkansas Small Business Entity Tax Through Act, Ark. Code Ann. § 4-32-402 (Repl. 2001), also addresses the liability of members, stating: Unless otherwise provided in an operating agreement: (1) A member or manager shall not be liable, responsible, or accountable in damages…”
Clear Sky Props. LLC v. Roussel (In re Roussel), 504 B.R. 510 (E.D. Ark. 2013). · cites it 5דRegarding the duty of loyalty, unless otherwise provided in a company’s operating agreement, Ark. Code Ann. § 4-32-402 (2) requires a member or manager of an LLC to account to and hold as trustee for the LLC any secret profits derived from any transaction connected to the…”
Lewis v. Spivey (In Re Spivey), 440 B.R. 539 (Bankr. W.D. Ark. 2010). · cites it 4דArk.Code Ann. § 4-32-402(2) (Repl.2001). 2 Both Arkansas case law and an Arkansas statute support the creation of a fiduciary relationship in the absence of an express or technical trust.”
Michael Mattox & Pinnacle Partners, LLC v. Main Entrance, Inc., 2021 Ark. App. 382. · cites it 8ד8 Arkansas Code Annotated section 4-32-402(1) provides the following: “A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure…”
Muccio v. Hunt, 2014 Ark. 35. · cites it 2דArk. Code Ann. § 4-32-402 (1) (Repl. 2001).”
Hanson v. Randall, No. 4:18-cv-04025 (W.D. Ark. Apr. 11, 2018). · cites it 2דRandall also asserted a counterclaim for judicial dissolution of the company, as well as a counterclaim pursuant to Ark. Code Ann. § 4-32-402 (1), which sought to hold Hanson liable for losses the company sustained as a result of his alleged failure to routinely monitor the…”
Timber Automation, LLC v. FiberPro, LLC, No. 6:20-cv-06076 (W.D. Ark. Oct. 2, 2020). · cites it 2דThe duty of loyalty is addressed by subsection (2) of Arkansas Code Annotated § 4-32-402. See Frances S. Fendler, Losing Faith: Limited Liability Companies in Arkansas and the Fiduciary Duties of Loyalty and Good Faith, 31 U.”
Ark. Code Ann. § 4-32-402(1): 2 cases
K.C. Props. of N.W. Arkansas, Inc. v. Lowell Inv. Partners, LLC, 280 S.W.3d 1 (Ark. 2008). “The Arkansas Small Business Entity Tax Through Act, Ark. Code Ann. § 4-32-402 (Repl. 2001), also addresses the liability of members, stating: Unless otherwise provided in an operating agreement: (1) A member or manager shall not be liable, responsible, or accountable in damages…”
Michael Mattox & Pinnacle Partners, LLC v. Main Entrance, Inc., 2021 Ark. App. 382. “8 Arkansas Code Annotated section 4-32-402(1) provides the following: “A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure…”
Ark. Code Ann. § 4-32-402(2): 3 cases
Lewis v. Spivey (In Re Spivey), 440 B.R. 539 (Bankr. W.D. Ark. 2010). “Ark.Code Ann. § 4-32-402(2) (Repl.2001). 2 Both Arkansas case law and an Arkansas statute support the creation of a fiduciary relationship in the absence of an express or technical trust.”
Clear Sky Props. LLC v. Roussel (In re Roussel), 504 B.R. 510 (E.D. Ark. 2013). “Regarding the duty of loyalty, unless otherwise provided in a company’s operating agreement, Ark. Code Ann. § 4-32-402 (2) requires a member or manager of an LLC to account to and hold as trustee for the LLC any secret profits derived from any transaction connected to the…”
Michael Mattox & Pinnacle Partners, LLC v. Main Entrance, Inc., 2021 Ark. App. 382. “8 Arkansas Code Annotated section 4-32-402(1) provides the following: “A member or manager shall not be liable, responsible, or accountable in damages or otherwise to the limited liability company or to the members of the limited liability company for any action taken or failure…”
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