Yesterday we uploaded the video shown below to the KEYTLaw Youtube channel. Of the 38 videos now on our channel this video had more views (468) in its first 24 hours than any of our 37 other videos. The video also got 78 likes and 60 comments. Check out our channel and click on the subscribe icon and the bell to get notices of new videos we upload in the future.
This video demonstrates how to prepare and file the Arizona Corporation Commission’s LLC Statement of Change of Member Address form to notify the ACC that a member of an Arizona LLC has a new address.
Links mentioned in the video are:
For more videos on forming and operating Arizona limited liability companies and how to use the Arizona Corporation Commission’s forms and online services see the KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video.
This video demonstrates how to prepare and file the Arizona Corporation Commission’s LLC Statement of Change of Manager Address form to notify the ACC that the manager of an Arizona LLC has a new address.
Links mentioned in the video are:
For more videos on forming and operating Arizona limited liability companies and how to use the Arizona Corporation Commission’s forms and online services see the KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video.
This video demonstrates how to prepare and file the Arizona Corporation Commission’s LLC Statement of Change of Know Place of Business Address form to notify the ACC that an Arizona LLC changed its known place of business address in Arizona. Warning: The Arizona LLC’s address cannot be a U.S. post office box.
Links mentioned in the video are:
For more videos on forming and operating Arizona limited liability companies and how to use the Arizona Corporation Commission’s forms and online services see the KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video.
On January 24, 2018, Arizona State Senators Bob Worsley, Kate Brophy McGee and Frank Pratt introduced Senate Bill SB 1353, a proposed law that would entirely replace Arizona’s limited liability company laws that have governed Arizona LLCs since 1992. This new 67 page law is based on the 2013 version of the Revised Uniform Limited Liability Company Act (RULLCA). SB 1353 is the work product of a small group of Arizona lawyers who spent seven years revising RULLCA.
The new law would become effective on August 31, 2019, but the old law would continue to apply to Arizona LLCs formed before September 1, 2019, until August 31, 2020. Section 29-4202 of SB 1353 states:
“This act does not affect an action commenced, proceeding brought or right accrued before September 1, 2019. With respect to a limited liability company formed before September 1, 2019, the rights and obligations of the company’s members and managers relating to matters arising and events occurring before September 1, 2020, based on events and activities occurring before September 1, 2020, shall be determined according to the law and terms of the operating agreement in effect at the time of the matters and event.”
Translation: All 800,000+ Arizona LLCs created before September 1, 2019, will be subject to the new LLC law rather than the existing/old LLC from and after September 1, 2020.
Observation from the Arizona LLC attorney who has formed 9,200+ Arizona LLCs: If SB 1353 becomes law every one of the 800,000+ existing Arizona LLCs and all Arizona LLCs created after August 31, 2019, will need to adopt an Operating Agreement written for the new law that eliminates most or all of the many onerous provisions contained in SB 1353.
Tell the bill’s sponsors how you feel about SB 1353 by sending them an email to the following addresses: Arizona State Senators Bob Worsley (email: goo.gl/N6Q2mt), Kate Brophy McGee (email: goo.gl/kAYXAk) and Frank Pratt (email: goo.gl/z7HMVo).
We get most of our new clients from people who visit one of our websites. For example, this Arizona LLC law website is the reason we have formed 9,200+ Arizona LLCs. I’ve invested thousands of hours into creating content on my sites and the investment has paid off.
We all know that a good website can generate business. Most business people, however, are unaware that another great source of business is Youtube. Youtube is owned by Google. Google may be the most visited website, but Youtube is the second most visited website. Youtube can also be a great source of business.
In November of 2017 I made a commitment to update and invest in my firm’s Youtube channel. I’ve added many new videos in the last three months and will be adding many more videos in the future. There is a lot more to creating a successful Youtube channel that just uploading videos. It does have a learning curve.
Check out our KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video. I encourage you to leave a comment and tell me what you think about our channel.
This video demonstrates how to make an Arizona Corporation Commission cover sheet. Every document filed with the Arizona Corporation Commission (ACC) must include an ACC cover sheet. It’s one of the Arizona llc requirements. Without a cover sheet the Arizona Corporation Commission will reject the document. The Arizona Corporation Commission cover sheet (sometimes called an azcc cover sheet) is a simple one page document. Here’s the link to the ACC cover sheet.
For more videos on forming and operating Arizona limited liability companies and how to use the Arizona Corporation Commission’s forms and online services see the KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video.
If you want to form a new Arizona limited liability company the first thing you need to do is determine if your desired name is available. The good news is that the Arizona Corporation Commission has an online name check database that will tell you if a desired name is available or taken.
In this video we will demonstrate and show you how to how to do an Arizona business name search to find a name for a new LLC. If the name is available we will also show you how to reserve the name for 120 days.
Here is the link to the Arizona Corporation Commission’s entity name database:
Warning: People sometimes mistakenly search for arizona secretary of state business entity search when they want to know if a name is available for an Arizona LLC or corporation. Do not search the Arizona Secretary of State’s website for LLC or corporation names because it is the Arizona Corporation Commission that determines is a name is available for an Arizona LLC or corporation.
For more videos on forming and operating Arizona limited liability companies and how to use the Arizona Corporation Commission’s forms and online services see the KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video.
I am happy to announce that we are making a series of videos on our Youtube channel that will demonstrate how to do various Arizona LLC related tasks using the Arizona Corporation Commission website and efiling system.
For more videos on forming and operating Arizona limited liability companies and how to use the Arizona Corporation Commission’s forms and online services see the KEYTLaw Youtube channel. Please click on the subscribe icon and the bell symbol to the right of the subscribe icon to get a notice when we upload a new video.
Our first ACC demo video below demonstrates how to search for an LLC or a corporation using the ACC’s online name database to find the LLC’s address, its statutory agent and the names and addresses of its members and managers.
Here is the link to the Arizona Corporation Commission’s business name search database:
Future ACC videos will demonstrate how to do the following tasks:
1. How to make a cover sheet
2. How to check if a desired LLC name is available
3. How to change an LLC’s place of business address
4. How to change the address of a member or manager
5. How to change the address of an LLC’s statutory agent
6. How to appoint a new statutory agent
7. How to amend an LLC’s Articles of Organization to change the LLC’s name
8. How to amend an LLC’s Articles of Organization to add or remove a member
9. How to amend an LLC’s Articles of Organization to add or remove a manager
10. How to file Articles of Organization for a new LLC using the ACC’s online efiling system
11. How to terminate an LLC
Read the complete text of the 2017 law that was first called the “Tax Cuts and Jobs Act,” but its name was changed today to “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.” President Trump is expected two sign the bill in the next two weeks.
Question 1: My multi-member LLC is taxed as a partnership. Does it need to amend its Operating Agreement because of the new partnership tax rules that become effective on January 1, 2018?
Question 2: My multi-member LLC is taxed as a partnership. It does not have an Operating Agreement. Do the members of my LLC need to sign an Operating Agreement because of the new partnership tax rules that become effective on January 1, 2018?
Answer: Yes, yes and yes until I am blue in the face. All LLCs taxed as partnerships should amend their Operating Agreements or better yet adopt a stand alone Tax Audit Agreement drafted to deal with the new tax audit rules that take effect on January 1, 2018. The new partnership audit rules created by Section 1101 of the Bipartisan Budget Act of 2015, P.L. 114-74, and amended by the Protecting Americans From Tax Hikes Act of 2015, P.L. 114-113 affect all multi-member LLCs taxed as partnerships for federal income tax purposes.
I am an LLC attorney with a masters degree in federal income tax law from New York University School of Law who has formed 9,200+ Arizona LLCs and prepared 9,200+ Operating Agreements. As a partnership tax law attorney I recommend:
The members of an LLC taxed as a partnership risk substantial economic harm if the IRS audits their LLC and they have not adopted an agreement that properly addresses the issues that arise under the new tax audit rules that apply to tax years after December 31, 2017.
If you don’t believe me then read “LLCs Taxed as Partnerships Must Adopt a Tax Audit Agreement” in which 34 attorneys and CPAs recommend that LLCs taxed as partnerships amend their Operating Agreements for the new tax audit rules.
For more on this important topic see my tax audit agreement blog posts.
Hire Me to Prepare a Tax Audit Agreement for Your LLC that Has Partnership Tax Audit Provisions & Names a Partnership Representative
I’ve made it very easy to hire me for to prepare an agreement that contains the language your LLC taxed as a partnership needs for the new tax audit rules effective January 1, 2018. Complete my online Tax Audit Agreement Questionnaire.
If you have questions about the new tax audit rules or my Tax Audit Agreement, call me, partnership tax attorney Richard Keyt at 480-664-7478 or send an email to Richard at [email protected].
In Arizona residential rental is the renting of Arizona real property for more than 30 days for residential purposes only.
Arizona residential rental properties are subject to state rent tax. Some, but not all, Arizona cities also tax residential rental income.
Arizona transaction privilege tax is a tax on the privilege of doing business in Arizona. TPT applies when an owner of Arizona rental real estate is engaged in business under the residential rental classification by the Model City Tax Code.
If you rent Arizona residential real estate all payments made by the tenant or on behalf of the landlord are taxable. The following is a non-inclusive list of the types of payments from tenants that are taxable rental income:
The following fees passed on to the tenant are also taxable rental income:
Individual owners of taxable rental properties are required by law to obtain a Transaction Privilege Tax (TPT) license with the Arizona Department of Revenue (ADOR), regardless if the owner rents the property themselves or employs a property management company (PMC). A city TPT license is only required if your residential real estate is in a city that imposes a tax on residential rental rent.
Starting with the January 2018 reporting period, PMCs will no longer be permitted to report and remit TPT using their own TPT license (formerly referred to as a “Master License”) on behalf of client property owners. All taxes are to be filed and remitted using the property owners’ license numbers.
Warning to Arizona Landlords that Have Property Managers Collecting Rent Tax
Starting with the January 2018 reporting period, property management companies will no longer be permitted to report and remit transaction privilege tax using their own TPT license on behalf of client property owners. All rent taxes must be filed and remitted using the property owner’s TPT licenses. To participate in the new E-Solution, property management companies must complete the Property Management License Application.
Every residential rental property owner is required to obtain an Arizona transaction privilege tax license from the Arizona Department of Revenue (ADOR) for each location where residential rental income is taxable.
For more information and resources on Arizona residential rentals, visit the following links:
If you need assistance, call 602-716-7368 or email [email protected]. You can register, file and pay online at www.AZTaxes.gov.
On December 13, 2016, the IRS issued T.D. 9796, which created a new reporting requirement for owners of U.S. limited liability companies that are owned solely by one member that is a “foreign person.” A U.S. LLC with both of these traits is called a “reportable disregarded entity.” This new reporting requirement is set forth in Treasury Regulation 26 CFR 1.6038A-1.
Every LLC that is a reportable disregarded entity will be treated as a domestic corporation separate from its owner for the limited purposes of the reporting, record maintenance and associated compliance requirements that apply to 25 percent foreign-owned domestic corporations under section 6038A of the Internal Revenue Code. Translation: LLCs that are reportable disregarded entities will be treated as corporations with respect to the reporting obligations under section 6038A.
Reportable disregarded entities are subject to the IRS’s new information reporting requirements with respect to tax years that begin on or after January 1, 2017, and that end on or after December 13, 2017. The first returns will be due in early 2018. The taxable year of a reportable disregarded entity is the same as the taxable year of the foreign person if the foreign person has a U.S. income tax or information return filing obligation for its taxable year otherwise it is the calendar year.
In a criminal case opinion called U.S. vs. Wilhite issued by a Colorado federal District Court on November 17, 2017, the court ruled that a federal law called the Fair Debt Collection Practice Act (FDCPA) preempted Colorado’s limited liability company charging order statute
Michael David Wilhite owed the U.S. money. He owned a membership interest in a Colorado LLC that transferred $200,000 that could have been distributed to Wilhite to Yahab Foundation. Wilhite argued that there was a six year statute of limitations on collection of the debt and the Colorado LLC charging order statute prohibited the federal government from garnishing the $200,000 paid to the Yahab Foundation.
The court ruled that: (i) the twenty year federal statute of limitations on collecting a criminal restitution obligation overruled the six year state statute of limitations of the FDCPA and (ii) the FDCPA overruled Colorado’s LLC charging order statute Colorado Revised Statutes Title 7 Corporations and Associations § 7-80-703.
The Court said:
“the Court likewise rejects Mr. Wilhite’s argument that Colorado law requiring the issuance of a charging order before levying interest in an LLC limits the Government’s ability to collect Mr. Wilhite’s restitution here.”
The Court ruled that the federal government could levy on the $200,000 distribution made to Yahab Foundation by an LLC in which the debtor owned a membership interest.
Bottom Line
You want your LLC to be formed in a state like Arizona that has the charging order as the sole remedy of a creditor who gets a judgment against a member of the LLC, but if the creditor is the federal government collecting taxes, the state’s LLC charging order law will probably be overruled to allow the U.S. to collect money or property.
Arizona’s charging order statute is ARS Section 29-3503.
The 9th Circuit Court of Appeals issued an unpublished opinion dated September 8, 2017, in a case called In re Ellison in which the Court issued a warning that consulting with an asset protection attorney can be evidence that a debtor’s actions were taken to hinder or delay creditors. The case involves a man named Joseph Ellison who while facing the possibility of a large award for damages against him made several transfers of assets that the court found to be done to hinder or delay his creditors.
Ellison was terminated by JP Morgan. The parties became involved in an arbitration in which JP Morgan asked the arbitration panel to award it $750,000 for a loan made to Ellison that he had not repaid. In January of 2014 Ellison met with an asset protection attorney, but terminated the representation after the first meeting.
On June 3, 2014, the arbitration panel found that Joseph Ellison owed JP Morgan $790,000. Ellison took the following actions:
On July 29, 2014, Joseph Ellison did something attorney Jay Adkisson describes as follows:
“Ellison did one of the worst things that a debtor who has made transfers in defeat of his creditors can do: He filed for bankruptcy”
The reason it was a big mistake for Ellison to file for bankruptcy is because Bankruptcy Code § 727(a)(2)(A) says that a debtor cannot be discharged from debts if:
“the debtor, with intent to hinder, delay, or defraud a creditor . . . has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed . . . property of the debtor, within one year before the date of the filing of the petition”
The bankruptcy court refused to discharge Ellison’s debts and he appealed to the 9th Circuit Court of Appeals. The 9th Circuit found that Ellison’s transfers listed above violated Bankruptcy Code § 727(a)(2)(A) and it affirmed the bankruptcy court’s decision.
The 9th Circuit’s non-published opinion contains some troubling language about the significance of a debtor in bankruptcy who consulted with an asset protection attorney before transferring assets. The court said:
“Debtor argues that the bankruptcy court erred by relying on his meeting with attorney Woods as evidence of his intent, because the meeting preceded any of the critical transfers, and any intent he had at the time of that meeting was vitiated before he made those transfers.
But recall, bankruptcy courts may rely on a debtor’s course of conduct, or other circumstantial evidence, to infer intent to hinder or delay a creditor. * * * Here, the bankruptcy court was not relying on Debtor’s intent in meeting with Woods alone as sufficient to support a finding of his intent to hinder or delay a creditor. Rather, it found that the timing of Debtor’s meeting with Woods, together with Debtor’s knowledge and planning in doing so, was ‘additional evidence’ that supported a finding of Debtor’s intent to hinder or delay a creditor, particularly in prepaying his home loan lenders. In sum, the bankruptcy court appropriately relied on Debtor’s intent in meeting with Woods as circumstantial evidence to supports its finding of Debtor’s intent at the time he made the transfers to his creditors.” Emphasis added.
In his article on this case attorney Jay Adkisson states the following lesson about filing for bankruptcy:
“Another lesson here is . . . that voluntarily diving into bankruptcy is usually the single-worst decision that a person who has engaged in questionable transfers can do. Yes, post-judgment proceedings in state court can be quite painful and ultimately successful for creditors. But declaring bankruptcy is not just going from the frying pan into the fryer, but if somebody has made questionable transfers . . . it is like dousing oneself with gasoline and then jumping into the fire. The difference is one between the possibility of being seriously burned to the probability of being fried to a crisp. No court has the powers of a bankruptcy court to squeeze the last drop of blood from a recalcitrant debtor . . . .
Bottom line is that if you want to protect assets, you must take appropriate action such as forming an LLC and transferring assets to the LLC or to third party BEFORE a claim arises. Actions taken after a claim arises frequently are found to be fraudulent transfers done to hinder, delay, or defraud a creditor.
P.S. A claim does not arise when a lawsuit is filed. Here are some common examples of when a claim arises against you.
The text below was given to Richard Keyt by James Reynolds, the co-chairman of an Arizona State Bar subcommittee that has been drafting the proposed new Arizona LLC law that would replace Arizona’s current LLC.
Proposed New Arizona Limited Liability Company Act
The new proposed Arizona LLC Act is based in large part upon the Revised Uniform Limited Liability Act with amendments adopted by the Uniform Laws Commission in 2013. Although the new Arizona act departs in important ways from the uniform act to preserve Arizona procedures and policies embedded in existing law, it follows the organization of the uniform law and incorporates many concepts from the uniform law to fill gaps in Arizona’s existing LLC statute. The existing Arizona LLC Act was drafted more than 25 years ago at a time when only a handful of states had enacted LLC laws and no model acts were available. By drawing upon the uniform act as its baseline, the new act takes advantage of the efforts of many experienced lawyers and academics from around the country who drafted and amended the uniform act from time to time over the last quarter century.
Principal Benefits of New Proposed LLC Act:
1. The new act centralizes in one section a list of the statutory rules that cannot be varied and the rules that can be modified to specified limits. The new act allows more freedom of contract than current law, including regarding each member’s rights to obtain financial information and to bring derivative actions.
2. The new act will clarify the fiduciary duties owed by the managers and members (duty of loyalty, duty of care and duty of disclosure), as well as expressly allow the modification of those duties by agreement. Current law does not address the subject of fiduciary duties and leaves to the common law whether and the extent to which those duties can be altered by contract. Further, the new act expressly allows the members to elect the corporate rules governing director liability (including the business judgment rule) to apply to LLC managers in lieu of the act’s default rules on fiduciary duties.
3. The new act will provide default rules governing the right of a manager or member to be indemnified by the LLC against third-party claims arising out of proper acts taken by the manager or member within his or her authority. Current law does not address the subject of indemnification.
4. The new act provides default rules that will permit the expulsion of a member for specified types of wrongful conduct. Existing law does not provide a default rule for the circumstances under which a member may be expelled.
5. The new act will provide more detailed rules governing derivative actions. In particular, LLC management will be able to appoint a special litigation committee composed of disinterested people to obtain the dismissal of frivolous derivative claims that impair the business operations of the company, which is not possible under the existing act.
6. The new act will acknowledge the existence of “series LLCs” formed under the laws of other states and will provide a procedure for registering a foreign series LLC to do business in Arizona. However, the liability shield that exists between the individual series of a foreign LLC will not be enforceable against Arizona creditors with respect to transactions in this state.
7. In the case of an Arizona LLC that is winding up its affairs and liquidating its assets, the new act will provide a public notice procedure whereby the LLC may identify and discharge its liabilities within a time period that is shorter than the statute of limitations. The notice requirements and procedures are substantially the same as under Arizona’s current corporate code.
8. The default rule for member voting in current Arizona law is per capita, i.e., one member, one vote. The new act will change the default voting rule so that the members’ voting rights will be weighted in the proportions in which the members share in the company’s profits.
9. The new act removes obstacles under current law regarding the formation of “virtual” LLCs. Specifically, the new act will permit company records to be maintained electronically rather than at a specified location. The new act deletes the requirement to designate a “known place of business” in the articles of organization and substitutes the term “principal address,” which can be any mailing address.
10. Because it is based on the uniform act, the new act will greatly increase the primary and secondary legal sources available to resolve interpretational issues.
11. After Arizona lawyers become familiar with the new act, they will be better equipped to advise their Arizona clients regarding their rights and obligations with respect to LLCs formed under the laws of a growing number of states, including California, that have adopted a version of the uniform act.
12. In situations where prospective LLC members are represented by lawyers in different states that have adopted a version of the uniform act, an Arizona LLC formed under the new act is more likely to be acceptable to out-of-state lawyers.
Arizona Procedures and Policies Retained in New Proposed LLC Act:
1. The transparency of existing Arizona LLCs has been retained under the new act. The names and addresses of the members and managers of Arizona LCCs will continue to be required to be identified in the articles of organization.
2. No annual reports or other periodic filings are required to be made by Arizona LLCs, nor are Arizona LLCs required to pay annual fees, franchise taxes, or other periodic fees.
3. The remedies of creditors of an Arizona LLC are generally limited to a charging order (a judicial lien on distributions from the LLC); creditors may not foreclose or otherwise obtain control of a member’s interest in the LLC.
4. A member that receives a wrongful distribution from an LLC is liable to the LLC for the amount of the wrongful distribution; managers are not personally liable for wrongful distributions to LLC members.
Drafting Subcommittee Goals and Procedures:
The new LLC Act caps a seven-year effort to review and analyze the latest version of the Revised Uniform Limited Liability Act, as well as the Delaware LLC Act and the Prototype LLC Act promulgated by a committee within the Business Law Section of the ABA. Our goal was to propose a comprehensive revision of Arizona’s LLC Act that would reflect the latest and best analyses of LLC statutes from around the country, while preserving the most fundamental policies in current Arizona law that the legal and business communities have come to reply upon.
The subcommittee invited the participation of every Arizona lawyer who was willing to devote substantial time and effort to the project. Regular meetings were scheduled twice a month (except July) for one and a half to two hours each. All-day Saturday meetings were held to resolve some of the more complicated provisions that resisted consensus. Those interested lawyers who were unable to make a substantial time commitment were added to the subcommittee’s email list. They received the same materials prepared in advance of each meeting and were invited to submit comments or to participate in individual meetings as they chose.
During this seven-year project, representatives of the subcommittee also made presentations at bar-sponsored CLE programs and at breakfast meetings of the Business Law Section to report on the subcommittee’s progress. The representatives requested comments and questions at these events that were very helpful to resolve difficult policy choices.
The subcommittee endeavored to reach consensus on each of the changes to existing Arizona law. If a vote resulted in a narrow majority, the participants continued the discussion until a consensus was reached among most of the participants. On occasion, the subject had to be tabled and revisited several months later to achieve the goal of consensus.
Drafting Subcommittee Composition:
Most (but not all) of the participants were drawn from the Business Law Section of the Arizona Bar. Their practice areas include business transactions, real estate, corporations, securities, estate planning, and tax. Both large and small law firms were represented on the subcommittee. Three subcommittee members participated in the drafting of the original Arizona LLC Act in 1989 and 1990.
Kevin Hunter and Jim Reynolds co-chaired the subcommittee from its inception. Throughout its seven-year project, the subcommittee enjoyed the active participation of twelve to fourteen lawyers who regularly attended most meetings. During that lengthy period, several participants withdrew because of conflicting commitments or health issues, and several other lawyers joined the effort. Each made valuable contributions to the project during his or her time with the subcommittee.
The names and firm affiliations of the lawyers who actively participated during substantially the entire drafting project are:
Andy Anderson, Provident Law PLLC
Patricia Barfield, Arizona Corporation Commission
Quinn DeAngelis, Quinn DeAngelis, P.C.
Scott DeWald, Lewis Roca Rothgerber Christie LLP
Matthew Engle, Gallagher & Kennedy, P.A.
Gregg Hanks, Fennemore Craig, P.C.
John Hay, Gust Rosenfeld P.L.C.
Kevin Hunter, Steptoe & Johnson LLP
Richard Onsager, Onsager, Werner & Oberg, P.L.C.
Jim Reynolds, Tiffany & Bosco P.A.
Terry Thompson, Gallagher & Kennedy, P.A.
The names and firm affiliations of those lawyers who made valuable contributions during one or more years are:
Jonathan Bennett, Gammage & Burnham PLC
Sam Efird, Fennemore Craig, P.C.
Linda Marie Brown, Law Offices of Linda Marie Brown, PLLC
Ryan Opel Honigman, Miller Schwartz and Cohn LLP
Michael Patterson, Polsinelli PC
Tim Ronan, Ronan & Tagart, PLC
Susan Wells, Wells & Gerstman
Today I got my 93rd 5 star review on Google and Facebook. I appreciate all of the five star reviews for my Arizona LLC creation services, but I especially like the review Jim J left today. He said:
“Setting up the LLC was extremely easy. The information they provide in daily emails of things to do and Arizona law to be aware of sets Keyt apart from others I’ve used that provide similar services. The comprehensive LLC manual they have on-line has everything you need to know about starting and operating your LLC. The automation they have is truly impressive. And the price is right. The value for the money is definitely there! If you are shopping around and are skeptical about what you see on-line, ask Mr Keyt for my phone number. I would be happy to discuss the great experience I had with KEYTLaw.”
See the contents of my $497 Bronze, $797 Silver & $1,297 Gold LLC packages. Our Gold LLC is the confidential LLC for people who do not want their name and address on the Arizona Corporation Commission’s public records. To buy your LLC complete my online LLC formation questionnaire or call me.
If you have questions about forming an Arizona LLC call me, Richard Keyt, at 480-664-7478 or go to www.keytlaw.com/rk to book a free phone, in office or Zoom video meeting. I don’t charge to answer questions about LLCs.
Arizona Revised Statutes Sections 33-1101 – 33-1105 contain Arizona’s homestead exemption that protects up to $150,00 of equity in a person’s Arizona home. Section 33-1101 provides:
“A. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following:
1. The person’s interest in real property in one compact body upon which exists a dwelling house in which the person resides.
2. The person’s interest in one condominium or cooperative in which the person resides.
3. A mobile home in which the person resides.
4. A mobile home in which the person resides plus the land upon which that mobile home is located.B. Only one homestead exemption may be held by a married couple or a single person under this section. The value as specified in this section refers to the equity of a single person or married couple. If a married couple lived together in a dwelling house, a condominium or cooperative, a mobile home or a mobile home plus land on which the mobile home is located and are then divorced, the total exemption allowed for that residence to either or both persons shall not exceed one hundred fifty thousand dollars in value.
C. The homestead exemption, not exceeding the value provided for in subsection A, automatically attaches to the person’s interest in identifiable cash proceeds from the voluntary or involuntary sale of the property. The homestead exemption in identifiable cash proceeds continues for eighteen months after the date of the sale of the property or until the person establishes a new homestead with the proceeds, whichever period is shorter. Only one homestead exemption at a time may be held by a person under this section.”
People sometimes ask me if they should transfer title to the home in which they live to an LLC for asset protection. My answer is no because:
An August 3, 2017, decision of the Court of Appeals of Utah called “Dean White vs. Julie Dawn White” ruled that the transfer of a home into a limited liability company caused the owner of the home to lose the Utah homestead exemption. Although the case is not an Arizona case it causes me to believe more strongly that a person who transfers his or her Arizona home into an LLC will lose the Arizona homestead exemption.
This article is the second of what will become many articles I write about the proposed Arizona Revised Limited Liability Company Act (RULLCA) that some Arizona lawyers intend to ask the Arizona legislature to adopt. If the Arizona RULLCA were to become law it would replace Arizona’s 25 year old LLC law in its entirety. See After 7 Years of Drafting a Small Group of Lawyers Wants to Replace Arizona’s LLC Law for the complete text of the proposed LLC law.
On July 11, 2017, I sent the following email to 39 lawyers on an Arizona State Bar business law section email list:
“I am writing an article about the RULLCA as revised by the committee. I would like to include the names and backgrounds of the people who are willing to admit they are responsible for the proposed law. If you are one of the authors of the law please send me an email with the following information:
1. Your name
2. Name of your law firm
3. Your primary area(s) of practice
4. Your experience forming and administering Arizona LLCs.
5. How many LLCs did you form in the last year?
6. How many LLCs have you formed since 1992?
7. Why you think Arizona should replace its current LLC law with RULLCA as revised by you.
8. Whether or not you authorize me to include your email address in the article.
I sent the people on the email list the message above because I knew that all of the people who were responsible for drafting the proposed Arizona RULLCA were on the email list. The purpose of my email message was to identify the people who were involved in drafting the Arizona RULLCA and learn about their experience with LLCs. I also invited the drafters to tell me why Arizona should adopt the drafter’s Arizona RULLCA. The public should know this information about the drafters of the proposed law. Sadly only one person admitted to me that he worked on the committee. I hope that the people who drafted the proposed Arizona RULLCA are not afraid to tell the public their names. If a drafter of the proposed Arizona RULLCA sends me information or text for an article about the proposed law I will be happy to publish it on this website.
I have not decided if I will support or oppose the Arizona RULLCA. I’m still reading and studying the proposed law and making notes. When I am done I will publish my analysis and whether I support or oppose the proposed Arizona RULLCA. If adopted the proposed law would replace Arizona’s existing LLC law in its entirety. To get updates of the blog posts I will be making over the next year or so enter your email address in the right column of this page under the text “Subscribe to LLC Law Blog.”
My initial impression of the Arizona RULLCA is that the proposed law needs to be tweaked. Here are some problems I found just in the Section 102, Definitions, which is the second section of the new law:
Section 102(12)
This subsection states “’Majority in interest of the members’ means, at any particular time, one or more members that hold in the aggregate a majority of the interests in the limited liability company’s profits held at that time by all members, disregarding any profit interests held by persons who are not members. The members’ respective interests in the company’s profits shall be in proportion to their rights to share in distributions that exceed the repayment of their contributions.”
Problem 1: The term “profits” is not defined in the new law.
Problem 2: What does the last sentence mean?
Problem 3: If the members want to define Majority in interest to be a majority of the members (2 of 3 members or 3 of 4 members) regardless of their share of the profits, can they do it?
Section 102(13)
This subsection states “’Manager’ means a person that under the operating agreement of a manager-managed limited liability company is responsible, alone or in concert with others, for performing the management functions stated in Section 407(c).”
Problem 4: This means that despite the Articles of Organization stating the LLC is manager managed and naming all the managers, nobody is actually a manager unless the LLC has an Operating Agreement that names the manager(s). Requiring all manager managed LLC to have an Operating Agreement would be a major change to existing LLC law.
Section 102(19)
This subsection defines Person as “an individual, business corporation, nonprofit corporation, partnership, limited partnership, limited liability company, general cooperative association, limited cooperative association, unincorporated nonprofit association, statutory trust, business trust, common-law business trust, estate, trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.”
Problem 5: How does the group of business lawyers who worked on the proposed law for seven years fail to include in the definition of Person the following types of entities recognized by Arizona law: benefit corporations, general partnerships, real estate investment trusts, limited liability partnerships and limited liability limited partnerships? The drafters might say that they didn’t need to mention GPs, LLPs and LLLPs because the definition includes the word partnership. If that is the answer then why doesn’t the definition mention corporation and eliminate the words business corporation, nonprofit corporation and public corporation and why does it list limited partnership if that type of entity is included in partnership?
How to Stay Informed of the Status of the Proposed Arizona RULLCA
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The Arizona legislature passed SB1272, which was signed into law by the Governor or Arizona. This new law makes minor changes to Arizona’s LLC and corporate laws. These new laws are effective on August 9, 2017. A summary of the changes is below.
NEW LEGISLATION SUMMARY
SB1272 was passed this last session. It was a corporation omnibus bill, and it affects several filing requirements for both corporations and LLCs. The changes are summarized below in the order in which they appear in the bill. To read the entire bill, click on the bill number.
MOD accounts:
The bill grants the Commission the discretion to allow the use of MOD (money-on-deposit) accounts. Previously, the statute did not give the Commission any discretion. (See changes to A.R.S. § 10-122(K).) For the foreseeable future, the ACC will continue current procedure with MOD accounts.
Approval of documents:
The Commission is no longer obligated to return a copy of an approved document to the customer; the obligation now is to provide notice of the approval. (See changes to A.R.S. § 10-125.) Effective August 9, 2017, the Commission will no longer send out a copy of the document with the approval letter; only the approval letter will be returned to the submitter. Approved documents are available on our website.
Rejection of documents:
The Commission will continue to return a copy of a rejected document along with the letter explaining the rejection. (See changes to A.R.S. § 10-125.)
Electronic transmission and Notice:
Definitional changes were made, and other references throughout the corporation and LLC statutes have been modified to refer to “electronic transmission” where appropriate, and that definition links back to the definition of “electronic record” found in the electronic transactions statutes, A.R.S. § 44-7001, et seq. This is an attempt to codify the use of email as an allowable means of communication and for giving Notice between the Commission and entities. (See, e.g., A.R.S. §§ 10-140(21), 10-141, and 10-504.) The Commission now can send official notices, such as a Notice of Pending Administrative Dissolution, via email. Please note that this will NOT be implemented until the new computer system is up and running. When the new system is in use, the Commission will ask for the entity to consent to receive such notices by email. If the entity does not consent, notices will be sent via the U.S. Post Office.
Change documents:
The requirements for Statements of Change have been simplified. Only the new information for address and agent will be required. We are revising our forms to reflect the minimal requirements and will have those available as of August 9.
Annual Reports:
The dissolution and withdrawal statutes have been revised to allow for a six-month suspension of the annual report requirement for corporations that file for a voluntary dissolution/withdrawal. (See, e.g., changes to A.R.S. § 10-1403.) Corporations have six months after submission in which to complete a dissolution or withdrawal. Often, corporations will try to complete the dissolution/withdrawal but find that they now owe their annual report and/or owe penalties for not filing it on time. This bill provides that the annual report requirement is suspended for six months from the date the dissolution/withdrawal is submitted. Note: once the six months passes, the annual report is due and so are penalties, if enough time has passed since the due date. TIP – obtain the tax clearance certificate before submitting the dissolution. That way, you will never run into a penalty situation with the annual report. This change is being programmed into the current system and should be implemented by August 9. The new law applies only to dissolutions or withdrawals delivered to the ACC on or after August 9, 2017.
Foreign nonprofit corporations:
The gap left by last year’s SB1356 is now closed – foreign nonprofit corporations no longer have to file applications for new authority when they amend their articles. A foreign nonprofit corporation that amends its name, duration, or state of jurisdiction will now file Articles of Amendment to Application for Authority (along with a certified copy of the amendment) – a significant cost savings ($25 fee instead of $175). This change is already in effect for foreign for-profit corporations, from last year’s SB1356. The ACC’s form will apply to both for-profit and nonprofit corporations as of August 9, 2017.
Nonprofit corporations:
Another gap was closed – nonprofit corporations can sue for false filings. For-profit corporations and LLCs were granted this right of action in last year’s SB1356. Note – this is a private right of action and is not something the ACC will do for the corporation.
LLC administrative dissolution:
LLCs whose latest date to dissolve has passed will now be administratively dissolved. (See changes to A.R.S. § 29-786.) The LLC does have an option of amending its articles, or, if it is administratively dissolved, of reinstating and then amending its articles. There are several thousand LLCs that will be administratively dissolved pursuant to this provision, beginning on or after August 9, 2017.