Full question:
We have a member/manger of our Arizona LLC leaving suddenly in order to provide the exact same services using one of our new contractors to do the work, because he can cut out the shared profits. We are an independent energy consultancy and marketing company for sustainable energy installers, perhaps a unique business model for our market that was hard to establish and educate the public originally. He will be in direct competition with us, and his using our business model will definately be taking from our potential client pool by using the same web marketing techniques, language, and a person that we were hiring to do work for us, but then suddenly disappeared to begin work for our withdrawing member without our knowing. We do not have a real operating agreement addressing terms for withdrawl, but of course assumed a fiduciary duty. Do we have any recourse or default restrictions under the law. We don't want to spend our life on this issue and wish him the best, but it is a competitive industry we are in with limited clientele he will be taking in order to make a few more bucks at our expense. I would prefer that he use new contractors, which there are many, and not resources or marketing language forged under the umbrella of our business. I am looking for general guidelines and specific knowledge of case law regarding the duties of a withdrawing a LLC member/minority owner without a detailed operating agreement in place.
- Category: LLC
- Date:
- State: Arizona
Answer:
In an LLC, the manager has a duty of care, loyalty, and disclosure to the members. Each party is expected to act in the company's best interest and avoid conflicts of interest. Although a member can plan to compete, they cannot recruit co-workers while still employed if it leads to mass resignations. Additionally, they cannot divert business opportunities to a competitor if those opportunities fall within the company's line of work and the company is interested in them.
The member is also prohibited from using confidential information gained while employed to benefit a new employer or gain a competitive edge. The doctrine of corporate opportunity prevents an officer or director from taking a business opportunity that belongs to the corporation if it is within the corporation's business line and the corporation has a reasonable expectation of it.
If a member breaches their fiduciary duty, the court will assess the situation based on various factors, such as whether the fiduciary personally benefited at the LLC's expense or failed to disclose important information. The court will determine if there was gross negligence, reckless conduct, or intentional misconduct based on how a reasonable person would act in similar circumstances.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.