LLC Law Blog

Real Estate Owners Sued – a Too Common Nightmare for Property Owners

Thousands of times I have said and written that if you own an Arizona business or have investment real estate in Arizona, you must protect your life savings from things that can go wrong with the business by having an Arizona limited liability company own the business or real estate. Here are the facts of life every business owner and investment property owner must understand:

There are an infinite number of ways that something can go wrong and harm or damage people or property.

If you are the owner of the business or the real estate, you are 100% liable for anything and everything that goes wrong and ALL of your LIFE SAVINGS is at risk!

You must insert a shield called a limited liability company between things that can go wrong with the business or the real estate and you, your family and your life savings by creating an Arizona limited liability company to own the business or real estate. The general rule of Arizona law is that the owners (called members) of an Arizona LLC are not liable for the debts or obligations of the company. This means that when something goes wrong the defendant in the lawsuit will be the LLC, not you (unless you caused the harm).

Insurance is always your first line of defense. You should not operate a business or own investment real estate without adequate insurance coverage. However, the LLC is your second line of defense in case the plaintiff wins a judgement greater than your insurance coverage.

Here are two real life examples of how lawsuits can arise and why you want the defendant to be your LLC instead of you:

Rental property owner sued by a tenant who lived in an older home the tenant claimed had lead paint.

Older couple used savings to buy a duplex and rented it. An accident occurred and a person died. The estate of the victim sued the couple for millions, an amount that exceeded the couple’s insurance coverage. Some of the claims were not covered by the insurance policy.

A man with a net worth of $2 million owned a piece of raw land worth $150,000, but he did not have it insured. A boy climbed a tree on the land and was injured when he fell. The boy’s parents sued asking for more than the man was worth.

In each of the above situations the people involved could have saved themselves a lot of worry, stress, time and money if they have placed the real estate in a limited liability company.

Don’t allow your life savings to be at risk. Protect yourself and your family now by hiring me, the Arizona llc attorney, to form your Arizona LLC.

Richard Keyt2016-11-16T08:23:55-07:00June 22nd, 2011|Asset Protection, Lawsuits, Why People Need an LLC|0 Comments

How Do I Get a Federal Employer Identification Number for an LLC?

Question: I just formed my limited liability company. I know I should get a federal employer identification number (an EIN) for the LLC to open a bank account and to give to 1099 contractors and vendors. How do I get an EIN form my LLC?

Answer: The IRS makes it very easy to get an EIN with its online wizard. In a 5 – 10 data entry session a person connected with the LLC can get the EIN by answering a series of questions posed by the IRS’ website wizard. Apply for an Employer Identification Number (EIN) Online.

Richard Keyt2016-11-16T08:23:55-07:00June 20th, 2011|FAQs, How Do I|0 Comments

How Do I Reserve a Name for a to-be Formed Arizona LLC?

Question: I plan on forming a new Arizona limited liability company in the near future. How do I prevent somebody from taking my desired name before I form the LLC?

Answer: Submit a name reservation with the Arizona Corporation Commission. When approved, you will have the exclusive right to use the name for an Arizona LLC, corporation or limited partnership for 120 days. Before you attempt to reserve the name you must:

Review the Arizona Corporation Commission’s naming standards.

Check the Arizona Corporation Commission’s name database to see if the desired name is available. Don’t forget to put LLC after the desired name and select the LLC radio button.

If the name is available, click on the “reserve” name button to go to the name reservation screen.

The fact the ACC grants a name reservation does not guaranty that the name will be approved when an ACC examiner reviews the Articles of Organization. The name reservation expires after 120 days.

As to whether you should reserve a name and whether it is a waste of money, listen to the KEYTLaw Girl video called “Should You Reserve a Name with the Arizona Corporation Commission for Your New LLC or Corporation?“

Richard Keyt2018-10-07T10:14:38-07:00June 11th, 2011|FAQs, How Do I|0 Comments

Sarah Palin Purchases Scottsdale Home – a Lesson on How to Purchase Real Estate in Arizona Confidentially

Sarah Palin, recently, made national headlines for purchasing a luxury home in North Scottsdale, Arizona. Palin purchased the home through a Delaware Limited Liability Company that took title at closing. I suspect one of the reasons Sarah formed a Delaware limited liability company to purchase the home was to make it more difficult for people to determine the owner of the real estate.

In Maricopa County, Arizona, where the home is located, it is a simple matter to determine the legal owner of a home. Anyone who knows the address of the home can search the address on the Maricopa County Assessor’s website and find both the title holder and a link to the recorded deed on the Maricopa County Recorder’s website. Her new home is located at 29005 North 82nd Street, Scottsdale, Arizona 85266. See the Affidavit of Property Value recorded with the deed. This document states that the buyer was Safari Investments, LLC, and shows the purchase price was $1,695,000.

The seller was Ian Whitmore who purchased the home in March of 2010 for $803,650 cash. The Affidavit of Property Value recorded with the deed states that Ian Whitmore bought the home to use as his residence or the residence of a family member.

Safari Investments, LLC, is not an Arizona LLC nor has it registered to do business in Arizona. Delaware does not require members of the LLC to disclose their identity in public filings. The only information required in the Articles of Organization of a Delaware limited liability company is the name of the company and the name and address of the resident agent. Arizona, however, requires that the Articles of Organization of an Arizona limited liability company contain the name and address of all members if the LLC is member managed or the names and addresses of members who own 20% or more of the company if the LLC is manager managed.

By forming a Delaware LLC to purchase the home in Scottsdale, Arizona, Sarah Palin may have intended to keep her ultimate ownership confidential, but that plan didn’t work. Her ownership was discovered by many other sources. Here are some potential downsides to having your LLC own your home:

If the LLC was formed outside Arizona, it may have to register to do business in Arizona in which case Arizona law will require that the foreign LLC disclose the names and addresses of its members using the same rules described above. If the LLC is getting a loan to buy the property or if the LLC is purchasing title insurance (a buyer of Arizona property should always purchase title insurance) the title insurance company, the lender and the title insurer will require the foreign LLC to register to do business in Arizona, which would cause the disclosure of the foreign LLC’s owners. If your foreign LLC will be required to register to do business in Arizona and you want to keep the ultimate owner(s) name off the LLC’s public, you will be forced to create two foreign LLCs, one of which will be the sole owner of the LLC that will register to do business in Arizona. This is an expensive and an administrative nightmare. See below for a better alternative.

The ultimate owner of the home will not be able to take advantage of Arizona’s homestead exemption because the exemption does not apply to entities, only to people. Arizona’s homestead exemption protects the first $150,000 of equity in a person’s primary residence from non-consensual creditors.

Homeowner’s insurance may cost more because the home in not owned by the resident owner.

If the LLC is taxed as a C corporation, S corporation or a partnership for federal income tax purposes, the ultimate owner will not be able to exclude up to $250,000 ($500,000 for people filing a joint return) gain on a future sale of the property. Internal Revenue Code Section 121(a) states:

“Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.”

See “With New Arizona Home, Palin Can Skip the Tanning Bed.”

A Better Cheaper Way to Purchase Arizona Real Estate Confidentially

I routinely form Arizona LLCs that allow the ultimate owner of the company to remain confidential. A better way to maintain the secrecy of the ultimate owner of an Arizona LLC is for the owner to own the LLC in a trust. When a trust owns the LLC, the name and address of the trust appear in the Articles of Organization and the Arizona Corporation Commission’s public records. If the trust’s name does not include the owner’s name, then it is not possible to determine the beneficiaries (ultimate onwers) of the trust.

If you need to form an Arizona LLC and keep the ultimate owner(s) of the LLC secret, you should hire me to form the LLC and purchase my Confidential Trust. This is a special trust I draft for the purpose of owning the membership interest in an Arizona LLC. The ultimate owner is the trustee and the beneficiary of the trust and has total control over the trust’s assets – the membership in the LLC. The name of the Confidential Trust appears in the Articles of Organization, not the name of the ultimate owner.

For more on this topic, read my article called “How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s)” and “Sarah Palin confirms buying home in north Scottsdale.” This article explains that the way to form an Arizona LLC and keep your name and address off the public records of the Arizona Corporation Commission is to buy Arizona LLC attorney Richard Keyt’s Gold LLC package, aka the confidential LLC, for $1,297.

Richard Keyt2023-11-03T07:46:19-07:00June 3rd, 2011|Articles of Organization, Forming LLCs, Real Estate Issues|0 Comments

Arizona Damage Awards in Premises Liability Cases

Owners of residential and commercial buildings face potential liability for accidents which occur on the property’s premises. Two premises liability cases found their way into the top ten civil damage awards in Arizona during 2010. In LeClair v. Lumberman’s Building Center, the jury awarded $3,900,000 to a truck driver who slipped and fell on black ice. The accident occurred at the Lumberman’s Building Center and caused the truck driver to lose his leg. In Kerege v. Viscount Hotel Suite, an elderly woman fell down carpeted stairs in a hotel atrium, ultimately, caused her death. The jury awarded the plaintiff $3,000,000.

These two cases illustrate the need to form an Arizona Limited Liability Company (LLC) to protect the personal assets of the owner. Imagine you just purchased a small strip mall in Phoenix. You depend on this strip mall as one of the assets to help fund your retirement. However, when you purchased the strip mall, you did not have title to the strip mall held in an LLC. Rather, you personally held title to the mall believing an insurance policy covering the strip mall sufficiently fully protected you against any lawsuits and judgments arising from the real estate.

The insurance policy on the strip mall covered the first $2,000,000 of damages occurring to any person on the property. During a rainy monsoon day, a prospective plaintiff slips on the sidewalk of the strip mall and injures themselves badly. The upset plaintiff sues the owner of the real estate, i.e., YOU, and the jury awards the plaintiff $3,000,000 in damages. Your insurance company pays the policy limits of $2,000,000, but you now have a $1,000,000 problem, which is the unpaid amount of the judgment. Guess where the plaintiff will collect the additional $1,000,000. If you said from your life savings you are correct. Unfortunately, the plaintiff will be able to collect the unpaid amount of the judgment from your personal assets. The strip mall you depended on to help fund your retirement has caused you to expend other personal assets you depended on for retirement to satisfy a judgment on a lawsuit.

This disaster could have been avoided if the property owner had formed an Arizona LLC to hold title to the real estate. The general rule regarding property held or a business operated through an Arizona LLC is that the owner(s) of the LLC are not liable for the debts or obligations of the company. People form LLCs to protect their assets from things that go wrong with investment real estate and businesses. Thus, in the above example the property owner could have protected the owner’s life savings by forming an Arizona LLC and transferring title to the strip mall to the LLC.

Important Lesson for Business Owners & Investment Real Estate Owners: Insurance is always your first line of defense, but your second line of defense is the LLC.

Richard C. Keyt2016-11-16T08:23:55-07:00May 25th, 2011|Asset Protection, Lawsuits, Real Estate Issues, Why People Need an LLC|0 Comments

How Do I Change the Name of an Arizona LLC?

Question: How do I change the name of an Arizona limited liability company?

Answer: The company must file Articles of Amendment to the Articles of Organization in which it notifies the Arizona Corporation Commission of the name change. Within sixty days after the ACC approves the amendment changing the name, a copy of the articles of amendment or restated articles of organization shall be published in a newspaper of general circulation in the county of the known place of business for three consecutive publications unless the company’s statutory agent’s address is in Maricopa or Pima county.

If publication is required an affidavit evidencing publication may be filed with the ACC. I recommend that the company always file an Affidavit of Publication with the ACC so it can prove years later that it satisfied the publication requirement.

For more on this topic see my article called “How to Change the Name of an Arizona LLC.”

Richard Keyt2021-01-02T16:25:11-07:00May 21st, 2011|FAQs, How Do I|2 Comments

Why Should I Hire You to Form My Arizona LLC Instead of Somebody Cheaper?

Question: I’m interested in setting up a single person LLC. However, the $597 fee that I see on your site is a bit higher than what I’ve been quoted elsewhere.

Answer: Did an Arizona LLC lawyer quote a lower fee or was it an uninsured document preparer? Is the other person certified as a legal document preparer in Arizona? Is the document preparer an out of Arizona company that is registered to do business in Arizona as required by Arizona law? How many LLCs has the person or document preparer formed in Arizona? I’ve formed 9,300+ Arizona LLCs.

Does the other person have any testimonials. We have many happy LLC clients. See our 373 five star Google, Facebook & Birdeye reviews.

What does the other person offer for their fee? See my list of formation services I perform to earn the low fee I charge.

Does the other person give you a book he or she wrote similar to the 170 page book I give people called the “Arizona LLC Operations Manual” that explains how to operate the company and comply with Arizona LLC law after formation of the company? I give my clients who hire me to form their Arizona LLC both the digital and hard copy versions of the OM. The digital version is generic, but the hard copy version is customized for each LLC.

I recommend you read my articles called:

“Should Richard Keyt or LegalZoom Form My LLC?“

“Why You Should Hire Arizona LLC Lawyer Richard Keyt to Form Your Arizona LLC Instead of an Uninsured Person or a Website that Doesn’t Tell You Who Will Work on Your LLC or Disclose Their Education & Experience Forming AZ LLCs.

If you are thinking of using a document preparer that is a company formed outside Arizona, you should:

Check to see if the doc prep entity that does business in AZ is registered to do business in AZ as required by ARS Section 29-3902.

Before using a document preparer, check to see if the preparer is a licensed AZ doc preparer or a de-licensed preparer.

Richard Keyt2021-01-03T14:03:19-07:00May 20th, 2011|FAQs, Forming LLCs|0 Comments

Should I Form an Arizona C Corporation or an S Corporation?

Question: Should I form an Arizona C corporation or an S corporation?

Answer: I form for profit corporations, nonprofit corporations, limited liability companies, and limited partnerships. I’ve formed 9,300+ LLCs since 2001. However, I do not form C corporations or S corporations because Arizona corporate law does not recognize or care about C corporation or S corporations. Those two terms describe one of four methods of federal income tax applicable to entities. Nobody forms S or C corporations in the United States. People form:

for profit corporations (obsolete in Arizona except for limited circumstances)
nonprofit corporations
limited liability companies (most popular entity in Arizona)
limited partnerships (obsolete in Arizona except for limited circumstances)
general partnerships (never ever form a general partnership because every partner is 100% liable for everything that goes wrong)
sole proprietorships (never ever operate a business this way because the owner is 100% liable for everything that goes wrong)
business trusts (rarely used and not appropriate in Arizona)

The first four types of entities are formed pursuant to the statutory law of each state. No state in the U.S. allows for the formation of a C or an S corporation, both of which are methods of taxing an entity under the federal income tax code.

Before forming an entity, the first question is in what state should I form the entity? The second question is what type of entity should I form? After you form the entity, the next question is how should the entity be taxed for federal income tax purposes?

If you form a corporation, it can be taxed two ways:

C corp – the default method, or
S corp – if the corp is eligible to be an S corp and all of the owners sign and submit an IRS form 2553 to the IRS before the deadline.

If you form a limited liability company, it can be taxed four ways:

C corp
S corp
Partnership if it has two or more owners
Sole proprietorship if it has one owner or a husband and wife owners who own the company as community property

One of the many reasons Arizonans are forming LLCs 12 times more often than corporations is because of the four methods of tax available to the LLC vs. the two methods of tax available to a corporation.

I recommend that as soon as possible after forming your entity, but not later than 75 days, you talk to your tax advisor to determine which method of tax is best for you and the entity.

I do form for profit corporations when there is a good reason to do so or if I cannot convince my client that the Arizona LLC is a much better entity than the Arizona for profit corporation. To date, I have formed 9,300+ Arizona LLCs.

For an in depth discussion of whether to form a corporation or a limited liability company in Arizona to operate a business or hold real estate, see my article on my website called, “LLCs vs. Corporations: Which Type of Arizona Entity Should You Form?“

See also my article called “If My New Business Will Have Start Up Losses, Should It be an LLC or an S Corporation?.”

Richard Keyt2019-06-15T08:14:25-07:00May 20th, 2011|Ask the KEYTLaw Girl, FAQs, Forming LLCs, Tax Issues|0 Comments

Who Should Borrow Money to Purchase Real Estate – Me or My LLC?

I’ve been an Arizona real estate and business lawyer since 1980. Based on my knowledge and experience the type of entity to form to hold Arizona real estate is an Arizona LLC. When I represent buyers of multi-million dollar properties the lenders always require that the borrower form a single purpose LLC to own the real estate. Over half of the 9,300+ LLCs I have formed have been to hold real estate. Your other choices are the corporation and the limited partnership. Both of these types of entities have been obsolete since Arizona enacted its LLC law in 1992. A general rule is never own investment real estate in a corporation because of adverse tax consequences. That’s why before 1992 the limited partnership, not the corporation, was the entity commonly used to own investment real estate.

When you have an LLC, you want the LLC to be the borrower that signs the promissory note and becomes obligated to repay the loan. The general rule is that if the LLC is the borrower, the owner(s) of the LLC are not liable to the lender to repay the loan if the LLC defaults.

A sophisticated commercial lender will require you to form an LLC and have the LLC be the borrower and take title at closing with you guarantying the loan. Single family home lenders and lenders that do not understand the legal reasons for having the LLC be the borrower will require the person to be the borrower. If your lender will not let the LLC be the borrower then you must be the borrower and take title in your name and then transfer the real estate to the LLC after closing.

If you are an owner of an LLC that will borrow money, the best structure for you is for the LLC to borrow the money and sign the promissory note without you signing a guaranty by which you promise to repay the lender if the LLC defaults. If you can do this, then if the LLC were to default on the loan and did not have sufficient assets to repay the loan, the lender would not be able to pursue you for the unpaid amount due to the lender.

Richard Keyt2019-06-15T08:22:29-07:00May 20th, 2011|Asset Protection, FAQs|0 Comments

Why Should I Purchase Your Buy Sell Agreement Instead of Getting a Free Buy Sell Agreement on the Internet?

Question: “We will be wanting a buy-sell agreement since none of the members of the LLC are related. However, after doing some research online it seems as though there are many customizable template type versions available for free. My question to you is concerning your pricing. You charge $500 for your Buy Sell Agreement when you form the LLC, yet it seems after reading through it all that it is just a template that you give everyone that purchases it and we essentially change it according to our needs (very similar to the free ones available online). Can you help me understand where the value is with your buy-sell agreement when purchasing with the LLC startup?

Answer: My Buy Sell Agreement is the product of my 31 years of experience as a business lawyer forming thousands of companies and dealing with the problems that arise between members/owners. It started as a limited partnership agreement I first created in the early 1980s. When Arizona adopted its LLC laws, I modified my limited partnership agreement to be an Operating Agreement for AZ LLCs. In the early 2000s I made substantial revisions to my standard LLC Operating Agreement that was about 45 pages and also created an Operating Agreement / combined Buy Sell Agreement that was about 90 pages long. During January and February of this year I spent over 40 hours splitting my 90 Operating Agreement with buy sell provisions into two separate documents – the Operating Agreement and the Buy Sell Agreement. I did a lot of research including buying Howard Zaritsky’s book called “Structuring Buy-Sell Agreements: Analysis with Forms” for $295. I incorporated a lot of his content into my new 35 page Buy Sell Agreement. You can purchase the book here.

I’m sure I have spent over 200 hours on my Buy Sell Agreement over the last 31 years. Most attorneys would charge $1,500 to $3,000 for a Buy Sell Agreement that would not be as good as mine. I can charge less because I use automatic document assembly software to create my documents and I do a high volume. Most business attorney’s don’t do one Buy Sell Agreement a month. I’ve spent over $30,000 over the years on professional programming of my automatic document assembly templates.

My Buy Sell Agreement does have optional language that the members must pick. For example, there are six different ways to value the interest of a selling member. Your members must read the six methods and decide which method is best for the group. The group may want to modify their selection. How many valuation options do you think you will get from your free form? Will it contain drag along and tag along provisions? Is the free or cheap form you get from the internet Arizona state law specific? If you needed surgery, would you want a doctor to do it or somebody who doesn’t tell you their name or experience and who advertises on the internet that they do free or cheap surgeries?

You have two clear choices:

Get something free or cheap from a source you don’t know anything about or know the experience of the creator of the document that may or may not be drafted to comply with Arizona law, or
Purchase a document prepared by a 31 year Arizona business lawyer for such a small amount of money that if your group cannot afford it then maybe it should not go into business together.

Richard Keyt2011-10-05T20:03:45-07:00May 19th, 2011|Buy Sell Agreements, FAQs|0 Comments

How Do I Speak to a Person at the Arizona Corporation Commission?

Question: How can I speak to a live person at the Arizona Corporation Commission about an Arizona LLC?

Answer: Call one of the following numbers:

Corporate Filings: 602-542-3026

Annual Reports: 602-542-3285

Records: 602-542-3026

Richard Keyt2016-11-16T08:23:56-07:00May 11th, 2011|FAQs, How Do I|0 Comments

How Do I Get a DBA for an Arizona LLC?

Question: How do I get a doing business as, aka a dba for my Arizona LLC?

Answer: Arizona calls a “dba” a trade name. An Arizona LLC gets an Arizona trade name (dba) by filing a Trade Name Registration Application with the Arizona Secretary of State and paying a $10 fee. The Arizona Secretary of State will reject the trade name if it conflicts with an existing name or an AZ LLC, corporation, limited partnership or trade name. Before applying for a trade name, read “How Do I Check if a Name is Available for a New Arizona LLC?“

For more on Arizona trade names see:

Arizona Secretary of State’s Trade name Popular Questions

Arizona Secretary of State’s Trade Name and Trademark Handbook

Arizona Secretary of State’s Trade name Search

Arizona Secretary of State Contact Information

Mailing Address: 1700 W. Washington Street, 7th Floor, Phoenix, Arizona 85007

In Person:

Phoenix Customer Service Center: State Capitol Executive Tower, 1st Floor, Room 103, Phoenix, Arizona

Tucson Satellite Office: Arizona State Complex Building, 400 West Congress, 2nd Floor, Room 252, Tucson, Arizona 85701

Questions: Call (602)542-6187 or 1-800-458-5842 (state of Arizona only)

Hours: Monday – Friday, 8am – 5pm, except holidays

Richard Keyt2018-05-09T15:31:54-07:00April 11th, 2011|FAQs, How Do I|0 Comments

Scottsdale’s Fleming’s Restaurant to Pay $250,000 in Sex-harassment Suit

Arizona Republic: “Fleming’s Prime Steakhouse & Wine Bar at DC Ranch in Scottsdale will pay nearly a quarter-million dollars and furnish other relief to settle a same-sex sexual-harassment lawsuit filed by the U.S. Equal Employment Opportunity Commission, the agency announced.”

If you operate your business as a sole proprietorship or a general partnership, this story illustrates why a person should always operate a business through an LLC, corporation or limited partnership. How would you like to owe the EEOC $750,000 for something your employee did?

On the Net2016-11-16T08:23:56-07:00December 8th, 2010|Asset Protection, Lawsuits, Why People Need an LLC|0 Comments

Arizona Corporation Commission Orders Restitution for Real Estate Investors Defrauded by a Scottsdale Businessman

ARIZONA CORPORATION COMMISSION
FOR IMMEDIATE RELEASE: December 6, 2010
CONTACT: Rebecca Wilder (602) 542-0844

Commission Orders Restitution for Real Estate Investors Defrauded by a Scottsdale Businessman
Sanctions Others for Securities Fraud

PHOENIX, AZ—The Arizona Corporation Commission today issued a default order against a Scottsdale businessman and his company for defrauding investors in a million-dollar, real estate investment program. In other cases, the Commission ordered two individuals and their affiliated companies to pay restitution and penalties for defrauding investors in an investment program involving music concerts. In total, the Commission ordered over $3.44 million in restitution for investors and $85,000 in administrative penalties.

The Commission issued a default order against Nathan Nordstrom of Scottsdale and his affiliated company, Norstreet Portfolio, LLC, requiring them to pay $1,076,000 in restitution and a $50,000 administrative penalty for defrauding six investors in a real estate investment program. The Commission found that, while not registered to offer or sell securities in Arizona, Nordstrom and his company offered and sold limited liability company memberships, telling investors that their money would fund the completion of two residential developments in Hawaii and Washington, D.C. The Commission found that Nordstrom told investors their funds would be secured by the real estate when, in fact, Nordstrom lacked free-and-clear title to the properties and was unable to execute a deed of trust on behalf of the investors. Additionally, the Commission found that Nordstrom failed to disclose to the investors that some of their money would be used for outstanding, mortgage interest payments owed on the real estate properties.

In a separate case, the Commission ordered Bobby G. Goodson of Chandler to pay $2,298,236 in restitution and a $25,000 administrative penalty for committing securities fraud. The Commission found that Goodson, along with Malika S. Smith, formed CAA General Partnership and opened bank accounts solely for the purpose of handling banking transactions related to the so-called concert production activity of Goodson’s former son-in-law, Miko D. Wady. The Commission found that Goodson and CAA not only received $2,298,236 of investor funds and transferred nearly $1 million dollars to Wady, but also failed to disclose that CAA was not the internationally known talent agency, Creative Artists Agency. In April 2010, the Commission issued a default order against Wady for masterminding a multimillion-dollar investment scam related to the production of music concerts. In November 2010, Smith and CAA were ordered to pay restitution and penalties in connection with their violations of the Arizona Securities Act. In settling this matter, Goodson admitted to the Commission’s findings and agreed to the entry of the consent order.

In a related case, the Commission ordered Thurston Smith of Chandler and his affiliated company, B.Y.B. Entertainment, LLC, to pay $74,000 in restitution and a $10,000 administrative penalty for defrauding investors. The Commission found that, as the manager of B.Y.B. Entertainment, LLC and the sole signer of its bank accounts, Smith handled banking transactions related to what he believed was the concert production activity of Miko D. Wady. The Commission found that instead of funding music concerts, Smith transferred investor money received by B.Y.B. Entertainment, LLC to either Wady or to banks accounts controlled by Wady. In settling this matter, Smith admitted to the Commission’s findings and agreed to the entry of the consent order.

More caution for investors:

Even when investing with someone they know, investors should verify the registration of sellers and investment opportunities and investigate disciplinary histories by contacting the Arizona Corporation Commission’s Securities Division at 602-542-4242 or toll free in Arizona at 1-866-VERIFY-9. The Division’s investor education web site also has helpful information at www.azinvestor.gov.

On the Net2016-11-16T08:23:56-07:00December 7th, 2010|Lawsuits, LLCs & Securities Laws|0 Comments

Bankruptcy Court Sells Debtor’s Arizona Limited Partnership Interest

In July of 2010, the U.S. Bankruptcy Court for Arizona ordered the sale of a debtor’s limited partnership interest in an Arizona limited partnership in disregard of Arizona Revised Statues Section 29-655. This Arizona statute that says that the sole remedy of a creditor who gets a judgment against a partner of an Arizona limited partnership is a charging order. A charging order is a court order served on the limited partnership that orders the limited partnership to make any payments of money or distributions of property intended for the judgment debtor to the creditor. When served with a charging order, the limited partnership usually ceases making payments and distributions to the partner who is the judgment debtor, which means the creditor gets nothing from the limited partnership.

In re Michael L. Gauvin, the United States Bankruptcy Court ordered the sale of the debtor’s fifty percent interest as a limited partner of an Arizona limited partnership called “Draco Enterprises II, an Arizona limited partnership.” See the Notice of Sale.

Here is the text of Arizona’s charging order statute applicable to Arizona limited partnerships:

29-341. Rights of judgment creditor

On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partner’s partnership interest. This chapter does not deprive any partner of the benefit of any exemption laws applicable to his partnership interest. This section provides the exclusive remedy by which a judgment creditor of a partner may satisfy a judgment out of the judgment debtor’s interest in the partnership.

Arizona Revised Statutes Section 29-655 is the equivalent law for Arizona limited liability companies. This statute states:

29-655. Rights of judgment creditors of a member

A. On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest.

B. This chapter does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.

C. This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.

Bottom line: Despite these two Arizona statutes that state that the charging order is the exclusive remedy of a creditor that gets a judgment against a partner of an Arizona limited partnership or a member of an Arizona limited liability company, if the partner or member is a debtor in bankruptcy, the bankruptcy court can and probably will sell the interest and give the proceeds to creditors unless the interest is worthless.

Richard Keyt2011-12-03T10:39:17-07:00August 17th, 2010|Asset Protection, Charging Orders|0 Comments

How Can I Legally Omit My Name as a Member of an Arizona LLC?

Question: I want to form an Arizona limited liability company. I understand that Arizona law requires that the names and addresses of all members of an Arizona member managed LLC must be disclosed in the Articles of Organization, which is a public record on the internet. How can I form an Arizona LLC and avoid having my name and address appear on the Arizona Corporation Commission’s public records?

Answer: Yes if you do it the right way. Arizona Revised Statutes Section 29-3201.B requires that the Articles of Organization filed with the Arizona Corporation Commission must contain the name and address of all members if the LLC is member managed or the names and addresses of only those members who own 20% or more of the LLC if the company is manager managed.

There is a simple and relatively inexpensive way to comply with Arizona law, but not disclose your name in the Articles of Organization filed with the Arizona Corporation Commission to form an Arizona LLC. For the solution and how to keep your name off the records of an Arizona LLC, see my article called “How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s).”

Richard Keyt2021-01-03T08:56:17-07:00July 7th, 2010|Ask the KEYTLaw Girl, Asset Protection, FAQs, Forming LLCs|0 Comments

$3 Million Jury Verdict Arising From a Collision between an Employee Driving a Truck & a Bicyclist

Kenneth Davis was driving a truck for BCI Coca-Cola Bottling Company of Los Angeles. He stopped at a red light in Gilbert, Arizona. Davis looked both ways, but when he didn’t see anything he turned right. Unfortunately Davis did not see Henry Esparza, Jr., who was riding his bike on the right side of the truck in a bike path. Esparza collided with the truck and was severely injured, including permanent neurological damage. The jury found that Esparza suffered damages of $3,000,000 for which Davis and the Coke bottling company were liable for 40 percent.

The case is Henry Esparza Jr. v. BCI Coca-Cola Bottling Company of Los Angeles and Kenneth Davis, Maricopa County Superior Court Case Number 2007-091884.

Richard Keyt2011-07-04T20:27:51-07:00July 4th, 2010|Lawsuits, Why People Need an LLC|0 Comments

Driver Liable for $5 Million after Being Rear-ended by Motorcyclist with Meth & Marijuana in His Blood

Two Arizona Superior Court cases tied for 9th place in the list of the top 10 largest Arizona court judgments of 2009. The other case is Herman Martinez and Romelia Martinez vs. Desert Sky Esplanade, LLC, and Michael Manzutto.

The $5 million case of Randolph Groom v. Roger Clyne and Susan Clyne arose from an accident between a vehicle with a cattle trailer driven by Roger Clyne and a motorcycle driven by Randolph Groom in 2005. Groom was behind the Roger Clyne’s trailer when it turned left and Groom ran into the side of the trailer. There was evidence that the trailer’s lights were not on and neither was the headlight of the motorcycle. Groom’s blood tested positive for the presence of marijuana and methamphetamine.

Randolph was not wearing a helmet. He suffered severe brain damage and multiple orthopedic injuries. The jury found that Groom sustained damages equal to $5 million, but Roger Clyne was liable only for 75% of that amount because Groom was responsible for 25% of the harm he suffered.

The plaintiff argued that Susan Clyne should be liable, but the jury found that she was not liable because her son Roger was operating the vehicle for his personal business. If Susan Clyne was named as a defendant because she was the owner of the vehicle she got lucky. When a car is owned by Person A and Person B is driving the car and causes and accident that kills or injures one or more people and/or destroys or damages property, most of the time Person A (the vehicle owner) is named as a defendant in the lawsuit along with Person B (the driver). This is why people who own vehicles that are driven by other people should form an Arizona LLC and transfer title to the vehicle to the LLC.

For more on using a vehicle LLC for asset protection, see my article called “When to Use a Vehicle LLC for Asset Protection.”

The case is Randolph Groom v. Roger Clyne and Susan Clyne, Santa Cruz County Superior Court Case Number 2006-0051.

Richard Keyt2016-11-16T08:23:56-07:00July 2nd, 2010|Asset Protection, Lawsuits, Why People Need an LLC|0 Comments

Family of 16 Year Old Wins $5 Million Lawsuit Against Driver & Property Owner

Two Arizona Superior Court cases tied for 9th place in the list of the top 10 largest Arizona court judgments of 2009. The other case is Randolph Groom v. Roger Clyne and Susan Clyne.

The 9th largest civil judgment in Arizona during 2009 involved the death of a 16 year old young woman who was a passenger in a car driving on mall property when it crashed into a tree. The accident occurred on a private road owned by Desert Sky Esplanade, LLC, when the driver of the car, Michael Mansutto, hit a speed bump and lost control of the vehicle. The parents sued the driver and the owner of the land on which the road was located.

The parents claimed that the speed bump failed to satisfy city and federal requirements and that the property owner should have placed a warning sign before the speed bump. Despite the fact the girl was not wearing a seat belt, which might have prevented serious injury, the judge instructed the jury not to attribute any fault to the victim. Desert Sky Esplanade defended by saying the private road was not subject to federal or city rules and that the driver was speeding.

The jury awarded the parents $5,000,000 for their damages arising from the death of their sixteen year old daughter. Each defendant was liable for $2,500,000.

This case illustrates two important asset protection concepts.

1. Because the real estate was owned by an LLC rather than outright by the owner(s) of the LLC, the loss of the owner(s) of the LLC, if any, after payment of any insurance proceeds, was limited to the equity in the LLC.

2. If the driver of the car was not the owner of the car, the owner(s) of the car would have been named as co-defendants and potentially be liable for the $2,500,000 judgment awarded against the driver. If you have children or third parties driving your vehicles, protect yourself from liability arising from an accident caused by the driver by creating an an LLC that owns the LLC that owns the vehicle. With this structure, the LLC will be named as a defendant in the lawsuit. The general rule of Arizona LLC law is that the owner(s) of an Arizona LLC are not liable for its debts. For more on using a vehicle LLC for asset protection, see my article called “When to Use a Vehicle LLC for Asset Protection.”

The case is Herman Martinez and Romelia Martinez vs. Desert Sky Esplanade, LLC, and Michael Manzutto, Maricopa County Superior Court Case Number CV-2006-014888

Richard Keyt2011-07-02T13:51:19-07:00July 2nd, 2010|Asset Protection, Lawsuits, Why People Need an LLC|0 Comments

Olmstead vs. Federal Trade Commission

This Florida Supreme Court case involved the attempt by the Federal Trade Commission to enforce collection of a $10 million judgment it got against Shaun Olmstead and Julie Connell for their involvement with entities that operated an advance-fee credit card scam. The issue before the court was:

“Whether, pursuant to Fla. Stat. § 608.433(4), a court may order a judgment-debtor to surrender all, ‘right, title, and interest’ in the debtor‘s single-member limited liability company to satisfy an outstanding judgment.”

Olmstead argued that the issue should be answered in the negative because the only remedy available to a creditor who has a judgment against a member of a Florida single-member LLC is a charging order. The court said:

“we rephrase the certified question as follows: ―Whether Florida law permits a court to order a judgment debtor to surrender all right, title, and interest in the debtor‘s single-member limited liability company to satisfy an outstanding judgment. We answer the rephrased question in the affirmative.”

The reason the court allowed the creditor to get to the assets of the single member Florida LLCs is because the court ruled:

“that there is no reasonable basis for inferring that the provision authorizing the use of charging orders under section 608.433(4) establishes the sole remedy for a judgment creditor against a judgment debtor‘s interest in single-member LLC.

Arizona LLC law is different from Florida’s LLC law. Arizona’s LLC member charging order protection is contained in Arizona Revised Statutes Section 29-655 which states:

“A. On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest.

B. This chapter does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.

C. This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.”

Because of this statute, an Arizona court should not reach the result of the Florida Supreme Court in Olmstead vs. FTC. See “Olmstead Decision Does Not Make All Single Member LLCs Useless.”

Richard Keyt2016-11-16T08:23:56-07:00June 24th, 2010|Asset Protection, Charging Orders, Lawsuits|0 Comments

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