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LLC Law Blog

Can One Member of an Arizona LLC Expel Another Member?

Question:  I am named in the original Articles of Organization of an Arizona limited liability company as a member.  Another member of the LLC signed an amendment to the Articles of Organization that removed me as a member.  Is that legal and does it terminate my membership in the LLC?

Answer:  No and no unless the member who signed the amendment had a contractual right to sign and file the amendment that removes you as a member of the LLC.  Arizona LLC law does not give a member of an Arizona LLC the right or power to unilaterally terminate the membership interest of another member.

As an Arizona limited liability company attorney who formed my first AZ LLC in October of 1992 and who has formed 9,200+ LLCs since then I must say that this is a very common scenario.  People think that the mere fact they file an amendment to the Articles of Organization that removes a member that the filed document has legal significance, i.e., that the person or entity that was a member yesterday is suddenly no longer a member today merely because the Articles were amended.

When a person or an entity acquires a membership interest in an Arizona LLC that person or owner has a property right recognized by Arizona law.  The owner of a property right cannot be divested of the property merely because somebody files a false document.  Example:  Homer Simpson owns a parcel of Arizona land.  Ned Flanders signs a deed that says Homer Simpson conveys the land to Ned and then records the deed.  This false deed does not transfer title to the property to Ned.  Ned’s deed is a legal nullity because it was not signed by the owner of the property.

The same concept applies to the property right that attaches to the member of an Arizona LLC.  If Ned Flanders signs and files an amendment to the Articles of Organization that removes Homer Simpson as a member that document does not cause Homer to cease to be a member.  There are four ways that Homer can cease to be a member of the company:

  • Homer dies.
  • Homer signs a document by which he assigns his membership interest to the LLC or one or more other people or entities.
  • Somebody has a legal or contractual right to terminate Homer’s membership interest.
  • A court terminates the membership.

Warning:  Arizona Revised Statutes Section 29-613.A states: “A person who . . . signs any articles, statement, report, application or other document filed with the commission that is known to the person as false in any material respect is guilty of a class 4 felony.”

2019-06-15T07:38:05-07:00March 12th, 2014|Articles of Organization, FAQs, Member Disputes|0 Comments
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Should I Pay the $50 or $85 Arizona LLC Filing Fee?

Question:  I know the fee to file Articles of Organization to create a new Arizona limited liability company is $50 or $85.  Why would I pay the $85 filing fee?

Answer:  The main reason to pay the $85 expedited filing fee is because the Arizona Corporation Commission will review the new LLCs Articles of Organization and approve it (hopefully approve rather than reject) within 5 – 8 business days rather than the 30 – 35 business days that applies to the standard $50 filing fee.  You should pay the $85 fee if any of the following apply to your LLC:

  • You need to open a bank account and your bank requires a copy of the LLC’s approved Articles of Organization and you can’t wait 30 – 35 business days.
  • You want the LLC to be able to take title to real estate and you can’t wait 30 – 35 business days.  Escrow companies will not close a real estate purchase escrow if title insurance is to be issued to the new LLC until the ACC approves the Articles of Organization.
  • The LLC is to sign an important contract and the other party won’t sign the contract until the ACC approves the Articles of Organization.

To see the exact number of days for the ACC to review regular filings and expedited filings go to its document processing times webpage.

2019-07-04T07:58:36-07:00March 12th, 2014|Articles of Organization, AZ Corporation Commission, FAQs, Forming LLCs|0 Comments
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ACC Sanctions Phoenix Man for Securities Law Violations

The following is the text of a March 11, 2014, press release from the Arizona Corporation Commission:

The Arizona Corporation Commission today sanctioned a Phoenix business man and his affiliated companies for his securities violations in connection with two investment programs , one involving a failed home building venture and the other involving a marketing training website.

The Commission ordered Todd R. Nuttall of Phoenix and his affiliated companies, Todd Robert Homes, Inc., Magdalena Homes , LLC and Rotall Marketing Group, LLC to pay $225,100 in restitution and a $20,000 administrative penalty for committing securities fraud in connection with a failed home building venture and for issuing unregistered securities to finance start – up costs of a marketing training website.

Regarding the home building venture, the Commission found that, while not registered to offer or sell securities in Arizona, Nuttall and his affiliated companies, Todd Robert Homes and Magdalena Homes fraudulently sold unregistered promissory notes to eight investors through a series of workshops held in Arizona and California. The Commission found that Nuttall and his companies issued promissory notes bearing interest of 20 percent over two years . The Commission found that Nuttall and his companies represented a second general partner of Magdalena Homes as an experienced property developer of several multimillion – dollar real estate projects when, in fact, the sole general partner had never created a residential development on his own.

Regarding the marketing training website, the Commission found that, while doing business as Direct Rev Millionaire, Nuttall and Rotall Marketing Group, LLC sold unregistered promissory notes to 11 Arizona investors and other out – of – state investors . The Commission found that Nuttall and his companies promised investors annual returns ranging from 20 to 900 percent.

In settling this matter, Nuttall neither admitted nor denied the Commission’s findings , but agreed to the entry of the consent order. For more details about this case, view the full text of the Commission’s order S-20901A-13-0432. The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners.

2016-11-16T08:23:43-07:00March 11th, 2014|AZ Corporation Commission, LLCs & Securities Laws|0 Comments
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Question about the Arizona Joint Tax Application Form

Question:  I am completing the Arizona Joint Tax Application (the sales tax license application) for my Arizona limited liability company that is owned by my Confidential Trust.  How do I answer question 18 that asks for the social security number of the owner?

Answer: Because your Confidential Trust owns your LLC so that your name does not appear on the public records of the Arizona Corporation Commission for confidentiality purposes, the answers to question 18 may not be obvious.  The trust owns the LLC so put the trust’s name in question 18.A. The trust is a revocable living trust, which means the IRS treats the trust as if it does not exist so for federal income tax purposes the trust uses the social security number of the trustmaker. Put the SSAN of the trustmaker in question 18.B. In question 18.C put the word “member.”

To learn more about the LLC owned by a Confidential Trust read my article called “How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s).”

2018-05-20T14:01:27-07:00March 11th, 2014|FAQs, How Do I, Operating LLCs|0 Comments
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What is the Arizona LLC Operations Manual?

Question:  I read on your Arizona LLC law website’s LLC formation package comparison page that your Silver and Gold packages include your book called the “Arizona LLC Operations Manual.”  What is the Operations Manual and why do I need it?

Answer:  In forming 9,200+ Arizona LLCs I learned long ago that people who form Arizona limited liability companies have the same questions.  I wrote the Operations Manual to educate the owners of Arizona LLCs about what they need to know during phase 2 of their LLC’s life. See the Operations Manual’s Table of Contents to learn the 75+ LLC topics it explains.

The primary reason people form an LLC is to protect the owners of the company from liabilities that might arise form the business and operations of the LLC.  However, before a court will uphold the protection given by Arizona LLC to the owners of an Arizona LLC the LLC must show that it complied with Arizona’s LLC law.  The purpose of the Operations Manual is to explain Arizona’s LLC law so people can know the law and make sure their LLC complies with it.

For example, Arizona LLC law requires that the LLC maintain certain records.  Don’t you think that if you form an Arizona LLC you should know what records your LLC must keep so you can make sure your LLC complies with the law?  This is just one example of the many legal issues that arise during phase 2 in the life of an LLC, aka the operational phase.

Read my article called “Two Phases in the Life of an LLC.”

2019-06-15T07:35:54-07:00March 9th, 2014|FAQs|0 Comments
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How Do I Get Money into My LLC?

Question:  My limited liability company needs money.  How do I get my money into the LLC?

Answer:  There are two ways a member of a limited liability company funds the LLC:

  • a Loan:  The member loans money to the LLC.  The loan should be evidenced by a Promissory Note signed by the LLC.  The Promissory Note should state the the terms of the loan such as the interest rate (if interest will be charged), repayment terms and the maturity date.  The member(s) of the LLC should sign a resolution or action by unanimous consent that authorizes the loan.  The loan should also be reflected as a loan in the LLC’s books.
  • Capital Contribution:  A capital contribution is the equivalent of a gift from the member to the LLC without any obligation to repay the contribution until the LLC liquidates.  Capital contributions are additions to the LLCs’ assets without a corresponding debt that arises when money is loaned to the company.   Capital contributions are added to the contributing member’s capital account.  The LLC’s books must correctly reflect that the funds were made by the member as a capital contribution.  Capital contributions should also be approved by members by signing a resolution or action by unanimous consent that authorizes the capital contribution.

Purchase an Editable Promissory Note & Member Resolution

The KEYTForms store sells a form Promissory Note and a form Resolution of Members authorizing the member loan.  Each form is $47, is a downloadable & editable Word file, and comes with instructions on how to edit the form.

2016-11-16T08:23:43-07:00March 8th, 2014|FAQs, How Do I|0 Comments
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Do Arizona LLCs File Annual Reports with the State?

Question:  Does Arizona LLC law require that an Arizona limited liability company file an annual report with the Arizona Corporation Commission?

Answer:  No.  One of the benefits of an Arizona LLC is that it does not have to file an annual report with the Arizona Corporation Commission or pay an annual fee to exist.  Most if not all other states require LLCs to file and annual report and pay a fee.  California is the worst.  It requires LLC’s to not only file an annual report, but pay an annual gross receipts tax of a minimum of $800.

Unfortunately Arizona corporate law requires Arizona corporations to file an annual report and pay a $45 fee (for profit corporations) or a $10 fee (nonprofit corporations).  Every year approximately ten percent of Arizona’s existing for corporations fail to file their annual report and are terminated by the Arizona Corporation Commission.  This is one of the reasons the Arizona LLC is a better choice of entity than an Arizona corporation.

Corporate Annual Report Reminders:  Although the ACC no longer mails annual report forms to corporations it does provide an annual email reminder, but you must subscribe on the ACC’s website to get the reminder.  If you have an Arizona corporation and you want to get a reminder every year from the ACC that the corporation’s annual report is due go to your entity’s record and then click on the “Subscribe to Annual Report Email Reminder” button and follow instructions.

2018-05-31T16:54:14-07:00March 2nd, 2014|AZ Corporation Commission, FAQs|0 Comments
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When Will the Arizona Corporation Commission Review My LLC’s Articles?

Question:  When will the Arizona Corporation Commission review the Articles of Organization of my new Arizona limited liability company?

Answer: The amount of time the ACC takes to review Articles of Organization filed to create a new Arizona LLC depends on the whether the filing fee paid to the ACC was the $50 standard fee or the $85 epedited filing fee.  In general the ACC will review new Articles of Organization as follows:

  • If the filing fee is $50: ACC review is normally 4-6 business days after filing.
  • If the filing fee is $85: ACC review is normally 25- 30 business days after filing.

Go to the ACC’s document processing time web page to see exactly the filing date of documents that the ACC is currently reviewing.  Compare the Expedited ($85 filing fee) or the Nonexpedited Filing ($50 filing fee) processing times in business days for new LLCs with the received date stamped on the first page of the Articles of Organization that we emailed to you.

One of the advantages of purchasing our Silver or Gold LLC formation packages is that both of these packages include our payment of the $85 expedited filing fee.  Our Bronze LLC formation package Articles of Organization are filed using the standard $50 filing fee, which results in the much longer ACC review and approval.

2019-07-04T07:58:36-07:00February 27th, 2014|Articles of Organization, FAQs|0 Comments
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When Do I Change the Address of My LLC with the Arizona Corporation Commission?

Question:  After I filed the Articles of Organization for my Arizona LLC my LLC moved its place of business.  Should I notify the Arizona Corporation Commission about the address change?

Answer:  Yes.  Arizona LLC law requires that whenever an Arizona LLC changes it address the LLC must notify the ACC of its new address within thirty days of the change.

To change the address of your LLC with the ACC complete the Arizona Corporation Commission’s Statement of Change of Known Place of Business Address or Statutory Agent.  Print the change of address form and send to the Arizona Corporation Commission at Arizona Corporation Commission – Corporate Filings Section, 1300 W. Washington St., Phoenix, Arizona 85007, with a check for $5 or $40 if you want expedited review by the ACC.

2019-07-04T10:41:46-07:00February 24th, 2014|AZ Corporation Commission, FAQs, How Do I|0 Comments
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What is the Difference Between a Warranty Deed & a Special Warranty Deed?

Question:  What is the difference between a Warranty Deed and a Special Warranty Deed to Arizona real property?

Answer:  In a Warranty Deed the grantor warrants title from the beginning of time to the moment of the transfer of title under the deed.  In a Special Warranty Deed the grantor warrants the title only for the period of time the grantor owned the real estate.  When I represent the seller of real estate I try to have the seller give a SWD.  Sometimes a buyer will insist on a GWD, which is ok if the buyer can’t be talked out of it and there are no title problems that would cause a breach of the warranties made in the deed.

2016-11-16T08:23:43-07:00February 23rd, 2014|FAQs|0 Comments
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What is the Difference between the Silver & Gold LLC Formation Packages?

Question:  Why would I purchase your $1,297 Gold LLC formation package instead of your $797 Silver LLC formation package?

Answer:  The primary reason people purchase our Gold LLC formation package is confidentiality by keeping your name and address off the publice records of the Arizona Corporation Commission. Arizona LLC law requires that the Articles of Organization filed with the Arizona Corporation Commission (ACC) to create the LLC state the following information:

  • If the LLC is member managed, the names and addresses of all members, or
  • If the LLC is manager managed, the names and addresses of all members who own 20% or more of the LLC and all managers.

If you do not want your name as the owner of your LLC and your address to appear on the ACC’s public searchable internet database then you need to purchase my Gold LLC formation package.  The Gold package includes a Confidential Trust that will be the legal owner of the LLC.  A Confidential Trust is a revocable living trust in which the ultimate owner of the LLC is the trustmaker, trustee, and beneficiary.

For example, if the name of your Confidential Trust is the Laguna Beach Trust then the owner/member shown in the Articles of Organization filed with the ACC is the Laguana Beach Trust, c/o KEYTLaw, LLC, 7373 E. Doubletree Ranch Road, Suite 135, Scottsdale, AZ 85258.

Note: The Gold LLC formation package includes our address service for one year.

Second Reason to Buy Our Gold LLC Package

The second reason people buy our Gold LLC package is to avoid probate on the death of the ultimate owner or owners.  All assets owned by the trust, including the LLC, will pass automatically to the heir(s) named in the trust agreement without the need for a probate when the initial beneficiary or beneficiaries die.  Probate avoidance can save the heir(s) $3,500+ in attorneys fees that can be generated by a superior court probate.

Learn about the contents of our three LLC formation packages.

2023-11-03T07:41:15-07:00February 15th, 2014|Articles of Organization, FAQs, Forming LLCs|0 Comments
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How Do I Complete an IRS Form W-9 for My LLC?

Question: I operate my business through a limited liability company that is taxed as a sole proprietorship.  I received an IRS Form W-9 from a vendor who wants my LLC’s employer ID number or my social security number.  How do I complete the W-9?

Answer:  Here is how you complete the beginning of IRS Form W-9:

  1. Enter your name in the “Name (as shown on your income tax return)” box.
  2. Enter the name of your LLC in the “Business name/disregarded entity name, if different from above” box.
  3. Check the box in the “Check appropriate box for federal tax classification:” box that is to the left of “Individual/sole proprietor.”
  4. In Part I enter your social security account number.
  5. Complete the remainder of the form then date and sign it.

 The above assumes you did not file either an IRS Form 9932 or 2553 with the IRS to cause the LLC to be taxed as a C corporation or an S corporation, respectively.

2014-02-23T10:20:11-07:00February 13th, 2014|FAQs, How Do I, Tax Issues|0 Comments
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Can I Have LLC in My Arizona Trade Name / DBA?

Question: I have not formed a limited liability company for my Arizona business, but can I register the trade name World Wide Widgets, LLC, from the Arizona Secretary of State for my business?

Answer:  No.  An Arizona trade name, aka a “dba,” cannot contain any words or abbreviations that indicate an entity type such as LLC or Inc.  See the Arizona Secretary of State’s Trademark Handbook.  If your dba included the letters LLC that would be misleading because it falsely represents to the public that the business is a limited liability company.

If you are going to operate a business you should form an LLC to protect yourself from things that might go wrong.  Without an LLC, a corporation or a limited partnership the owners of a business risk losing their life savings if business activity results in a lawsuit.  Read my article called “How LLCs Protect Your Life Savings.”

Say you form a business called World Wide Widgets, LLC.  That business could get a dba such as Best Widgets and use that on its store front or letterhead.  In Arizona the dba is obtained from the Arizona Secretary of State for $10 by completing and filing a Trade Name Registration Application.  This is explained in detail in my book called the Arizona LLC Operations Manual that is included with my Silver and Gold LLC packages.

2023-10-24T10:14:36-07:00February 12th, 2014|FAQs, How Do I|0 Comments
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Who Signs the IRS Form 2553 If My Confidential Trust Owns My LLC that Wants to be Taxed as an S Corporation?

Question:  I purchased your Gold LLC formation package that included a Confidential Trust.  My Confidential Trust is the sole owner of my LLC.  My CPA advised me that my LLC should be taxed as an S corporation.  I am completing the IRS Form 2553, Election by a Small Business Corporation, but I am not sure how to show the ownership and who should sign the form.  What should I do?

Answer: Dealing with the IRS with respect to your LLC is different from everybody else.  The following only applies to the IRS and tax treatment of your LLC that is owned solely by your Confidential Trust:

  1. Because the LLC is a single owner LLC the IRS pretends like it does not exist.  The IRS calls a single member LLC a “disregarded entity” for federal income tax purposes.  This is the default tax treatment for single member LLCs.
  2. Because the Confidential Trust is revocable the IRS treats it as a “grantor trust,” which means the IRS pretends like the Confidential Trust does not exist.
  3. The end result of the application of items 1 & 2 above is the IRS considers you to be the owner.
  4. Sign the IRS Form 2553 on page 2 Part 1 and after your signature put a comma and print the following text: “individually and as Trustee of the [name of your trust] Trust under Agreement dated [date of your trust agreement], a grantor trust.”
  5. If you are a resident of a community property state like Arizona and own the beneficial interest in the Confidential Trust as community property then both spouses must sign the Form 2553 per the instructions in item 4 above.

Send the completed and signed IRS Form 2553 to the IRS via Certified Mail, Return Receipt Requested.  Make a transmittal letter that accompanies the Form 2553.  Keep a copy of the letter, the Form 2553, the Certified Mail certificate and the green Return Receipt in a save place in case the IRS claims it never got your Form 2553.

2017-02-25T10:36:53-07:00February 8th, 2014|FAQs, How Do I, Tax Issues|0 Comments
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How Do I Change the Purpose of My Arizona LLC?

Question:  I’ve used my Arizona LLC to sell widgets.  I now want to use it to provide marketing services.  How do I make the change?

Answer:  An Arizona LLC can engage in any lawful activity unless its activities are limited by language in the Articles of Organization.  Unless your AOO prohibits the LLC from engaging in marketing services the LLC is free to begin providing those services at any time, subject to any state, county or city licensing requirements.

When I form an Arizona LLC is do not normally include any language in the Articles of Organization that limits the LLC’s activities unless the LLC is a professional LLC (PLLC).  PLLCs by definition must limit their activity to practicing the applicable profession.

2014-02-23T11:56:38-07:00February 2nd, 2014|Articles of Organization, FAQs, How Do I|0 Comments
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What Does the Signature Block on a Contract Look Like When My Trust is the Manager of My LLC?

Question:  My Arizona LLC is owned and managed by the Confidential Trust you created.  When the LLC signs a contract, what should the signature block on the contract look like?

Answer:  If your LLC is World Wide Widgets, LLC, and its manager is the Laguna Beach Trust dated 1/1/14 and Homer Simpson is the trustee, the signature block at the end of a contract should be as follows:

World Wide Widgets, LLC, an Arizona limited liability company

By: ____________________________
Homer Simpson, as Trustee of the Laguna Beach Trust
under Agreement dated 1/1/14, Manager

2014-02-24T21:47:06-07:00January 24th, 2014|FAQs, How Do I|0 Comments
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Arizona Corporation Commission Takes Action Against Man Who Sold Fake Shares of Company Stock

The following is the text of a news release dated January 14, 2014, by the Arizona Corporation Commission:

The Arizona Corporation Commission today sanctioned a former securities salesman who committed securities fraud by offering and selling fake stock shares to investor s. In a separate case, the Commission denied an investment adviser representative license to a former securities salesman who provided incomplete, inaccurate and misleading information on his application.

James F. Liebes

The Commission ordered former securities salesman-dealer James F. Liebes of Paradise Valley and his affiliated company, Lanesborough Financial Group, LLC, to pay $684,725 in restitution and a $75,000 administrative penalty for committing securities fraud. The Commission found that Liebes and Lanesborough Financial Group’s representation of owning restricted shares in a publicly traded company and options to purchase shares was false as the company had no records indicating Liebes owned the common stock that he had agreed to sell. The Commission found that Liebes and Lanesborough Financial Group were not registered to offer or sell securities in Arizona when they entered into agreements to sell investor s the company shares. Further, the Commission found that Liebes and Lanesborough Financial Group failed to disclose to investors that the Commission’s Securities Division had already filed a case against them for offering and selling securities without being registered. For more details about this case, view the full text of the Commission’s order S-20876A-13-0407 .

Jon Joseph Bauman

In a separate matter, the Commission denied an investment adviser representative license for Phoenix resident and former securities salesman, Jon Joseph Bauman. The Commission denied the license since Bauman’s application contained incomplete, inaccurate and misleading information. Additionally, the Commission found that Bauman had been barred from association with any member in any capacity of the Financial Industry Regulatory Authority (FINRA) for failing to provide information requested by FINRA. For more details about this case, view the full text of the Commission’s order S-20895A-13-0377 . The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners.

 

2019-07-04T10:27:15-07:00January 14th, 2014|AZ Corporation Commission, LLCs & Securities Laws|0 Comments
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Watch Out for Ignorant Bank People

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

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

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

  • Sole proprietorship
  • C corporation
  • S corporation or
  • Partnership

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

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

2023-04-06T12:20:36-07:00October 30th, 2013|Bank Problems, FAQs, Operating LLCs, Questions People Ask|0 Comments
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Failure to Plan Causes Problem for Spouse of LLC Owner

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

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

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

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

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

2013-10-17T07:10:24-07:00October 17th, 2013|FAQs, How Do I|0 Comments
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Must I Sign the Operating Agreement

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

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

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

  • When courts are asked to pierce the company veil and hold the sole member liable for the debts of the LLC one of the factors that counts against the member is the lack of an Operating Agreement.  If you treat your business like a hobby you don’t have a signed Operating Agreement.  If you treat your business like a business you must have a signed Operating Agreement.
  • To set the rules that govern the operation of the company if the sole owner were to die and his or her interest is inherited by loved one.

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

2017-05-29T11:05:02-07:00October 14th, 2013|FAQs, Operating Agreements|0 Comments
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