LLC Law Blog

IRA LLC Law Website

9,300+I am an Arizona LLC attorney who has formed Arizona limited liability companies since 2001 when I started keeping track. Many of the LLCs I have formed include at least one member that is an IRA, which I call an IRA LLC. People form IRA LLCs because they want to invest their IRA funds in nontraditional investments. Because of the large number of inquiries I have had about the legalities of forming and operating IRA LLCs, I created a website called “IRA LLC Law.” If you want to learn more about this special type of LLC used to make self directed IRA investments, go to the website.

Richard Keyt2019-06-15T09:01:31-07:00June 7th, 2010|Forming LLCs|0 Comments

Lifelock to Pay Federal Trade Commission $12 Million

Phoenix Business Journal: “LifeLock Inc. has settled a lawsuit brought against it by the Federal Trade Commission and 35 states for $12 million, ending a lingering legal battle about what the company promised in its advertising versus what it could deliver in regards to preventing identity theft.”

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, limited partnership or corporation. How would you like to owe the FTC $12 million for something your employees did?

On the Net2016-11-16T08:23:57-07:00March 9th, 2010|Lawsuits, Why People Need an LLC|0 Comments

Veil-Piercing

Owners of corporations and limited liability companies worst nightmare is that a creditor will sue the company and its owners and ask the court to “pierce-the-corporate-veil” and hold the owners liable for the debts and obligations of the company. Peter B. Oh, Associate Professor of Law at the University of Pittsburgh has written a scholarly article called “Veil-Piercing.” Here is the abstract of the article:

From its inception veil-piercing has been a scourge on corporate law. Exactly when the veil of limited liability can and will be circumvented to reach into a shareholder’s own assets has befuddled courts, litigants, and scholars alike. And the doctrine has been bedeviled by empirical evidence of a chasm between the theory and practice of veil-piercing; notably, veil-piercing claims inexplicably seem to prevail more often in Contract than Tort, a finding that flouts the engrained distinction between voluntary and involuntary creditors.

With a dataset of 2,908 cases from 1658 to 2006 this study presents the most comprehensive portrait of veil-piercing decisions yet. Unlike predecessors, this study examines Fraud, a long-suspected accessory to veil-piercing, as well as specific sub-claims in Contract, Tort, and Fraud to provide a fine-grained portrait of voluntary and involuntary creditors. And this study analyzes the rationales instrumental to a piercing decision.

The findings largely comport with our legal intuitions. The most successful civil veil-piercing claims lie in Fraud or involve specific evidence of fraud or misrepresentation. Further, claims not only prevail more often in Tort than Contract, but adhere to the voluntary-involuntary creditor distinction. Surprisingly, though, veil-piercing presents a greater risk to individual shareholders than corporate groups.

On the Net2016-11-16T08:23:57-07:00March 3rd, 2010|Asset Protection, LLCs & Corporations, Veil Piercing|0 Comments

If My New Business Will Have Start Up Losses, Should It be an LLC or an S Corporation?

Question: I am considering starting a new business and I anticipate that it will produce losses, rather than profits for the first few years. Should I form a limited liability company or an S corporation to own and operate the business?

Answer: People ask this question of me a lot, which is why I wrote a detailed article called “LLCs vs. Corporations: Which Type of Arizona Entity Should You Form?” My article explains the many reasons why I believe that the LLC is the entity of choice in Arizona. People who ask this question are mixing the type of entity formed under state law with a method of taxation under the Internal Revenue Code of 1986, as amended. When you are thinking of forming an entity in Arizona to operate a business or to own investment real property, the first question is what type of entity should I form under Arizona law? Almost always the answer is a limited liability company.

After you form your company, the next question is what is the best method of income tax for the entity? If your tax adviser says that your LLC should be taxed as an S corporation and if it is eligible for that method of tax, then all of the members of company must sign an IRS Form 2553 (the instructions) and file it with the Internal Revenue Service before the deadline for making the S corp election. An LLC taxed as an S corporation is a “pass through” entity (it does not pay income taxes), which means that losses are passed through to the owners who can deduct the losses on their personal income tax returns (if they have sufficient basis). Note: An LLC that elects to be taxed as a C corporation, an S corporation, a sole proprietorship or a partnership for federal income tax purposes does not change its character. The entity always remains an LLC created under Arizona law regardless of the method of federal income tax applicable to the entity.

Bottom line: If S corp tax treatment is important and your business is in Arizona, form an Arizona LLC and cause it to be taxed as an S corporation by filing an IRS form 2553 in the first 75 days after forming the LLC.

P.S. I recommend that everybody who forms an LLC consult with a good tax advisor as soon as possible after forming the entity to obtain advice on which of the four federal income tax methods (sole proprietorship, partnership, C corporation or S corporation) is best for the limited liability company. The election to change the default method of income tax (sole proprietorship or disregarded entity for a single member LLC or partnership for a multi-member LLC) must be filed within 75 days of the date of forming the LLC for the election to be effective from the date of formation. For a list of the Certified Public Accountants I recommend in Arizona see “Professionals We Like.”

To learn why 9,300+ people have hired me to form their Arizona LLC, see “Contents of Arizona LLC Attorney Richard Keyt’s $597 Complete LLC Package” and Testimonials.

Richard Keyt2019-06-15T09:03:55-07:00March 1st, 2010|Ask the KEYTLaw Girl, FAQs, Forming LLCs, LLCs & Corporations|0 Comments

Should You Reserve a Name with the Arizona Corporation Commission for Your New LLC or Corporation?

Question: What is your opinion on reserving a name for my new company with the Arizona Corporation Commission?

Answer: I never reserve a name for a new LLC or corporation unless it would be a big problem if the company did not get the name. Big problem to me means that the loss of the name would cause my client to pay a lot of money or if you think somebody who knows about your plans for a new company might reserve the name just to prevent you from getting it. In the thirty years I have been a business lawyer in Arizona forming over 2,300 companies, I have reserved a name less than five times.

Think of it this way. If you check a name with the Arizona Corporation Commission (check it here) and it is available, it means the name has been available from the beginning of time to the moment you checked it. The chance that somebody is going to get that exact name before you in the near future are slim to none.

When people do reserve a name, it is not a problem for me when we form the limited liability company or corporation if the person or company that reserved the name is a member or manager named in the Articles of Organization of an LLC or named in the Articles of Incorporation of a corporation. If that person is not named in the Articles, the holder of the name rights must assign the rights to the name to one of the people or entities named in the Articles and the assignment document must be submitted to the Arizona Corporation Commission when you file the Articles.

P.S. Early in my legal career, I was merging two corporations into one survivor corporation. I reserved the name of the new corporation. It was very important that the merger occur on a specific date. The Arizona Corporation Commission rejected my merger documents because it said correctly that I was not named in the name reservation. That’s when I learned about the need for the name holder to assign the rights to the name to somebody who is named in the Articles.

Richard Keyt2019-06-15T11:28:02-07:00February 25th, 2010|Ask the KEYTLaw Girl, FAQs, Forming LLCs|0 Comments

Arizona Court of Appeals Finds Officers & Directors of Arizona Corporation Personally Liable for Corporation’s Debt

Arizona Republic: “Corporate officers can be held personally liable in some situations when their defunct firms don’t pay suppliers, the Arizona Court of Appeals has ruled. The judges maintained that lawsuits against a corporation for failing to pay a debt are valid only against the corporate entity. And when the corporation goes away, the creditors generally cannot go after the individual shareholders or directors.” The case is Arizona Tile, LLC, vs. Howard Steven Berger, Cynthia Berger and John McCarthy.

The general rule of Arizona law is that the shareholders, officers and directors of an Arizona corporation and the members and managers of an Arizona limited liability company are not liable for the debts and obligations of the company. There are, however, many exceptions to this general rule. This case illustrates one of those exceptions. Arizona Revised Statutes Section 33-1005 requires contractors who receive payments intended for subcontractors and materialmen to hold the money in trust for the intended payee. This statute is the basis for imposing liability on the corporation’s officers and directors beca1use they had a duty to see that the money was paid to the proper payee, but instead they paid other corporate debts that the officers and directors had personally guaranteed. In short they used money intended for Peter to pay the corporation’s debt to Paul because if Paul did not get paid, Paul could collect the debt owed by the officers and directors under their guaranties.

On the Net2016-11-16T08:23:57-07:00February 12th, 2010|Asset Protection, Lawsuits, LLCs & Corporations|0 Comments

Westcor, Pediatrician Spar over ‘Prasada’ Name for Medical Practice in Surprise

Arizona Republic: “A Sanskrit word meaning ‘gracious gift’ or ‘clarity’ has resulted in anything but for two Surprise business entities. A doctor who recently opened his first practice, Prasada Pediatrics, is involved in a trademark-infringement dispute with Westcor, the developer of the master-planned community of Prasada. Dr. Brian Lawrence Young, whose wife’s mother is Buddhist, said he chose the name for its Sanskrit meanings. ‘We live in Surprise, so we know that there’s a significant need for pediatrics in Surprise,’ said Young, who moved to the Valley from New Jersey in 2005.”

Is this a case of the big company with a deep pocket using its ability to spend money on legal fees intimidating the little guy? Consider what Harvard University’s Berkman Center for Internet & Society says about the topic “What Constitutes Trademark Infringement:

If a party owns the rights to a particular trademark, that party can sue subsequent parties for trademark infringement. 15 U.S.C. Sections 114, 1125. The standard is “likelihood of confusion.” To be more specific, the use of a trademark in connection with the sale of a good constitutes infringement if it is likely to cause consumer confusion as to the source of those goods or as to the sponsorship or approval of such goods. In deciding whether consumers are likely to be confused, the courts will typically look to a number of factors, including: (1) the strength of the mark; (2) the proximity of the goods; (3) the similarity of the marks; (4) evidence of actual confusion; (5) the similarity of marketing channels used; (6) the degree of caution exercised by the typical purchaser; (7) the defendant’s intent. Polaroid Corp. v. Polarad Elect. Corp., 287 F.2d 492 (2d Cir.), cert. denied, 368 U.S. 820 (1961).

So, for example, the use of an identical mark on the same product would clearly constitute infringement. If I manufacture and sell computers using the mark “Apple,” my use of that mark will likely cause confusion among consumers, since they may be misled into thinking that the computers are made by Apple Computer, Inc. Using a very similar mark on the same product may also give rise to a claim of infringement, if the marks are close enough in sound, appearance, or meaning so as to cause confusion. So, for example, “Applet” computers may be off-limits; perhaps also “Apricot.” On the other end of the spectrum, using the same term on a completely unrelated product will not likely give rise to an infringement claim. Thus, Apple Computer and Apple Records can peacefully co-exist, since consumers are not likely to think that the computers are being made by the record company, or vice versa.

A search of the U.S. Patent & Trademark Office’s database shows that an Arizona limited liability company called Westcor/Surprise, LLC, has obtained two federally registered trademarks. They are:

1. Registration Number: 3684454. For Prasada as a standard character mark in the following classes: (1) IC 036. US 100 101 102. G & S: Shopping center services, namely, leasing of shopping centers; real estate leasing, real estate management. FIRST USE: 20050600. FIRST USE IN COMMERCE: 20050600, and (2) IC 037. US 100 103 106. G & S: Real estate development and site selection; construction services, namely, planning and building, construction consulting for commercial, residential, and medical facilities. FIRST USE: 20050600. FIRST USE IN COMMERCE: 2005060.

2. Registration Number: 3138577. For Prasada as a words, letters and/or numbers in stylized form in class IC 036. US 100 101 102. G & S: Shopping center services, namely, rental and management of shopping center space. FIRST USE: 20050518. FIRST USE IN COMMERCE: 20050518.

I highlighted the classes for Westcor/Surprise’s two registered marks because its trademark/service mark rights extend to these areas. The registrations are for International Class 36 (real estate affairs) and 37 (building construction; repair; installation services). Note that Westcor/Surprise did not register Prasada in International Class 44, which is for medical services. Hmm! Could it be that Westcor/Surprise did not register its trademark for Prasada in IC 44 because it’s use of Prasada does not involve medical services?

Westcor/Surprise has not sought to register a federal trademark for Prasada as a medical practice or doctors’ office, which is nothing like shopping center services or real estate development. Do you think there is a likelihood of confusion between a doctor’s medical practice called “Prasada Pediatrics” and a huge shopping mall and master-plannded community many miles away called “Prasada”? Do you think anybody would go to Prasada Pediatrics because they intended to shop at the Prasada Pediatrics mall? I’m having a hard time finding a likelihood of confusion unless perhaps it is Westcor/Surprise, LLC, that is confused because it cannot tell the difference between a shopping mall and a children’s doctor’s office.

Richard Keyt2016-11-16T08:23:57-07:00February 6th, 2010|LLCs & Corporations, Trademarks|0 Comments

Can an Arizona LLC be Owned Entirely by Non-U.S. Citizens Who Do Not Reside in the U.S.?

Question: Can an Arizona limited liability company be formed and owned by non-United States citizens who do not reside in Arizona or the United States?

Answer: Yes. Arizona limited liability company law does not require that any owner of an Arizona LLC be a U.S. citizen or a resident of the United States. I have formed many Arizona LLCs for people who live outside the U.S. and who are not U.S. citizens.

LLC’s Need a Federal Employer Tax ID Number: It is also possible for an LLC owned only by non-U.S. citizens to get a federal employer identification number from the Internal Revenue Service. An LLC needs an EIN to open a bank account in the United States and to put on federal income tax returns and forms.

U.S. Bank Account: As for opening a bank account in the U.S., it is best if at least one owner or the manager is in the U.S. to open the account in person in the United States. U.S. bank laws require that the bank know and verify who is it dong banking business with. If that is not possible, I recommend that LLCs owned solely by non-U.S. citizens coordinate opening an account in the U.S. with the branch office of a bank in their county of residence that has one or more bank branches in the U.S.

Richard Keyt2019-06-15T11:50:13-07:00December 14th, 2009|Ask the KEYTLaw Girl, FAQs, LLCs & Corporations, Members|0 Comments

Must an Arizona CPA form a PLLC?

Question: Must an Arizona CPA who desires to practice accounting in Arizona form a professional limited liability company (PLLC) or can the CPA form a standard vanilla limited liability company (LLC)?

Answer: An Arizona CPA can form either an LLC or a PLLC to practice accounting in Arizona. The following text is taken from the Arizona State Board of Accountancy’s website:

The use of the professional designation, such as PC (Professional Corporation) or PLLC (Professional Limited Liability Company), means that the service being offered may only lawfully be rendered by a person duly licensed in this state, such as those offered by attorneys and CPAs/PAs. The use of the designation, however, is not required to form a CPA firm; for example, if you are considering forming a limited liability company, you can license the firm as an LLC or as a PLLC, but you are not required to license your firm as a PLLC.

On the Net2016-11-16T08:23:57-07:00December 10th, 2009|LLCs & Corporations, PLLCs|0 Comments

President of Corporation Personally Liable for Signing Contract

Improperly Worded Company Contracts can Cause Signer to be Liable

One of the primary reasons people form limited liability companies and corporations is to protect the owners from the debts and liabilities of the company. The general rule of Arizona law is that the members of an Arizona LLC and the shareholders of an Arizona corporation are not liable for the company’s debts. One of the biggest exceptions to this rule arises when an owner signs a contract and becomes personally obligated to pay the company’s debt.

The Personal Guaranty

The most common type of contract that obligates an owner of a company to pay the company’s debts is called a “guaranty” or “personal guaranty.” A guaranty is a contract by which the signer/guarantor promises to pay or satisfy the debt of another person (the company). Guaranties are frequently required by landlords and lenders who know that if the company doesn’t pay, the debt will never be paid. Arizona law provides that if only one spouse signs a guaranty, then the debt cannot be collected from the community property of the guarantor and his or her spouse.

Contracts that Create Personal Liability

Owners and employees of a company can create contractual personal liability for themselves if they sign a contract on behalf of the company, but the wording of the contract does not make it clear that the signer is signing on behalf of a company. The Arizona LLC Quick Start Guide that I give every LLC that I form contains actual examples of the exact language that should be used in contracts to prevent the signer from inadvertently becoming personally liable to pay the company’s debt created under the contract.

If the signer of an LLC or corporate contract wants to avoid becoming personally liable for the debts of the company created in the contract, the language in the contract must clearly state that the party is the LLC or corporation and indicate the capacity of the signer.

Iowa limited liability company and corporate attorney Marc Ward reports on a recent Iowa case that where the court found that the person who signed a two page contract on behalf of a corporation was personally liable to pay the corporation’s debt under the contract.

The Iowa Court of Appeals opinion in Builders Kitchen and Supply Co. v. Moyer, N0. 0-655/09-0194 (September 2, 2009) is a deceptively simple case. On the one hand it represents the folly of not having even run of the mill contracts reviewed by lawyers before they are signed. And on the other hand, it is a warning to lawyers that things aren’t as simple as they appear.

Unfortunately for Moyer the contract contained a clause that said “I hereby personally guarantee to pay on demand any and all sums due that my/our company shall fail to pay.”

Mr. Moyer did not sign the signature block for the personal guaranty, but the court found he was liable anyway.

Proper Way to Sign Contracts

Right Way to Designate the Company in a Contract: World Wide Widgets, LLC, an Arizona limited liability company. Note the LLC after the name and the written out “limited liability company.” Make sure both the abbreviation and the full designation are used. Typically the proper designation of the company should be in the first paragraph and in the actual signature block where the signer signs. If it is not, the signer should hand write the missing information above where he or she signs and/or on the first paragraph where the company is named.

Right Way to Designate the Capacity of a Signer in a Contract: Homer Simpson, President (for an Arizona corporation), or Homer Simpson, Manager (for a manager-managed Arizona LLC), or Homer Simpson, member (for a member-managed Arizona LLC).

Wrong Way to Designate the Company in a Contract: World Wide Widgets

Wrong Way to Designate the Capacity of a Signer in a Contract: Homer Simpson.

Beware of Personal Guaranty Language in the Contract

If a contract contains any language that would cause the signer to be a guarantor and impose personal liability on the signer, the signer who wants to avoid personal liability must take a pen and cross-out or strike-out all of the guaranty language. If you are signing a contract, you must read it and strike-out any language you don’t want and write on the document any additional language you want. You can modify with hand-written changes all pre-printed contracts before signing.

Richard Keyt2016-11-16T08:23:57-07:00October 19th, 2009|Asset Protection, LLCs & Corporations, Operating LLCs|0 Comments

How to Change the Name of a Limited Liability Company

Question: Can I change the name of my Arizona limited liability company?

Answer: Yes. Assuming the members approve the name change, an Arizona limited liability company can change its name by amending its Articles of Organization on file with the Arizona Corporation Commission. For a detailed explanation of how to change the name, see my article called “How to Change the Name of an Arizona LLC.”

Richard Keyt2011-07-14T14:45:57-07:00October 13th, 2009|FAQs, LLCs & Corporations, Operating LLCs|0 Comments

Why Not Form a New Business as an LLC?

Question: What is the best type of entity to form to own and operate an Arizona business or to own investment real estate?

Answer: The Arizona limited liability company, except in limited circumstances.

Two business law attorneys wrote a paper published in The Practical Tax Lawyer periodical that describes many of the reasons that an LLC is the right choice of entity for most new businesses, and advises that a new business choosing a legal form should first consider an LLC. The authors present a series of simple examples to illustrate the advantages that LLCs often have over both C corporations and S corporations. The article begins:

“An LLC is the right choice, however, in a majority of cases. Accordingly, an LLC should be the first form to consider for a new business. . . . An LLC has nearly unlimited flexibility in the types of equity and debt interests that it may issue to its members. An LLC may issue all manner of common interests, preferred interests, vested or unvested interests, debt, and options to acquire any of the above.”

As an Arizona lawyer who has been practicing business law in Arizona since 1980 and who has formed 9,300+ Arizona LLCs, I agree with the authors that the limited liability company is almost always the best type of entity to form to operate a business or own real estate in Arizona. People form Arizona LLCs 12 times more often that they form Arizona corporations. See “ACC Entity Formation Statistics.”

Richard Keyt2019-06-15T08:35:37-07:00October 6th, 2009|FAQs, Forming LLCs, LLCs & Corporations|0 Comments

Can My Arizona LLC Do Business in Another State?

Question: If I form an Arizona limited liability company, can it do business in a state other than Arizona?

Answer: Yes. An entity formed in one state can do business in any other state in the United States. Usually, if an entity formed in State A does business in State B, the entity must register or qualify to do business in State B, which means filing some papers and paying a fee to State B. If State B has an income tax and the entity formed in State A does business in State B and derives income from within State B, the entity must file a state income tax return in State B and pay State B the tax on the income derived from within State B.

Two Easy Ways to Hire Richard Keyt to Form Your Arizona LLC for $497 (Bronze), $797 (Silver) or $1,297 (Gold)

To learn about what is included in each of our three LLC formation packages see our Bronze ($497), Silver ($797) & Gold ($1,297) LLC Formation Packages Comparison page.

We’ve made it very easy to hire Richard Keyt (9,300+ LLCs formed) and KEYTLaw, LLC, to form your new Arizona LLC. It’s a simple 5 – 10 minute process. To hire Richard to form your new LLC select one of the following two options:

Option 1 – Telephone

Call any of the following KEYTLaw people and give your LLC and credit card information over the phone:

Richard Keyt (father) – 480-664-7478
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KEYTLaw LLC legal assistant Amanda Duran - 480-664-7846

Option 2: Online – Available 24/7

Complete our LLC Formation Questionnaire.
Pay in our secure web store for the Bronze ($497), Silver ($797) or Gold ($1,297) LLC package.

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If you are not happy with the formation service we provide, you may ask for a refund in writing within thirty days after the date we file your LLC’s Articles of Organization and we will refund your LLC formation fee less the $85 filing fee.

Richard Keyt2023-05-20T11:14:50-07:00October 2nd, 2009|Ask the KEYTLaw Girl, FAQs, Operating LLCs|0 Comments

Legislative Logjam Puts Arizona Corporation Commission in Limbo

Arizona Business Gazette: “The ability of Arizonans to form new corporations could start to slow within days and come to a screeching halt unless lawmakers fix their budget, according to the chair of the Arizona Corporation Commission. Kris Mayes said her agency was willing to go along with plans by Gov. Jan Brewer and legislators to have its incorporating division become fiscally self-sufficient. The plan, as crafted in legislation, was to let the agency keep and use money it obtained in fees.” The state legislature approved the plan, but for unrelated reasons, Governor Brewer vetoed the law that contained the funding for the Arizona Corporation Commission.

On the Net2011-07-03T16:29:34-07:00October 1st, 2009|AZ Corporation Commission, LLCs & Corporations|0 Comments

Arizona Corporation Commission Needs More Money

Today I received a troubling email from Jeff Grant, Director of the Corporations Division of the Arizona Corporation Commission. On September 4, 2009, Governor Brewer vetoed SB 1025 that would have provided an additional $2.8 million in funding for the ACC’s Corporations Division. As a result, the ACC is underfunded by 40 percent and it’s ability to service the new and continuing businesses of Arizona will be severely degraded. Wait times for approval of new entities could exceed hundreds of days, which would delay the creation of new businesses and jobs in Arizona.

The Arizona Corporation Commission needs our help to contact our state legislative representatives and senators and ask them to fully fund the ACC immediately. Please take the action Jeff Grant recommends at the end of his email message.

Contents of Jeff Grant’s email to me of September 25, 200

My name is Jeff Grant and I’m the Director of the Corporations Division of the Arizona Corporation Commission. You are receiving this email because you were on a user group list that a former director, Dave Raber created to be able to communicate with you at various times. This is another one of those times.

Many of you may already know that we are facing a serious funding crisis. The attached document gives you the history behind this issue and provides you with the impacts to the Division if the fees we are currently collecting are not appropriated back to the Corporations Division.

As of today, when we issued payroll, my budget is now in the red. In order to to be able to pay our bills, serious cuts in staffing along with furloughs will have to be implemented.

We are looking at cuts and furloughs that will greatly impact our turnaround times. If the legislature doesn’t act to restore the $2.8 million in annual report fees to the Division’s $4.5 million budget, turnaround times, in just a matter of months, could explode to well into the hundreds of days for non-expedited documents and approaching 50 days for expedites.

We need your help. After reading the attached document, please call or email your legislator and the President of the Senate, Speaker of the House and Governor’s Office.

If you have any questions, you can reach me at 602-542-0776. Thank you for your help with this serious problem.

Jeff Grant, Director
Corporations Division
Arizona Corporation Commission
602-542-0776

The following was attached to Mr. Grant’s email message and it sheds more light on the reason there is a funding problem, what you can do to help prod the legislature to action and why it is important to restore the inadvertent funding cuts.

How the problem arose:

On Friday, September 4, 2009, the Governor vetoed SB 1025 (for reasons unrelated to the ACC), which included language that would have avoided the ACC’s funding problem. The Governor signed the general appropriation bill for the ACC, but that Bill did not include an appropriation from the general fund to the ACC.

Why? Until this year, the money to run the Corporations Division came from both the general fund (60%) and the public access fund. This year, the legislature, the Governor and the ACC worked together to shift the funding to come entirely from the public access fund.

Because the funding was being shifted from the general fund to the public access fund in SB 1025, the ACC agreed this fiscal year to have the Corporations Division appropriation shifted, from being reliant on both general fund and public access fund revenue, to being entirely funded by revenue from the public access fund. Roughly 40% of the Corporations Division funding would have come from the general fund and 60% from the public access fund, without this funding shift.

In order to accomplish the shift to entire dependency on the public access fund, SB 1025 provided that annual fees paid by profit and business corporations were to be redirected for deposit to the public access fund. When the Governor vetoed SB 1025, the action left no statutory funding mechanism to shift revenue from these fees to the public access fund from the general fund.

The good news is both the Governor and legislature agreed to the funding shift and support it. Unfortunately, without the statutory language to facilitate the funding shift, the Corporations Division lacks the funds to operate adequately.

Simply stated, $2.8 million in anticipated revenue for FY 2010 cannot currently be shifted to the ACC to help fund the operations of the Corporations Division without additional action by the legislature.

What you can do:

We urge you to call your legislator, and call the offices of President Burns—602-926-5993 and Speaker Adams—602-926-5495 ([email protected]). Please also call the Chairmen of the Senate and House Appropriations Committees—Senator Russell Pearce ([email protected]) in the Senate—602-926-5760, and Representative John Kavanagh ([email protected])—602-926-5170 in the House and call the chairs at the Senate and House Commerce Committees: Barbara Leff—(602) 926-4486 ([email protected]) and Michele Reagan—(602) 926-5828 ([email protected]). We have provided you with a link to the phone numbers and key bullet points below.

Here is a link to a directory of legislators in the Arizona Senate and House:

http://www.azleg.gov/

Here are some key points which help to emphasize the adverse impact this funding problem will likely have on customer service at the ACC:

On average 4,700 corporations and limited liability companies are formed each month
If the Legislature does not act to remedy the situation by September 30, 2009, those citizens wishing to start a business — businesses that employ people, pay taxes, buy property and provide products and services to the people of Arizona — will more than likely see a huge increase in processing turnaround times — by several weeks — by the end of October.
As each month goes by, and if no legislative action is taken, processing turnaround times will continue to grow exponentially and the work queue of documents waiting to be examined and approved will explode.
If the Legislature waits until the next Regular Session in January to address the ACC funding issue the effect will be devastating, because it takes 90 days from the end of the session for legislation to become effective (absent an emergency clause or special session); this would mean the ACC would not have access to $2.8 million in anticipated revenue to fund its operations for the entire fiscal year.

Below is a copy of the press release the ACC sent out on this issue.

Once again, I encourage you to please call and email your legislators and to also let legislative leadership know how crucial this issue is to the people of Arizona.

If you have questions concerning this issue, you can reach me at 602-542-0776.

I want to thank you all in advance for your help on this issue.

On the Net2017-10-07T07:58:56-07:00September 25th, 2009|AZ Corporation Commission, LLCs & Corporations|0 Comments

Budget Cuts Significantly Impact Arizona Corporation Commission’s Ability to Process New Companies & Prevent Civil Securities Fraud

Arizona Corporation Commission Press Release:

PHOENIX, AZ—The Arizona Corporation Commission (ACC) today urged the legislature to adequately fund the Securities and Corporations divisions of the Commission in order to avert possible negative impacts to Arizona’s economy.

Under the budget recently passed by the Arizona legislature and approved by Governor Brewer, funding for the Corporations division of the ACC, which processes all new corporation formations in Arizona, will run out in ninety days and funding for the Securities division, responsible for enforcing civil securities fraud in the state of Arizona, will also be impacted within three months.

“The Commission believes that the legislature and Governor should quickly act on a 2010 budget to avoid unnecessary impacts to Arizona’s economy,” said Commission Chairman Kris Mayes. “Halting the formation of thousands of new businesses and hindering the prosecution of civil securities fraud would further impact an already distressed economy.”

In FY 09, the ACC’s Corporations Division formed approximately 4,693 new corporations and LLC’s per month, for a total of 56,310. With this number as an example, without adequate funding, thousands of businesses will be significantly delayed—often months—in forming in Arizona.

The scenario for the ACC’s Securities Division would also be bleak without the passage of a 2010 budget. The Securities Division protects investors—many of whom are elderly and least able to absorb financial losses through fraud—through Commission investigations and the issuance of orders of restitution and imposition of penalties.

In order to protect the mission of the Commission, three critical components must be restored to the budget in order to maintain existing services:

The Corporations Division must be allowed to move Annual Report fees from the General Fund to the Public Access Fund (PAF) (to match a like amount of appropriation transferred from the GF to the PAF). Without this allowance, the Division can fund expenses with existing cash flow for only the first quarter of the fiscal year. After September 30, 2009, if no correction is made, this will cause a significant cut (over 50%) to the Corporations Division.

The budget must contain Securities Division Fee language allowing the Commissioners to set dealer and salesman fees with a 4/5 or better vote. This ability is critical to providing revenue to cover the Divisions expenditures and appropriation. Since, the Feed bill moved $800,000 of appropriation from the General Fund to the Securities Regulatory Enforcement Fund (SRF), any existing revenue, with no change, would be used to cover current expenditure levels. In other words, if the Fee language is not restored, the division would need to continue its 25% vacancy rate.

The Commission requests restoration of a Securities Mutual Fund provision, which temporarily shifts revenue from the General Fund to the SRF. This provision is critical as the Division receives almost all revenue in January each year. If this language is not restored, the Securities division will lack cash flow to meet even current expenditure levels from October through December.

On the Net2017-10-07T07:58:56-07:00September 25th, 2009|LLCs & Corporations|0 Comments

What to do if the Holder of a Name Reservation is not a Member?

Question: A person who is will not be a member or manager of my Arizona LLC reserved the company’s name with the Arizona Corporation Commission. Will the ACC reject the Articles of Organization?

Answer: Yes unless you take appropriate action to prevent the rejection.

Recently we were asked to form an Arizona limited liability company under a name that was reserved by the CPA of the to be formed LLC. The CPA was not going to be a member or a manager of the new LLC. The Arizona Corporation Commission will reject the Articles of Organization of a new Arizona LLC if a valid name reservation exists and the holder of the name reservation is not a member or manager of the new LLC.

Solution: I called the Corporations division of the Arizona Corporation Commission and asked how to solve the problem. The simple solution is to name the holder of the name reservation as the organizer of the LLC and have the organizer sign the Articles of Organization. Arizona law does not require that a member or manager sign the Articles of Organization as the organizer. Anybody with capacity and authorization can sign the Articles of Organization of an Arizona LLC.

We submitted the Articles of Organization signed by the organizer to the Arizona Corporation Commission and it was approved.

Richard Keyt2019-06-15T11:23:02-07:00September 24th, 2009|Articles of Organization, Ask the KEYTLaw Girl, FAQs, Forming LLCs|0 Comments

How to Keep an Arizona LLC in Good Standing

Question: How do I keep my Arizona LLC in good standing with the Arizona Corporation Commission?

Answer: Once you start your Arizona limited liability company (LLC), there are some very important issues to consider to keep the LLC in good standing with the Arizona Corporation Commission. When an LLC is not in good standing, the ACC will first classify the LLC as delinquent and then administratively dissolve or revoke the LLC’s existence if the LLC does not correct the problem within the time period listed on the ACC’s delinquency notice.

Here’s how to keep your LLC in good standing with the Arizona Corporation Commission:

Publish your Notice of Publication if Required! Arizona LLC law requires that within 60 days of the date the Arizona Corporation Commission approves the Articles of Organization, a Notice of Publication must be published for three consecutive publications in a newspaper of general circulation in the county of the LLC’s known place of business in Arizona. Publication in a newspaper is not necessary if the LLC’s known place of business is in Maricopa County or Pima County. The LLC may be dissolved if it does not publish and file an Affidavit of Publication with the ACC when publication is required.

If your LLC moves, tell the Arizona Corporation Commission! Always notify the Arizona Corporation Commission of any change of address of the business or its members or managers. If you move the known place of business address for your LLC, or if your Statutory Agent’s address changes, you must submit a Statement of Change of Known place of Business or Statutory Agent. You may also use this form to update your member/manager addresses. However, adding or removing members and/or managers requires an amendment to be filed. Please note that the ACC does not allow the Postal Service to forward mail, so once you move you will no longer receive critical documents from the Arizona Corporation Commission. Therefore, it is extremely important that you notify the ACC of any address changes.

If any member or manager moves, tell the Arizona Corporation Commission! If the address of a member or manager in the LLC’s Articles of Organization changes, the LLC must notify the Arizona Corporation Commission of the new address. To change the address of a member or manager complete and submit a Statement of Change of Manager or Member Addresses to the Arizona Corporation Commission.

Maintain a Statutory Agent at all times! If your statutory agent has resigned, you must appoint a new agent immediately. The form, Statement of Change of Known place of Business or Statutory Agent, can be downloaded by clicking here. There is a $5.00 fee to file this form and it may also be expedited for an additional $35.00.

Make sure that your LLC’s duration has not expired! Every LLC that we form has a perpetual duration, but some people create LLCs with a specified dissolution date. When you originally organized your LLC, you may have chosen a specified period of time that your LLC would exist. If you intend to operate your LLC beyond that original life span, you must file an Amendment to the Articles of Organization with the Corporate Filings Section of the ACC to extend the life period of the LLC. You may obtain the amendment form by clicking here. The fee to file an amendment is $25.00. Expedited service is available for an additional $35.00.

Make good on any Non-sufficient funds (NSF) checks! If you bounced a check payable to the Arizona Corporation Commission, you must submit the payment amount plus a $10.00 fee, which is imposed on all NSF checks. The payment you submit cannot be a personal check or business check. The payment must be a cashier’s check, money order, or cash (accepted only at the ACC’s counter).

If your LLC has been dissolved or its authority revoked for any of the above reasons, you have six years from the dissolution date to correct the deficiency. This may be accomplished by filing the necessary documents, paying all fees that are due, and including the proper reinstatement fee. The reinstatement fee is $100.00.

Note: Your LLC’s name will only be held for six months after the date of delinquency. After that time anybody can create an Arizona entity with the exact name of the dissolved company.

On the Net2019-07-04T10:25:38-07:00September 19th, 2009|FAQs, LLCs & Corporations|0 Comments

Names & Addresses in Articles of Organization

KEYTLaw legal assistant Katie Leavitt got a call from the Arizona Corporation Commission today. The ACC lady told Katie that because of a change in Arizona law, we must change the way we disclose the names and addresses of members of an Arizona limited liability company in the Articles of Organization. Here is how we typically have indicated in the past the names and addresses of a married couple when we prepared Articles of Organization:

Old Way We Indicated Names & Addresses of a Married Couple

Homer Simpson and Marge Simpson, 3244 North Main Street, Springfield, IL

New Way We Will Indicate Names & Addresses of a Married Couple

Homer Simpson, 3244 North Main Street, Springfield, IL 62701, and Marge Simpson, 3244 North Main Street, Springfield, IL 62701

Richard Keyt2011-07-03T16:34:23-07:00September 18th, 2009|AZ Corporation Commission, Forming LLCs|0 Comments

Beware of Scams Targeting LLCs and Corporations

As a legal assistant for a law firm that creates hundred of entities (limited liability companies “LLCs”) and corporations) each year, I receive quite a bit of correspondence addressed to our LLC and corporation clients in care of our office. I have become very familiar with the Arizona Corporation Commission (the “ACC”), Arizona’s agency that regulates LLCs and corporations, and the Arizona Secretary of State. I can recognize suspicious correspondence when I see it. Some scam correspondence is strikingly similar to that which is official, even to the trained eye, so it’s important that business owners be vigilant for suspicious official looking correspondence.

Only the ACC, Arizona Secretary of State, an Arizona County Assessor, the Internal Revenue Service and bona fide government agencies send notices regarding your Arizona entity. Beware of correspondence that looks too much like a government form sent by an outfit of which you have never heard that asks you to send money. If you are not sure an official looking notice is legitimate, spend some time to investigate and identify the sender of the correspondence.

Do a Google search for the name of the sender, its phone number and address. Try to find the sender’s website. If the sender does not have a website that contains real substance, think twice before sending money to the sender. Contact the sender directly to verify that it did indeed send the correspondence. See this article on our website for more information on large-scale scams targeting Arizona entities as well as a joint statement by Arizona attorney general Terry Goddard and the ACC.

Arizona entity owners should beware of the following characteristics of scammers and their correspondence:

Scammers produce very official-looking notices or invoices. Remember, the only reason for sending correspondence nearly identical to that which is authoritative is to deliberately deceive or mislead company owners. If these pieces of correspondence were simply notices, offers or legitimate marketing attempts with no intent of deception, they would not imitate official authoritative correspondence by attempting to utilize its language, layout and color scheme;
Scammers will ask for money or confidential information. Let’s get this straight – they’re not giving out courtesy compliance notices! They want company owners to pay for a product or service that they may or may not provide, or use the information obtained for their own purposes. Even if one of these parties does provide the product or service promised, many times the service they provide is over priced or even worse – not required by Arizona law, as is implied by the correspondence;
Most scams or misleading correspondence can be traced to a P.O. Box or other type of mailbox whose owner is difficult or impossible to determine;
Many of these notices contain vague or unverifiable claims (“Included is a $17,000 “We Pay the Fine” Reimbursement Guarantee”); urgent due dates; “file” or “corporation” numbers; conflicting, confusing or missing information (several contact addresses, no actual distributing entity name) and even excerpts from the Arizona Revised Statutes in an apparent effort to confuse, legitimize or intimidate;
The fact that these parties have your company name, file number and address means nothing. All Arizona entities must provide certain information to the ACC, which is then displayed on the ACC’s website where is may be seen by anyone with internet access. Scammers routinely check the ACC website to build their mailing lists, much like they do with new homeowner information found on the Maricopa County Recorder’s website.

The bottom line is beware of any correspondence with these characteristics and read each piece of correspondence carefully before paying money or providing information to the sender.

If you receive a notice specifically claiming that some sort of action is required to keep your Arizona entity from being terminated or dissolved, call the ACC at 602-542-3026 to check on the standing of your LLC or corporation and deal directly only with the ACC or your business attorney to ensure reinstatement of your entity if necessary.

On the Net2017-04-02T10:04:15-07:00September 18th, 2009|AZ Corporation Commission, LLCs & Corporations|0 Comments

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