LLC Law Blog

Watch Out for Ignorant Bank People

Question: I went to the bank to open my LLC bank account and they need to know what kind of LLC I have. The bank wanted to know if I have an S LLC, C LLC or partnership LLC.

Answer: You need to go to another bank that knows how to deal with LLCs. The State of Arizona only has two types of LLCs, i.e., an LLC and a professional LLC (PLLC). You have an LLC.

There are no such terms as S LLC, C LLC or partnership LLC. The person you are talking to is ignorant, which is troubling. He or she may be asking for the LLC’s tax method under the internal revenue code, which could be:

Sole proprietorship
C corporation
S corporation or
Partnership

Those terms refer to the four possible federal income tax methods availabe to LLCs under the Internal Revenue Code. The terms do not describe a type of LLC.

The bank does not need to know how the LLC is taxed. The default tax method for your two member LLC is partnership. The LLC will be taxed as a partnership unless it files a timely IRS form 8832 (election to be taxed as a C corporation) or an IRS form 2553 (election to be taxed as an S corporation). The subject of the four possible LLC tax methods is discussed in great detail in your Operations Manual in your LLC portfolio.

Richard Keyt2023-04-06T12:20:36-07:00October 30th, 2013|Bank Problems, FAQs, Operating LLCs, Questions People Ask|0 Comments

Failure to Plan Causes Problem for Spouse of LLC Owner

Question: My spouse owns an Arizona limited liability company as separate property and is the sole manager of the company. He recently became mentally incompetent and can no longer run the company. The LLC’s bank will not allow me to sign checks to pay employees and vendors. How can I take over the management of the company?

Answer: Because your husband failed to take action needed to protect you in the event of his incapacity you must now file a petition with an Arizona Superior Court and ask the Court to appoint you as the conservator of your husband’s financial affairs. With that court order you will be able to elect yourself as a manager of the LLC, amend the Articles of Organization on file with the Arizona Corporation Commission to show that you are the new manager and give a copy of the filed amendment and Court order to the bank to take control of the LLC’s bank account.

Your husband’s failure to plan will cost you $3,000 – $5,0000 in legal fees that could have been avoided if he had signed a Financial Power of Attorney that named you as his agent with the power to manage his financial affairs in the even of his incapacity. Contact us to prepare and file the petition to get you appointed as the conservator.

Warning: This situation illustrates why people should take action to protect their most valuable asset – their family – before it is too late. Don’t let this happen to your loved ones. Adopt a comprehensive estate plan with a Trust, Will, Financial Power of Attorney, Healthcare Power of Attorney and Living Will now to prevent the stress, problems and high economic cost that results when people die or become incapacitated and have not taken the steps needed to protect their family.

To learn more about this topic and how to protect your family read my article called “Why You Need an Estate Plan to Protect Your Family and the High Cost of Procrastination and Neglect” and visit my Arizona Wills and Trusts website.

Richard Keyt2013-10-17T07:10:24-07:00October 17th, 2013|FAQs, How Do I|0 Comments

Must I Sign the Operating Agreement

Question: I am the sole member of my Arizona limited liability company. Must I sign the LLC’s Operating Agreement?

Answer: Although Arizona LLC does not require that the members of an Arizona LLC sign an Operating Agreement, as an Arizona LLC attorney I highly recommend that all members of an Arizona LLC, including single member LLCs, sign a “good” Operating Agreement. A good Operating Agreement is a document that is drafted specifically to comply with Arizona’s LLC law and that contains provisions and language needed by most LLCs and their members. The fact the members of an LLC sign an Operating Agreement could actually be detrimental to the members if the Operating Agreement is poorly written or not written specifically to comply with Arizona LLC law.

There are two reasons a the sole member of an LLC should sign an Operating Agreement:

When courts are asked to pierce the company veil and hold the sole member liable for the debts of the LLC one of the factors that counts against the member is the lack of an Operating Agreement. If you treat your business like a hobby you don’t have a signed Operating Agreement. If you treat your business like a business you must have a signed Operating Agreement.

To set the rules that govern the operation of the company if the sole owner were to die and his or her interest is inherited by loved one.

A good Operating Agreement is a complex document that should cover a lot of important ground. It should be drafted by an experienced LLC attorney licensed to practice in the LLC’s state of formation. As a business lawyer who has practiced law in Arizona since 1980 I’ve prepared [contentblock id=1 img=gcb.png] Operating Agreements and spent hundreds of hours researching and revising my Operating Agreement.

Richard Keyt2017-05-29T11:05:02-07:00October 14th, 2013|FAQs, Operating Agreements|0 Comments

Thanks for the Nice Testimonial

I want to thank California attorney Mark G. Lerner of the Lerner & McDonald law firm in Santa Ana, California, for his recent very nice testimonial about my LLC formation services. He said:

“As a California attorney, I have used Richard Keyt’s LLC formation services for many of my clients as well as myself over the past 7 years. Richard and his staff do an excellent job of creating high quality documentation in a very efficient manner. I have always been quite satisfied with each time that I have used Richard Keyt to form an Arizona LLC. I would strongly recommend his LLC formation services to others as we.”

See the great testimonials many other happy LLC clients have given me.

Richard Keyt2016-11-16T08:23:43-07:00October 3rd, 2013|Miscellaneous|0 Comments

How Do I Get an Arizona Trade Name aka DBA?

Question: How does my limited liability company get an trade name, aka a “dba” or “doing business as?”

Answer: In Arizona the term “dba” or “doing business as” is what Arizona law calls a “trade name.” Trade names are issued by the Arizona Secretary of State. To get a trade name the applicant must complete a Trade Name Registration Application form and file it with the Arizona Secretary of State at the address at the top of the form. The filing fee is $10.

Richard Keyt2023-10-24T10:14:58-07:00September 27th, 2013|FAQs, How Do I|0 Comments

Why is My Spouse Named as a Member in the Articles of Organization?

Question: Why did you list my spouse as a member of my Arizona LLC in its Articles of Organization?

Answer: Arizona is a community property state. Arizona law provides that all property acquired while married by either spouse who is an Arizona resident is community property unless it is acquired by gift or inheritance. This means that if one spouse of a married couple who reside in Arizona acquires a membership interest in an Arizona by then both spouses automatically own the interest as community property unless the non-owner spouse signs a disclaimer in which the non-owner spouse disclaims all ownership of the membership interest.

Because you told me that you wanted to own your membership interest in the LLC as community property I named both spouses as members of the LLC in its Articles of Organization. Arizona law provides that it is a felony to file Articles of Organization with the Arizona Corporation Commission if contains known factual misrepresentations. If one spouse owns his or her membership interest as separate property then the non-owner spouse should not be named as a member in the Articles of Organization.

Richard Keyt2013-09-20T07:17:39-07:00September 20th, 2013|Articles of Organization, FAQs, Forming LLCs|0 Comments

Lack of a Good Operating Agreement Causes Common Big Problem

I met recently with a group of people who are members of an Arizona limited liability company that is a disaster because the members never signed a “good” Operating Agreement. The multimember LLC was formed several years ago, but the members did not properly document their company. Here’s a short list of the member’s problems:

A majority of the members say that until recently they never saw an Operating Agreement, but the “CEO” recently produced an Operating Agreement with forged signatures. These members deny that the members signed an Operating Agreement.

Even if the members had signed the Operating Agreement presented to them the document was grossly deficient. One big problem was that all major decisions be approved by ALL of the members.

The company has been run by a dictator since its formation. This man has exercised total control and he acts without any input or approval from or approval of the members.

Members have come and gone without any documentation or approval of the members.

The members get a K-1 every year that lists their purported percentage of ownership of the LLC and their share of the LLC’s income. Note if your LLC does not have an Operating Agreement that specifies how profits will be allocated Arizona Revised Statutes Section 29-3102.12 states:

“Members’ respective interests in the Company’s profits are in proportion to their rights to share distributions.”

Arizona Revised Statutes Section 29-3404.A states:

“Any distribution made by a limited liability company . . . must be in equal shares among Members,”

The dictator has determined the amount and timing of all distributions from the company to its members. This is a violation of Arizona Revised Statutes Section 29-3407.B.3, which states:

“a majority in interest of the members shall decide . . . whether to make an interim distribution.”

The members have never been given copies of the LLCs’ federal or state income tax returns or its annual financial statements, all of which are required by Arizona Revised Statutes Section 29-3410.A.5, which says members are entitled to copies of the following records the LLC must keep :

“a copy of the company’s federal, state and local income tax returns and reports, if any, for the three most recent years”

The dictator has violated many Arizona LLC laws for which he is liable to the members and the company for damages.

My Recommendation

I recommend that members of an out of control Arizona LLC take the following actions:

Gather all the facts. This includes one or more members demanding to see and copy the records that are required to be kept by Arizona Revised Statutes Section 29-3410.

Consult with an experienced Arizona LLC attorney like me to learn their rights, remedies and options.

Subject to complying with a valid Operating Agreement give all the members a notice and call of a meeting of the members to vote on the following issues: (i) removing and replacing management, (ii) hiring a CPA to conduct a forensic audit to determine how much money the company has received and where it went, and (iii) filing a lawsuit to get a court order removing anybody in management that does not voluntarily comply with the change of management resolution.

If the results of the forensic audit finds that money was embezzled or improperly paid, file a lawsuit against the people who are responsible.

Another option is to file a lawsuit asking the court to dissolve the company, but this is frequently the worst option.

Richard Keyt2021-01-03T09:41:32-07:00September 15th, 2013|Member Disputes|0 Comments

Consequences of S Corporation Tax Method Termination

Question: My multimember LLC filed an election to be taxed under Subchapter S of the Internal Revenue Code, aka S corp method of federal income tax. Recently one of the members transferred 10% of the LLC to his corporation, which caused the IRS to terminate the S corp tax method. Our LLC is now taxed as a partnership. Do the other members of the LLC have a claim for damages against the member who caused the termination of the S corp tax method?

Answer: It depends. If the loss of the S corp election causes economic harm to the other members they could sue for damages, but it would be a roll of the dice as to who would win. The defendant member’s defense would be “I was free to transfer my membership interest and never promised to refrain from doing anything that would cause the loss of the S corp tax method.”

If your LLC was formed by me then the Company and the other members would have a claim against the transferring member for breach of contract because every Operating Agreement I prepare contains a clause that says no member will take any action that would cause the LLC to lose its S corporation tax method, but it a member did cause the loss that member would be liable to the other members for damages.

My Operating Agreements also contain language that prohibits a member from transferring all or a portion of the member’s membership interest without the consent of a majority of the members.

Caution about S Corp Method of Tax

To be eligible to be taxed as an S corporation none of the LLC’s owners can be a corporation, LLC (unless it is a disregarded entity), limited partnership, limited liability limited partnership, limited liability partnership or a nonresident alien. If a qualified party ever becomes a member of the LLC it causes an automatic termination of the S corporation tax method as of the date the disqualified party acquires the membership interest. This is the reason all multimember LLCs taxed as S corporations must have language in their Operating Agreements that prohibit transfers of membership interests without the approval of the other members.

Moral of the story: Every multimember LLC needs a good Operating Agreement prepared by an LLC attorney who knows the LLC law of the state in which the LLC is formed.

Richard Keyt2013-09-13T08:45:17-07:00September 13th, 2013|FAQs, Operating LLCs, Tax Issues|0 Comments

Ashton Kutcher’s 2013 Inspirational Speech

I wasn’t an Ashton Kutcher fan until I watched his speech at the 2013 Nickelodeon Teen Choice Awards. Kutcher’s speech to the young audience was fabulous and contained excellent life-changing advice for people of any age. I urge you to watch the four minute clip below and pass it on to young people you love.

Chris, aka Aston, Kutcher’s main message is that success in life comes from a stong work ethic and hard work. Aston said. “The sexiest thing in the entire world is being really smart, and being thoughtful, and being generous. Everything else is crap. I promise you.”

Richard Keyt2023-10-24T10:09:22-07:00September 11th, 2013|Miscellaneous|0 Comments

Arizona Corporation Commission Orders Crackdown on Securities Sales by Infomercial Company

The following is the text of a news release dated September 10, 2013, by the Arizona Corporation Commission:

The Arizona Corporation Commission ordered Stephen Christopher Donovan of Phoenix and his infomercial company, TV Products, LLC, to pay $153,000 in restitution and a $20,000 administrative penalty for committing securities fraud in connection with sales of securities in the company. The Commission found that while not registered to offer or sell securities in Arizona, Donovan, TV Products, LLC and another company employee conducted a nationwide cold – calling campaign to solicit prospective individuals for investment funds. The Commission found that through a private placement memorandum, Donovan and his comp any made material omissions and misrepresentations to 13 individuals located across the U.S. who purchased membership interests in TV Products, LLC.

Specifically, the Commission found that Donovan and TV Products, LLC misled potential investors by promising that the offering had not been disapproved by any state securities commission and was not in violation of any order of any such governmental entity or state statute, rule or regulation, when, in fact, legal action was taken against them by the state of Pennsylvania’s securities regulator.

To date, Donovan and his company have not made any distributions, refunded investment principal or otherwise transferred any money to investors. In settling this matter, Donovan and his affiliated company neither admitted nor denied the Commission’s findings, but agreed to the entry of the consent order. The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners.

Richard Keyt2017-08-25T19:55:10-07:00September 10th, 2013|AZ Corporation Commission, LLCs & Securities Laws|0 Comments

Obamacare May Fine Businesses $100/day Beginning October 1, 2013

Effective October 1, 2013, all businesses that have $500,000 in annual revenue and one or more employees are required to give written notice to every employee about the Affordable Care Act’s health-care exchanges. An employer who fails to give the required notice to all employees will be subject to a $100-per-day fine. This written notice requirement applies to any business regulated by the Fair Labor Standards Act. After September 30, 2013, these employers must give the written notice to all new hires within 14 days of the date, according to the Department of Labor.

The U.S. Department of Labor issued a notice that states:

“A. Employers Subject to the Notice Requirement

In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies.⁽⁴⁾ The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.⁽⁵⁾

B. Providing Notice to Employees

Employers must provide a notice of coverage options to each employee, regardless of plan enrollment status (if applicable) or of part-time or full-time status. Employers are not required to provide a separate notice to dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees.

C. Form and Content of the Notice

Pursuant to the statute, the notice to inform employees of coverage options must include information regarding the existence of a new Marketplace as well as contact information and description of the services provided by a Marketplace. The notice must also inform the employee that the employee may be eligible for a premium tax credit under section 36B of the Code if the employee purchases a qualified health plan through the Marketplace; and a statement informing the employee that if the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

D. Timing and Delivery of Notice

Employers are required to provide the notice to each new employee at the time of hiring beginning October 1, 2013. For 2014, the Department will consider a notice to be provided at the time of hiring if the notice is provided within 14 days of an employee’s start date.

With respect to employees who are current employees before October 1, 2013, employers are required to provide the notice not later than October 1, 2013. The notice is required to be provided automatically, free of charge.

The notice must be provided in writing in a manner calculated to be understood by the average employee. It may be provided by first-class mail. Alternatively, it may be provided electronically if the requirements of the Department of Labor’s electronic disclosure safe harbor at 29 CFR 2520.104b-1(c) are met.”

Richard Keyt2018-07-15T07:59:55-07:00September 9th, 2013|Miscellaneous|0 Comments

Why Does My Spouse’s Name Appear in My Arizona LLC’s Articles of Organization?

Question: You formed my Arizona limited liability company and the Articles of Organization list me and my spouse as members. Why is my spouse named as a member in the AOO?

Answer: You told us that you and your spouse are Arizona residents and you want to own your membership interest in the LLC as community property. That means each spouse owns an undivided ½ of the 100% of membership interests in your LLC. Arizona law requires that the names and addresses of all members who own 20% or more of an Arizona LLC be disclosed in the Articles of Organization.

A married person can also own his or her interest in the LLC as separate property, which means the owner spouse owns 100% of the membership interests in the LLC and the other spouse owns none of the LLC. When a married Arizona resident owns his or her interest in the Arizona LLC as separate property then only the owner spouse is listed in the Articles of Organization.

For more on this topic see “How Do I Acquire an Ownership Interest in an Arizona LLC as Separate Property?“

Richard Keyt2016-11-16T08:23:44-07:00September 9th, 2013|FAQs, Members|0 Comments

Arizona Corporation Commission Takes Action Against Gold Processing Venture

The following is the text of a news release dated August 13, 2013, by the Arizona Corporation Commission:

“The Arizona Corporation Commission today sanctioned the promoters of a private placement investment in a gold processing operation that defrauded investors out of more than $1.14 million. The Commission cautions investors about promoters who offer and sell risky private placement offerings that are not always suitable for the typical investor.

The Commission ordered Charles L. Robertson of Texas and his two affiliated companies —Arizona Gold Processing, LLC and AZGO, LLC—to pay $1,142,275 in restitution and a $100,000 administrative penalty for committing securities fraud in connection with their private placement offering. The Commission found that,through a private placement memorandum, Robertson and his two affiliated companies made material omissions and multiple misrepresentations to 63 investors who purchased membership interests in Arizona Gold Processing and AZGO.

The Commission found that Robertson, who was one of the principals of Arizona Gold Processing and one of the managing members of AZGO, either contacted or directed others to contact potential investors through nationwide telephone calls and emails. The Commission found that Robertson claimed his companies’ high-tech processing equipment could extract gold and silver ore at microscopic levels beyond what other equipment could extract. The Commission found, however, that there would be no increase in the amount of precious metals extracted with the equipment touted by Robertson and his companies, assuming the assays were performed by reputable labs. Further, the Commission found that Robertson and his companies failed to inform potential investors about the temporary cease and desist order issued by the Commission’s Securities Division requiring the respondents to stop committing securities fraud in connection with their private placement offering.

In settling this matter, Robertson and his affiliated companies neither admitted nor denied the Commission’s findings, but agreed to the entry of the consent order. The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners. To access the full text of the Commission’s order S-20846A-12-0135, please check the website in a few days: http://www.azcc.gov/divisions/securities/enforcement/enforce.”

Richard Keyt2016-11-16T08:23:44-07:00September 7th, 2013|AZ Corporation Commission, LLCs & Securities Laws|0 Comments

How an LLC Owned by a NonUS Citizen / NonUS Resident Opens a US Bank Account

Question: I am not a resident or citizen of the United States. I want to form a limited liability company in the U.S. to own and operate a business or to own investment real estate. How do I open a bank account in the name of the LLC?

Answer: I form a lot of Arizona LLCs for people who are not residents or citizens of the United States, aka nonresident aliens. Opening a US bank account for the US LLC can be a very big problem. The US Patriot Act imposes substantial limits and restrictions on the ability of a US bank with respect to creating a US bank account for a people and entities.

The number one new account requirement is that the bank must positively identify the person who seeks to open the bank account. Positive ID means two things:

Sufficient documentation such as a passport to prove the identity of the person who seeks to open the bank account, and

The presence of the person who seeks to open the bank account personally in front of the bank employee who is opening the account.

The banks seem to be getting tougher with respect to the personal ID requirement. This week I met with a nonresident alien client from Australia who opened two LLC bank accounts with Wells Fargo for his two Arizona LLCs two years ago. He did come to Phoenix to present himself to the bank personnel in order to open the accounts.

The client told me that he came to Phoenix this week because Wells Fargo notified him that it was closing ALL LLC BANK ACCOUNTS IN THE US IF THE LLC IS OWNED BY A NONRESIDENT ALIEN OR ALIENS. Wells Fargo closed his LLC bank accounts, but did allow him to open a personal bank account while he was present at the bank.

If somebody tells you that they know of a bank that will open an LLC bank account for a nonresident alien without the need for the nonresident alien satisfying the two requirements described above, don’t buy it. I personally know that MidFirst Bank and Commerica Bank had opened LLC bank accounts without requiring the nonresident alien owner of the LLC to satisfy the two requirements listed above. When supervisors found out about the accounts, they closed the accounts and fired the bank officer.

One potential solution to the problem is for the LLC to have a member or manager that is a US citizen or legal resident. That person could open a bank account in the US for the LLC. However, this solution creates its own set of problems. The person who opens the bank account is taking a risk that if the LLC is involved with anything that is illegal he or she could be in big trouble, perhaps criminal trouble.

Richard Keyt2023-04-06T12:23:31-07:00September 5th, 2013|Bank Problems, FAQs, Forming LLCs, How Do I, Questions People Ask|3 Comments

Can an Arizona Real Estate Broker Operate through an LLC vs. a PLLC?

Question: I am a licensed Arizona real estate broker. I know that Arizona licensed sales agents must operate through a professional corporation (PC) or professional limited liability company (PLLC). Must I operate my brokerage business in a PLLC or can I do it through a vanilla LLC? Also, if I can use an LLC can I use the LLC I formed that owns two investment rental properties?

Answer: Arizona does allow a licensed real estate broker to operate the brokerage business through an LLC or a PLLC. See Section 3 of the Entity / Employing Broker License Application LI-212. You could use your existing LLC. Keep one asset protection concept in mind: If you put all your eggs in one basket and you drop your basket you lose all of your eggs. If you have an operating brokerage LLC that owns other assets like stocks, bonds or investment real estate and a lawsuit arises out of the conduct of the business that turns into a large judgment for money, you lose the brokerage business and all the assets owned by the LLC. If you had put the investment assets in one LLC and operated the brokerage in a different LLC a financial disaster with the brokerage LLC would not cause a loss of the assets in the other LLC.

Richard Keyt2013-09-04T08:20:20-07:00September 4th, 2013|FAQs|0 Comments

If You Have a Confidential Trust Don’t Create a Separate Estate Planning Trust

Question: You created a Confidential Trust for me to own my Arizona LLC and keep my name off the public records of the Arizona Corporation Commission. Recently I signed a new trust that is for estate planning. My new trust includes provisions for the administration of my assets after my death. How does my new trust become the owner of the LLC currently owned by my Confidential Trust?

Answer: You now have two trusts, each with their own names and creation dates. The problem is that the Confidential Trust owns the LLC, but the Estate Planning Trust should own it. Instead of creating an entirely new estate planning trust you should have kept the same trust name, trustees and trust creation date and just amended and restated the entire trust agreement to contain the language needed for your estate plan. In other words, you should have converted the Confidential Trust to your estate planning trust with the end result that you would have one trust and it would be the owner of the LLC.

Going forward your choices are:

1. Transfer ownership of the LLC from the Confidential Trust to the estate planning trust and allow the Confidential Trust to die. However, if the new estate planning trust has your name in it and you want to continue to keep your name off of the Arizona Corporation Commission’s public records then retain ownership of the LLC in the Confidential Trust and follow the next option. We charge $545 to do this. It includes preparing an Assignment of Membership Interest Agreement, Amendment to the Articles of Organization, resolutions of the member and a new membership certificate.

2. Modify the Confidential Trust to provide that the beneficiary is the trustee(s) of the new estate planning trust.

My recommendation is to do option 1 now because option 2 postpones the need to do option 1 until the creator(s) of the Confidential Trust is/are deceased.

To learn more about how a Confidential Trust can keep your name off the Arizona Corporation Commission’s public records read my article called “How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s).”

Richard Keyt2013-08-28T06:48:53-07:00August 28th, 2013|FAQs, How Do I, Miscellaneous, Operating LLCs|0 Comments

Arizona LLCs Registered to do Biz in California May be Subject to Its New LLC Law

California adopted a terrible new LLC law that becomes effective on January 1, 2014. California’s new LLC law appears to say that LLCs formed outside California that register to do business in California will be subject to the new California limited liability company law. Section 17713.04(a) of the new LLC law provides that, except as otherwise provided in the law, the new LLC law applies to all California formed LLCs existing on or after January 1, 2014, but also to all foreign LLCs registered with the Secretary of State before January 1, 2014, and after December 31, 2013.

California is the state that has the highest annual maintenance fee on LLCs – $800/year minimum.

For more on this topic see “Potential Challenges Associated With California’s Revised Uniform Limited Liability Company Act.”

Richard Keyt2018-05-20T08:56:39-07:00August 26th, 2013|Miscellaneous, Operating LLCs|0 Comments

Who Inherits My LLC if I Die?

Question: “I am an Arizona resident who owns an interest in an Arizona LLC. Who will inherit my LLC if I die?

Answer: It depends on whose inheritance plan is used. If you have a Will or a Trust then you determine who inherits your LLC and other property. However, if you do not have a Will or a Trust, the State of Arizona’s inheritance plan will govern. If Arizona’s inheritance plan is the same as yours then the right people or charities will get your property in the proportions you have specified in your Will or Trust. Unfortunately it is very common for a person’s desired heirs to be different than Arizona’s plan of inheritance.

Do not leave your loved ones unprotected and at the mercy of Arizona’s law of inheritance. Sign a Will or a Trust and insure that your loved ones will inherit according to your plan, not Arizona’s plan.

For more on this topic see “Who Gets My Property If I Die Without A Will Or Trust?” and “Who Will Inherit Your LLC Membership Interest if You Die?“

Richard Keyt2016-11-16T08:23:44-07:00August 22nd, 2013|FAQs, Operating LLCs|0 Comments

Can an Arizona LLC’s Address be a Post Office Box?

Question: I know that all LLCs formed in Arizona must file Articles of Organization with the Arizona Corporation Commission in which the LLC notifies the ACC of its known place of business in Arizona. Can the LLC’s address be a U.S. post office box?

Answer: No. The ACC used to allow LLCs to use a PO box for the LLC’s address, but it burped last year and decided to outlaw U.S. post office boxes for the LLC’s Arizona address. US post office boxes are fine for members and managers, but if you try to file Articles of Organization that state that the LLC’s address is a US P.O. box the ACC will reject the Articles.

Richard Keyt2013-08-22T20:04:48-07:00August 22nd, 2013|Articles of Organization, FAQs, Forming LLCs|0 Comments

Tax Consequences of Break-Ups of Entities Taxed as Partnerships

For those of you who are tax nerds (like me and my son LLC attorney and former CPA Richard C. Keyt) here is a new article that will keep you on the edge of your seat. Many LLCs are taxed as partnerships and are subject to the same federal income tax rules as partnerships. The article is “Tax Consequences of Partnership Break-Ups: A Primer on Partnership Sales and Liquidations.” Here is the abstract:

This Article is a practical exploration of the tax consequences of the alternatives for reducing a partner’s interest: by sale or by a liquidation distribution. Partnerships and limited liability companies do not last forever. Indeed, there comes a point in the life of many partnerships when it is time to retire or to eliminate the interest of one or more partners. There are essentially two forms of transactions for reducing or terminating the interest of a partner: a sale of the partner’s interest to another partner or a third party or a distribution from the partnership in liquidation of the partner’s interest. In some cases the economic effect of a sale or distribution will be the same. The binary nature of this choice, however, is deceptively simple. The variable tax consequences inherent in sales and liquidations of a partner’s interest raise some of the most complex issues in tax law that involve both technical and numerical challenges. In addition, although these issues arise at the reduction or termination of an interest, planning at the formation of a partnership is critical to resolution of questions about the termination of a partner’s interest. With examples, the Article is an attempt to guide the practitioner through an analysis of the statutory and regulatory rules affecting the taxation of sales and liquidation of a partner’s interest looking at the tax consequences to both the partners and the partnership. Although the Article is not an attempt to achieve the impossible — simplifying the excruciatingly complex analysis — the article tries to provide an analytical foundation for the myriad of difficult questions that arise on the context of removing a partner’s interest.

Richard Keyt2015-11-01T09:01:09-07:00August 16th, 2013|Tax Issues|0 Comments

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