FAQs Archives

Caution: LLC Membership Interests Held as Community Property

Question: My husband and I acquired a 50% membership interest in an Arizona LLC as community property with right of survivorship. Homer & Marge Simpson own the other 50% of the LLC. My husband died and my husband’s interest in the LLC passed to me automatically per Arizona Revised Statutes Section 29-732.01.

Homer Simpson says that he and Marge now have control of the LLC because the 25% interest I acquired from my husband is a mere assignment of his interest and is not a membership interest with voting rights. The Simpsons say that I own a 25% membership interest in the LLC and the 25 votes associated with that membership interest and an economic right to 25% of the profits of the LLC without any voting rights. Homer says that since my husband’s death members have 75 total votes instead of 100, the Simpsons have 50 votes and I have 25 votes How many votes do I have?

Answer: The interest in the LLC that you inherited from your husband is a membership interest with voting rights rather than an assignment of an economic interest without voting rights if the members of your LLC signed an Operating Agreement that provides that when a married couple own their interest in the LLC as community property with right of survivorship and one of them dies, the interest of the deceased inherited by the survivor is a membership interest. Section 29-731.B.2. If the members of your LLC did not sign such an Operating Agreement then what you inherited from your husband was a 25% economic interest in the LLC without any voting rights.

Lesson to Be Learned: If your Arizona LLC has members who own their membership interests as community property with right of survivorship, joint tenancy with right of survivorship or tenants in common and the members want the heirs who inherit an interest to inherit membership interests with voting rights vs. economic interests without voting rights then the members of the LLC must sign an Operating Agreement that provides that inherited interests are membership interests with voting rights.

Note: My standard Operating Agreement contains this automatic membership interest with respect to inherited interests clause. Hire Arizona LLC attorney Richard Keyt to amend your existing Operating Agreement or prepare a new Operating Agreement by completing our online Questionnaire.

Richard Keyt2017-05-29T10:46:48-07:00November 22nd, 2016|FAQs, Members, Operating Agreements|0 Comments

How Do I Form an Arizona LLC in 2023?

by Arizona LLC attorney Richard Keyt who has formed 9,300+ LLCs

Question: How do I form an Arizona limited liability company?

Answer: Two ways: (1) hire me (see the “Contents of the $497 Bronze, $797 Silver & $1,297 Gold LLC Packages), or (2) do it yourself. There are two ways to form a do it yourself Arizona LLC:

Easy way: How to Form an Arizona LLC by Online efiling
Harder way: How to Form an Arizona LLC

Compare Forming an LLC Yourself with My LLC Formation Services

I have formed 9,300+ Arizona LLCs because I give my clients everything they need to know to operate the LLC during phase 2 and comply with Arizona LLC law. When I form an Arizona LLC for $797 (I pay the $85 ACC expedited filing fee), I provide many LLC formation services, including preparing the following custom drafted LLC documents:

Same Day Filing and Approval of the LLC’s Articles of Organization – I form LLCs and PLLCs the same day you approve the LLC formation questionnaire we send you and you pay our fee. We will email the Articles of Organization approved by the Arizona Corporation Commission to you the same day.

Operating Agreement – We prepare a custom Operating Agreement for every LLC and PLLC we form. This contract is the internal governing document for the LLC and its members. We have two Operating Agreements: (1) $297 for a one member LLC or an LLC owned by a married couple, or (2) $797 for a multi-member LLC. Buy our new LLC law compliant custom Operating Agreement. Learn Why All Arizona LLCs Need an Operating Agreement.

Members Digitally Sign the Operating Agreement – We send all members of multi-member LLCs an email from DocuSign so they can digitally sign the Operating Agreement. When all members have signed the Operating Agreement DocuSign will send every member a fully signed pdf version of the Operating Agreement.

Spousal Disclaimer – If a married member who is a resident of Arizona is to own his or her interest in the LLC as separate property, the non-owner spouse must sign a Disclaimer in which he/she disclaims any ownership of the LLC interest. If the non-owner spouse does not sign and deliver a Disclaimer to the owner spouse, Arizona law presumes that the spouses own the LLC as community property even if the non-owner spouse is not named in any of Articles of Organization or the Operating Agreement.

Arizona LLC Operations Manual – When we form a $797 Silver or a $1,297 Gold Arizona LLC we give all members of the LLC access to my 170 page ebook called the Arizona LLC Operations Manual. This book covers 75+ topics the members and managers of AZ LLCs must know. It has the answers to questions people commonly ask us after we form their LLC.

Organizational Resolutions – When we form a $797 Silver or a $1,297 Gold Arizona LLC we prepare resolutions to be signed by all of the members in which approve the issuance of membership interests, adoption of the Operating Agreement, opening a bank account, reimbursement of LLC formation expenses paid by any member, election of one or more managers and other formation related actions.

Membership Certificates – When we form a $797 Silver or a $1,297 Gold Arizona LLC we prepare a numbered membership certificate issued to each member. This is equivalent to a corporate stock certificate.

When we form a $797 Silver or a $1,297 Gold Arizona LLC we put all of your LLC documents in a nice portfolio with everything organized behind tabs.

For People Who Want to Form an LLC Themselves

If you think you might want to create a do-it-yourself Arizona LLC you must read Arizona LLC attorney Richard Keyt’s article called “Step by Step Guide: How to Form Arizona LLC 2023 in (6 Easy Steps).”

Free Answers to Your LLC or PLLC Questions

If you have questions about forming or operating Arizona LLCs or PLLCs call Arizona LLC attorneys Richard Keyt (the father) at 480-664-7478 and [email protected] or his son Richard C. Keyt at 480-664-7472 and [email protected]. To hire us to form an Arizona LLC or PLLC submit our online LLC formation questionnaire or call one of us and give us your information over the phone.

Richard Keyt2023-02-19T08:33:06-07:00July 14th, 2016|FAQs, Forming LLCs, How Do I|0 Comments

How to Get a Certificate of Good Standing for an AZ LLC

Question: How can I get a Certificate of Good standing for my Arizona LLC from the Arizona Corporation Commission?

Answer: It is very easy. First go to the link below and search for the LLC.

http://ecorp.azcc.gov/Search

Do the following:

Enter the name of the limited liability company in the name field.
Click on “Search.”
Click on the link that says “Check Corporate Status.”
Click on the link that says “Print Certificate.”
Click on the link that says “Payment Screen.”
Follow the instructions to pay $45 with your major credit card to buy the Certificate of Good Standing.
As soon as you pay print the Certificate of Good Standing.

Richard Keyt2018-09-27T13:03:13-07:00June 4th, 2016|FAQs, How Do I|0 Comments

How a Non-U.S. Citizen or Non-U.S. Resident Can Get an Employer ID Number (EIN)

Question: I am not a citizen or resident of the United States who wants to form a U.S. limited liability company. Can I get a federal employer identification number (EIN) for my LLC and if so, how?

Answer: The instructions to IRS Form SS-4, explain how a non-U.S. citizen who is a non-resident of the U.S. can get an EIN for his or her LLC. The instructions say the following:

If you have NO legal residence, principal place of business, or principal office or agency in the U.S. or U.S. possessions, you can’t use the online application to obtain an EIN. Please use one of the other methods to apply.

Apply by telephone—option available to international applicants only. If you have NO legal residence, principal place of business, or principal office or agency in the U.S. or U.S. possessions, you may call 267-941-1099 (not a toll-free number), 6:00 a.m. to 11:00 p.m. (Eastern time), Monday through Friday, to obtain an EIN.

The person making the call must be authorized to receive the EIN and answer questions concerning Form SS-4. Complete the Third Party Designee section only if you want to authorize the named individual to receive the entity’s EIN and answer questions about the completion of Form SS-4. The designee’s authority terminates at the time the EIN is assigned and released to the designee. You must complete the signature area for the authorization to be valid.

Note. It will be helpful to complete Form SS-4 before contacting the IRS. An IRS representative will use the information from Form SS-4 to establish your account and assign you an EIN. Write the number you’re given on the upper right corner of the form and sign and date it. Keep this copy for your records. If requested by an IRS representative, mail or fax the signed Form SS-4 (including any third-party designee authorization) within 24 hours to the IRS address provided by the IRS representative.

Apply by fax. Apply by fax. Under the Fax-TIN program, you can receive your EIN by fax generally within 4 business days. Complete and fax Form SS-4 to the IRS using the appropriate fax number listed in Where To File or Fax, later. A long-distance charge to callers outside of the local calling area will apply. Fax-TIN numbers can only be used to apply for an EIN. The numbers may change without notice. Fax-TIN is available 24 hours a day, 7 days a week. Be sure to provide your fax number so the IRS can fax the EIN back to you.

Apply by mail. Complete Form SS-4 at least 4 to 5 weeks before you will need an EIN. Sign and date the application and mail it to the appropriate address listed in Where To File or Fax, later. You will receive your EIN in the mail in approximately 4 weeks. Also, see Third-Party Designee, later. Call 800-829-4933 to verify a number or to ask about the status of an application by mail.

Where To File or Fax

If you have no legal residence, principal office, or principal agency in any state or the District of Columbia (international/U.S. possessions) fax to:

Internal Revenue Service
Attn: EIN International Operation
Cincinnati, OH 45999
Fax: 855-215-1627 (within the U.S.)
Fax: 304-707-9471 (outside the U.S.)

Richard Keyt2021-10-02T09:34:40-07:00May 7th, 2016|FAQs, How Do I, Tax Issues|0 Comments

Can I be the President of My LLC?

Question: I am the sole member of my Arizona limited liability company. Can I tell the public that I am the President of my LLC?

Answer: Yes, but I don’t recommend you use that term because some people may mistakenly think they are dealing with a corporation rather than an LLC. Arizona LLC law refers only members and managers of an Arizona limited liability company. The term “member” means a person or entity that holds an ownership interest in the LLC. The term “manager” means a person or entity of a manager managed AZ LLC that is a manager of the LLC. FYI: If your Arizona LLC is member managed, then it does not have any managers.

Although the terms President, Vice President, Secretary and Treasurer are most commonly used when referring to officers of a corporation, an Arizona LLC could elect to use any or all of those terms when referring to people who are associated with the LLC. If you own the LLC you can call people associated with the LLC anything you desire, but if the term is not member or manager it has no legal significance unless the term is defined.

If you insist on using a corporate term to describe somebody associated with your LLC I recommend that the LLC’s Operating Agreement specify the terms to be used and that it describe the duties and powers applicable to each position. For example, if your Arizona LLC is manager managed and you want to call the manager the “President” of the LLC, add the following text to the LLC’s Operating Agreement:

The manager of this Company may be referred to as the Company’s President both internally and in matters dealing with the public. The duties and powers of the President are identical to the duties and powers of the manager of this Company.

Richard Keyt2016-11-16T08:23:41-07:00January 31st, 2016|FAQs, How Do I|0 Comments

Should I Create a C Corporation?

Question: We discussed forming an LLC, but I’ve had some people recently tell me that I should create a C Corporation instead of an LLC. They said that the C Corporation gives the best tax advantages. I read on your website, that “Arizona recognizes that corporations may be formed for profit or not-for-profit, but not as C or S corporations.” So maybe what I’m hearing from these other people is that they are in other states and their laws are different from Arizona law regarding C corporations?

Answer: If a person tells you that you should form a C corporation you should run away as fast as possible because that person doesn’t know what he or she is talking about. No state in the U.S. has something called a C corporation. All states have for profit corps and nonprofit corps. The term C corporation refers to one of four methods of income tax under the Internal Revenue Code of 1986. The person that says form a C corp or form an S corp is confusing the type of entity formed under state law with the method of federal income tax under the Internal Revenue Code.

There is something in the Internal Revenue Code called subchapter S, which provides for how an entity that elects to be taxed under subchapter S is taxed. There is another subchapter called subchapter C, which provides how entities taxed under that chapter are taxed.

Before you form an entity the first question is what type of entity should you form under the law of a particular state. The types of entities are LLCs, LPs, LLPs, LLLPs, general partnerships, for profit corps and nonprofit corps. In Arizona, the LLC replaced the for profit corporation as the best entity to form. For an in depth discussion of whether to form a corporation or a limited liability company in Arizona to operate a business see my article called, “LLCs vs. Corporations: Which Type of Arizona Entity Should You Form?”

After you form the entity under the law of the chosen state the next question is how should the entity be taxed? An LLC can be taxed as a C corporation under subchapter C by filing an IRS Form 8832 with the IRS. When the LLC files the Form 8832 you can then say the LLC is taxed as a C corporation, but the entity remains an LLC.

To learn more about the four ways an LLC can be taxed read KEYTLaw attorney and former CPA Richard C. Keyt’s article called “How are LLCs Taxed?“

Richard Keyt2016-11-16T08:23:41-07:00January 28th, 2016|FAQs, Tax Issues|0 Comments

How Can I See If My Desired LLC Name is Available?

Question: I intend to form a new Arizona limited liability company. I know that the Arizona Corporation Commission will reject my Articles of Organization if my desired LLC name conflicts with the name of an existing Arizona entity or an Arizona trade name issued by the Arizona Secretary of State. How can I insure that my desired LLC name will not be rejected by the ACC?

Answer: Actually, the latest version of the ACC’s online database has an easy to use name checker that will tell you if your desired name will be accepted or rejected. Here’s how to check a prospective LLC name.

Go the the Arizona Corporation’s name checker website.
Enter the desired name in the field called Entity Name:
Click on the Name Availability Check icon on the bottom center of the page to start the search.

The ACC’s database will then tell you if the desired name is available.

Name Reservation Warning: I don’t recommend that you waste $45 to reserve a name unless there is a lot of money riding on the name. Before purchasing a name reservation ask yourself this question: Given that the desired name has been available from the beginning of time up to the moment you checked the name, what are the chances somebody will use your desired name before you file your Articles of Organization?

Hire Us to Form an LLC

We’ve formed 9,300+ and have 373 five star reviews on Google and Birdeye because people love our low-priced LLC formation services. See the prices and contents of our three LLC packages. To hire us submit our online LLC formation questionnaire.

For free answers to questions about forming and operating Arizona LLCs and PLLCs call LLC attorneys Richard Keyt (the father) at 480-664-7478 or his son Richard C. Keyt at 480-664-7472.

Richard Keyt2020-06-06T10:14:03-07:00January 28th, 2016|Articles of Organization, AZ Corporation Commission, FAQs, Forming LLCs, How Do I|0 Comments

What are Arizona LLC Members Voting Rights?

Question: The members of my multi-member Arizona limited liability company never signed an Operating Agreement. The members now disagree on how to run the company. What are the members’ voting rights?

Answer: One of the primary reasons the members of a multi-member LLC should sign an Operating Agreement is to set rules on members’ voting rights and to set what major actions require the prior approval of a majority or super majority of the members or the unanimous approval of all members. If the members fail to adopt a good Operating Agreement then the default voting rules of Arizona’s LLC law apply and its a matter of time before the members disagree on action and big problems arise.

When the members of an Arizona LLC fail to adopt an Operating Agreement that provides for members’ voting rights or if the members adopt an Operating Agreement that is voting rights deficient, Arizona Revised Statutes Section 29-681 applies and provides the default members’ voting rules and rights.

The voting rules that apply to an Arizona LLC that does not have an Operating Agreement with voting rules signed by all of the members are listed below. There are only nine actions that require the approval of members – four of which of which require the approval of all members and five of which require the approval of a majority of the members.

All Members Get One Vote: Every member has one vote regardless of how much money the member invested or how much of the LLC the member owns. For example, if Homer and Marge Simpson invested $1,000 in World Wide Widgets, LLC and acquired a 1% membership interest as community property and Ned Flanders invested $99,000 for 99% of the company then each of the three members has one vote with respect to the nine major actions listed in Section 29-751. Warning: If you are the major investor and/or the owner of a majority of the percentage interests in an Arizona LLC Section 29-751 is the reason you must have a good Operating Agreement that sets forth voting rules and rights.

When Unanimous Approval is Required: Only four actions require that all members approve the action. “The affirmative vote, approval or consent of all members is required to:

1. Adopt, amend, amend and restate or revoke an operating agreement or authorize a transaction, agreement or action on behalf of the limited liability company that is unrelated to its purpose or business as stated in an operating agreement or that otherwise violates an operating agreement.

2. Issue an interest in the limited liability company to any person.

3. Approve a plan of merger or consolidation of the limited liability company with or into one or more business entities as defined in Section 29-751.

4. Authorize an amendment to the articles of organization that changes the status of the limited liability company from or to one in which management is vested in a manager or managers to or from one in which management is reserved to the members.”

When Approval of a Majority of the Members is Required: Only five actions require the approval of a majority of the members. “The affirmative vote, approval or consent of a majority of the members, or if management of the limited liability company is vested in one or more managers, the affirmative vote, approval or consent of the sole manager or a majority of the managers, is required to:

1. Resolve any difference concerning matters connected with the business of the limited liability company.

2. Authorize the distribution of limited liability company cash or property to the members.

3. Authorize the limited liability company to repurchase all or part of any member’s interest in the limited liability company from that member.

4. Authorize the filing of articles of termination concerning the limited liability company.

5. Subject to subsection C, paragraph 4 of this section, authorize an amendment to the articles of organization, except that an amendment that merely corrects a false or inaccurate statement in the articles of organization may be filed at any time by a manager if management of the limited liability company is vested in one or more managers or by a member if management of the limited liability company is reserved to the members.

When there is no Operating Agreement Section 29-751.E.1 & 2 give the majority of members a lot of power to out vote the minority members and run the company.

The members failure to to adopt an Operating Agreement more often than not will eventually lead to a dispute among members as to how to run the company. One of the most common reasons people call me is to learn their options when their Arizona LLC does not have an Operating Agreement and the members need a company divorce.

Richard Keyt2016-11-16T08:23:42-07:00February 1st, 2015|FAQs, Member Disputes, Members, Operating LLCs|0 Comments

Annual Meetings of Members of an Arizona LLC

Question: Does Arizona limited liability company law require the members and managers of an Arizona LLC to hold an annual meeting?

Answer: No. However, some badly worded Operating Agreements do require that the members hold annual meetings.

Although no Arizona statute or case requires annual meetings or special meetings of the members or managers of an Arizona LLC as an Arizona LLC attorney who has formed 9,300+ Arizona LLCs I recommend that both types of meetings be held. There are two reasons why members and managers should hold meetings.

To reduce the chance that a court will pierce the veil and hold the members of the LLC liable for the debts of the LLC. One of the factors courts consider when asked to pierce the veil is “did the LLC operate like a business or a hobby?” Prudent businesses hold meetings and document the actions approved or rejected by the members and managers. LLCs operated like a hobby do not hold meetings. Note: If your LLC’s Operating Agreement requires that the members or managers hold annual meetings then you must make sure that the meetings are actually held and document that fact. The failure of members to hold annual meetings required in an Operating Agreement is a factor that counts against the members when a court is asked to pierce the veil and hold the members liable for the debts of the LLC.

To inform members and managers of important proposed company before it occurs and give them the opportunity to vote to approve or reject the proposed action. This is especially important when an LLC has multiple unrelated members. Consider two hypotheticals: (1) LLC is considering whether to enter into a contract that will require the company to pay a third party a lot of money. The member who owns more than 50% who is a manager signs the contract without prior notice to the other members who learn of the contract after it’s a done deal. (2) Same facts, but majority member holds a meeting of the members at which all of the members discuss the proposed contract and then vote on whether or not to sign the contract. The first method risks alienating the other members who will rightly feel left in the dark. The second method gives everybody a chance to be informed in advance and give their two cents on signing or rejecting the contract. Guess which method is less likely to result in disgruntled members who may want a company divorce.

Purchase My Do-It-Yourself Meeting Minutes & Resolutions

I’ve made it very easy for Arizona LLCs to document actions approved by members and managers. Just purchase my editable Word meeting minutes and resolutions that you can modify whenever needed to document special and annual meetings of your LLC’s members and managers. You can also purchase a document called “Action by Consent” by which the members and managers can adopt resolutions approving company actions in lieu of actually holding a meeting. Each document comes with 16 resolutions for the most common types of actions voted on by members and managers.

Go to my Arizona legal form store to purchase your do-it-yourself minutes and resolutions.

Richard Keyt2019-06-15T07:41:39-07:00December 6th, 2014|FAQs, Operating LLCs, Veil Piercing|0 Comments

Can an LLC be a Tax-Exempt 501(c)(3) Charity?

Question: My group is considering forming a tax-exempt charitable organization. Can the organization be a limited liability company or must it be a nonprofit corporation?

Answer: It can be an LLC if the LLC is wholly owned by a single exempt organization and the LLC satisfies the 12 conditions described in an IRS paper called “Limited Liability Companies as Exempt Organization Update.” The LLC cannot have individuals or nonexempt organizations as members, and its organizing documents must state a purpose to further the charitable purpose. To learn more about nonprofit corporations see my website called “Nonprofit Corporations & Charitable Organizations.”

The 12 conditions are:

1. The organizational documents must include a specific statement limiting the LLC’s activities to one or more exempt purposes.

2. The organizational language must specify that the LLC is operated exclusively to further the charitable purposes of its members.

3. The organizational language must require that the LLC’s members be section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof (“governmental units or instrumentalities”).

4. The organizational language must prohibit any direct or indirect transfer of any membership interest in the LLC to a transferee other than a section 501(c)(3) organization or governmental unit or instrumentality.

5. The organizational language must state that the LLC, interests in the LLC (other than a membership interest), or its assets may only be availed of or transferred to (whether directly or indirectly) any nonmember other than a section 501(c)(3) organization or governmental unit or instrumentality in exchange for fair market value.

6. The organizational language must guarantee that upon dissolution of the LLC, the assets devoted to the LLC’s charitable purposes will continue to be devoted to charitable purposes.

7. The organizational language must require that any amendments to the LLC’s articles of organization and operating agreement be consistent with section 501(c)(3).

8. The organizational language must prohibit the LLC from merging with, or converting into, a for -profit entity.

9. The organizational language must require that the LLC not distribute any assets to members who cease to be organizations described in section 501(c)(3) or governmental units or instrumentalities.

10. The organizational language must contain an acceptable contingency plan in the event one or more members ceases at any time to be an organization described in section 501(c)(3) or a governmental unit or instrumentality.

11. The organizational language must state that the LLC’s exempt members will expeditiously and vigorously enforce all of their rights in the LLC and will pursue all legal and equitable remedies to protect their interests in the LLC.

12. The LLC must represent that all its organizing document provisions are consistent with state LLC laws, and are enforceable at law and in equity.

Richard Keyt2016-11-16T08:23:42-07:00August 4th, 2014|FAQs|0 Comments

New IRS Procedure to Get EIN for an LLC Owned by a Nonresident Alien

Question: I am a not a U.S. citizen and I live outside the U.S., aka a “nonresident alien.” I formed a limited liability company in the U.S. How do I get a federal employer id number (EIN) for my LLC?

Answer: You can get the EIN one of two ways: the easy way or the not so easy way. Before January of 2014 we could get an EIN for an LLC we formed for a nonresident alien if the nonresident alien completed and signed an IRS form SS-4 that designated my legal assistant as a third party designee authorized to contact the IRS and get the EIN. My legal assistant would call the IRS international EIN number, fax the SS-4 to the IRS agent and spend about 45 minutes on the phone, but at the end of the call the IRS would give my legal assistant the EIN.

Beginning in January of 2014, the IRS canned that procedure. Now a company of any type owned by a nonresident alien gets an EIN for the company by one of the following two methods:

You should be able to get the EIN for the new LLC by using the IRS’ online wizard here:

Easy Way: If the nonresident alien has an IRS issued International Taxpayer Identification Number (ITIN), the nonresident alien can obtain the EIN in a 5 – 10 minute data entry session using the IRS’ online EIN wizard. After submitting all of the information the website will display the EIN. Be sure to print the page with the EIN and keep it in a safe place.

Hard Way: If the nonresident alien does not have an ITIN then he or she must complete and sign an IRS form SS-4 and fax or mail it to the IRS. Faxing the SS-4 to the IRS is the better method because the IRS will fax the EIN to the applicant in approximately four business days vs. three to four weeks if the SS-4 is mailed to the IRS. Prepare, sign and fax the IRS form SS-4 to the IRS at 859-669-5760.

To get a partially completed IRS form SS-4 for an LLC and my detailed instructions on how to fill out the form read my article called “How to Complete IRS Form SS-4.” Be sure to delete all the text at the bottom of the form in the Third Party Designee Fields and insert your name, phone number and fax number at the bottom of the form.

Richard Keyt2017-10-06T21:36:19-07:00June 5th, 2014|FAQs, Forming LLCs, Tax Issues|0 Comments

Warning: Improper Contract Signature May Create Personal Liability

Question: My LLC is to be the tenant on a real property lease. The landlord’s lease has a signature block that indicates I will sign the lease as the manager and as a member of the LLC. The signature block looks like this:

World Wide Widgets, LLC, an Arizona limited liability company

By:_______________________________
Homer Simpson, Manager and Member

If I sign the contract will I be personally liable under the lease in addition to the LLC?

Answer: Probably. If you sign the contract with the signature block as indicated above the landlord will claim you signed the contract in your capacity as the manager of the LLC AND in your individual capacity as a member. A court might agree because that is the strict reading of the text under your signature. Arizona LLC law says that a member does have have the legal power to sign a contract and bind the Arizona LLC on legal obligations. Therefore the text “and Member” can only mean the signer is signing in his or her individual capacity.

Bottom Line: If you do not want to be liable for obligations under a contract, make sure the signature line/block shows that you are signing only on behalf of the LLC. The signature block should be one of the following:

If the LLC is member managed:

World Wide Widgets, LLC, an Arizona limited liability company

By:_______________________________
Homer Simpson, Member

If the LLC is manager managed:

World Wide Widgets, LLC, an Arizona limited liability company

By:_______________________________
Homer Simpson, Manager

Richard Keyt2016-11-16T08:23:42-07:00April 21st, 2014|FAQs, How Do I, Operating LLCs|0 Comments

How Do I Complete IRS Form SS-4

Question: I just formed a limited liability company. I want a third party to obtain a federal employer id number (EIN) from the IRS. The form is confusing. Can you help me complete IRS Form SS-4?

Answer: Yes. We get this question so often LLC attorney Richard Keyt wrote a detailed article that explains how to complete the IRS Form SS-4. Read “How to Complete IRS Form SS-4.”

Note: If you are not asking a third party to get your LLC’s EIN don’t use IRS Form SS-4. Instead, go to the IRS’ EIN wizard and take five minutes to answer questions online. The IRS will issue your LLC an EIN at the end of the simple data entry process.

Watch this video to learn how to use the IRS’ online wizard to get an EIN for your LLC or PLLC.

Richard Keyt2023-10-24T10:15:45-07:00April 20th, 2014|FAQs, Forming LLCs, How Do I, Operating LLCs|0 Comments

Do I Need a Certificate of Good Standing for My LLC?

Question: Do I need to purchase a Certificate of Good Standing for my Arizona limited liability company from the Arizona Corporation Commission?

Answer: Not unless a third party requires it. The purpose of the Certificate of Good Standing is to prove to people or companies that your Arizona LLC was formed and is in good standing with the Arizona Corporation Commission. You do not need the Certificate of Good Standing unless a third party requests it. If you do get a request for a Certificate of Good Standing the requester will want a current Certificate of Good Standing, not one created months or years before the date of the request.

The most common reason you might need a Certificate of Good Standing is your LLC wants to borrows money from a financial institution. Lenders frequently ask for a Certificate of Good Standing because they want to confirm that the LLC exists and is in good standing with the Arizona Corporation Commission when the lender loans the money.

Don’t waste your money on getting a Certificate of Good Standing unless somebody asks for it and complying with the request is important to your LLC.

If you need a Certificate of Good Standing for an Arizona LLC or corporation for your company or somebody else’s company watch my demonstration video and I will show you how to purchase the Certificate of Good Standing for $45 and download it immediately.

Richard Keyt2023-10-24T10:16:06-07:00March 30th, 2014|AZ Corporation Commission, FAQs, Operating LLCs|0 Comments

Do Members of an Arizona LLC Owe Fiduciary Duties to Other Members?

Question: “Does a member of an Arizona limited liability company owe other members of the company any fiduciary duties?

Answer: A March 27, 2014, Arizona Court of Appeals opinion in the case of TM2008 Investments, Inc., vs. ProCon Capital Corp. says that the members of an Arizona limited liability company do not owe any fiduciary duties to the other members unless the members signed an Operating Agreement that creates and imposes contractual fiduciary duties on the members.

Since the TM2008 Investments case involves fiduciary duties we should first explain what the term means. The Cornell University Law School Legal Information Institute says the following about fiduciary duties:

“A fiduciary duty is a legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals’ express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries’ other clients. A fiduciary duty is the strictest duty of care recognized by the US legal system.”

If a person owes a fiduciary duty to another person it also means it is much easier for the principal to sue the fiduciary for breach of a fiduciary duty and win a judgment because there is a higher standard of care associated with the fiduciary duty than would otherwise apply.

The TM2008 Investments, Inc., vs. ProCon Capital Corp. case arises from a dispute among the two members of Doveland Developments, LLC, a company formed to buy land and develop it into homes. Unfortunately the project was not successful. The lender threatened to foreclose and sell the land and go after the owners of the two members (Steve Tackett and Bonnie Vanzant) of Doveland Developments, LLC, because they had personally guaranteed the payment of the loan. The members of Doveland Developments, LLC, are TM2008 Investments, Inc., and ProCon Capital Corp.

When the lender notified the parties that the loan was in default Bonnie Vanzant paid the loan in full. She then sued Steve Tackett under an indemnification agreement they had signed to collect from Steve one half of the money Bonnie paid to the lender under her personal guaranty of the loan. TM2008 Investments filed a petition to dissolve and liquidate Doveland Developments due to the inability to conduct business in light of the members’ substantial disagreements. ProCon Capital filed counterclaims against TM2008 Investments for breach of the implied covenant of good faith and fair dealing (count 1) and breach of contract (count 3), and against TM2008 Investments and the Bonnie and James Vanzant personally for breach of fiduciary duty (count 2).

The lawsuits were consolidated. The trial court granted Bonnie Vanzant’s motion for summary judgment on the indemnification claim, but denied TM2008 Investments’ motion for summary judgment on the counterclaims. Just before trial, ProCon Capital voluntarily dismissed with prejudice counts 1 and 3. After jury trial on the claim for breach of fiduciary duty, the jury returned a verdict in favor of ProCon Capital and against TM2008 Investments and the Vanzants personally for $1,039,754. The losers appealed.

The primary issue before the Arizona Court of Appeals was whether or not Arizona’s limited liability company law provides that a member of an Arizona LLC owes a fiduciary duty to the other members of the LLC. ProCon Capital argued that because Arizona corporate and partnership law create fiduciary duties on shareholders and partners, respectively, Arizona law must therefor create fiduciary duties on members of an Arizona LLC. The appellate court disagreed. The court said:

“We decline in this case to mechanically apply fiduciary duty principles from the law of closely-held corporations or partnerships to a limited liability company created under Arizona law. The legislature did not explicitly outline any such duties for members of an LLC; instead, the LLC Act allows the members of an LLC to not only create an operating agreement, but also delineate in that agreement the duties members owe one another.”

Translation: The court said Arizona’s LLC statutes do not subject members of Arizona LLCs to any fiduciary duties and neither do any Arizona appellate court opinions.

However, the court said that an Operating Agreement can contain language that creates one or more fiduciary duties on members. The Operating Agreement of Doveland Developments, LLC, contained this clause that ProCon Capital aruged created a fiduciary duty on TM2008 Investments, Inc, and Bonnie and James Vanzant:

It is agreed any Member shall not be liable to the Company or any other Member for any damages or the like relating to any vote, decision, action, inaction or the like taken on behalf of the Company in accordance with these provisions and other provisions of this Agreement if such is done in good faith and with reasonable business judgment including the duty to make management decisions with the care of an ordinarily prudent person in a like position and similar circumstances and in a manner believed to be in the best interests of the Company.

The appellate court found that the above quoted language did not create a fiduciary duty on the members.

The court reversed the trial court and sent the case back to the trial court.

Lessons to Be Learned

The TM2008 Investments, Inc., vs. ProCon Capital Corp. case stands for the following:

Arizona’s statutes that govern Arizona limited liability companies do not create fiduciary duties on members.

Members of an Arizona LLC can create one or more fiduciary duties by inserting appropriate language in the LLC’s Operating Agreement.

The issue of whether the Operating Agreement of a multimember Arizona LLC should or should not contain fiduciary duty provisions is a topic for another article. Hint: A member in control of an Arizona LLC would not want any fiduciary duties in the Operating Agreement, but the minority member would want the opposite.

Richard Keyt2018-05-31T17:09:09-07:00March 29th, 2014|FAQs, Lawsuits, Member Disputes, Operating Agreements|0 Comments

What is Piercing the Veil of an LLC & Why is Do You Need to Understand It?

Question: I have heard the term “piercing the veil” of a corporation or a limited liability company. What does the term mean and why do owners of LLCs need to understand it?

Answer: “Piercing the veil” means that a court disregards the shield or veil created by state law that says the owners of a corporation or an LLC are not liable for the debts of the entity.

Example 1: Homer Simpson’s LLC called World Wide Widgets, LLC, borrowed $25,000 from Ned Flanders. The LLC signed the promissory note, but Homer didn’t. The LLC does not pay. World Wide Widgets, LLC, doesn’t have any assets so Ned knows if he gets a judgment against the LLC he can’t collect it. Ned never gets his money.

Example 2: Same facts as Example 1, but in operating the LLC Homer did not follow Arizona LLC law and did not follow proper procedures. Ned sues the LLC and Homer and asks the court to pierce the veil and hold Homer liable for the LLC’s debt. The court finds there are grounds to pierce the company veil and holds Homer personally liable for the LLC’s $25,000 debt. This is the bad result for the LLC member and frustrates the reason people form an LLC, i.e., to protect themselves from liability for the debts of the LLC.

Jay Adkisson, a nationally known asset protection lawyer, said the following in response to a recent court ruling in a case called Shermane Hector v. Mo–Dad Environmental Serv., LLC:

The veil-piercing/alter ego challenges to LLCs are going to be interesting because they start out with the intended lack of formality of corporations, and then their owners often get loosey-goosey about how the company is operated, how it is capitalized (and continues to be capitalized), etc. IMHO, the real challenge for planners is not so much in the meticulous drafting of LLC management agreements and the like, but in the education of owners as to how the entity needs to be run after all the ink dries.

How true. The vast majority of people think that if they file the Arizona Corporation Commission’s fill in the blanks form Articles of Organization they are home free and their life savings are protected from the LLC’s debts. Ignorance may be bliss, but ignorance of the legal concept called “piercing the company veil” can cost LLC members big bucks.

Most people who form an LLC don’t know that they must comply with Arizona’s LLC law or risk a court piercing the veil and holding them liable for the LLCs debts. For example, Arizona LLC law requires that every Arizona LLC maintain certain records. If you own an Arizona LLC don’t you think it would be a good idea to comply not only with that statute, but other Arizona LLC laws too?

The Shermane Hector v. Mo–Dad Environmental Serv., LLC court said this about veil piercing:

Some of the relevant factors considered in determining whether to apply the alter ego doctrine include: commingling of corporate and shareholder funds; failing to follow statutory formalities for incorporating and transacting corporate affairs; undercapitalization; failing to maintain separate bank accounts and bookkeeping records; and failing to hold regular shareholder and director meetings”

In forming 9,300+ Arizona LLCs I learned a long time ago that I must educate my LLC clients about Arizona LLC law. I accomplish this two ways:

The LLC Operations Manual: This is a 170 page book I wrote that explains Arizona’s LLC law in great detail. For example, chapter 3 of the Operations Manual contains a list of 34 tasks that every LLC should complete in its first 75 days. Learn more about the LLC Operations Manual.

Informative Email Messages: Everybody who hires me to form an Arizona LLC will be sent 50 email messages during the first year informing them about Arizona LLC law and reminding them to do things like sign the Operating Agreement, open a bank account, set up the LLC’s bookkeeping system, consult with a CPA and document loans by members to the LLC.

To learn more about this very important topic read my article called “Two Phases in the Life of an LLC.”

Richard Keyt2019-06-15T07:39:23-07:00March 18th, 2014|Asset Protection, FAQs, Operating LLCs, Veil Piercing|0 Comments

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 9,300+ 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.”

Richard Keyt2019-06-15T07:38:05-07:00March 12th, 2014|Articles of Organization, FAQs, Member Disputes|0 Comments

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.

Richard Keyt2019-07-04T07:58:36-07:00March 12th, 2014|Articles of Organization, AZ Corporation Commission, FAQs, Forming LLCs|0 Comments

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).”

Richard Keyt2018-05-20T14:01:27-07:00March 11th, 2014|FAQs, How Do I, Operating LLCs|0 Comments

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 9,300+ 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.”

Richard Keyt2019-06-15T07:35:54-07:00March 9th, 2014|FAQs|0 Comments

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