Forming LLCs

Five Expensive Mistakes When Forming a New Jersey LLC

New Jersey business litigator Jay McDaniel posted an article on his excellent blog called “New Jersey Business Dissolution Journal” that is a must read for every person who owns an interest in an Arizona limited liability company. Jay’s article explains the five biggest mistakes people make when they form an LLC. The mistakes are the same mistakes I caution people against constantly when I form LLCs and advise the owners of existing LLCs.

Jay McDaniel is a business litigator whose opinions are based on years of experience representing business owners in disputes that arise from the ownership of businesses. Jay wrote:

“Having litigated many of these matters over the years, I see the same mistakes made early in the life of the business surfacing again and again as the source of litigation.”

McDaniel’s point is that the failure to plan when companies are created can be a very expensive blunder when a dispute among owners arises. Even though I am not a litigator (I never personally represent anybody in litigation), my experience is the same as McDaniel’s.

The list omits the mistake of not having an Operating Agreement. The following is what McDaniel says about the lack of an Operating Agreement:

“If a business does not have one, sooner or later, it will have problems and without any point of reference whatsoever, the probability of litigation is high. When that happens and the business is successful, the chances are that you will spend the price of a college education – at a nice private school – on the lawsuit.

Here’s Jay McDaniel’s list of the five biggest LLC formation mistakes (read the article to get the reasoning behind each mistake:

No operational planning
No contingency planning
No valuation planning
No succession planning
No planning for amendments to the Operating Agreement.

Richard Keyt2018-06-02T13:31:32-07:00January 6th, 2013|Forming LLCs, Operating Agreements, Operating LLCs|0 Comments

Arizona LLCs No Longer Can Use a PO Box as a Place of Business

The Arizona Corporation Commission will no longer allow a new Arizona limited liability company to use a Post Office box for the LLC’s known place of business in Arizona. Arizona Revised Statute Section 29-604.A states:

“A limited liability company shall appoint and continuously maintain in this state . . . A known place of business that may be the address of its statutory agent.”

Arizona Revised Statutes Section 29-632.A states:

“The articles of organization shall state . . . . The address of the company’s known place of business in this state, if different from the street address of the company’s statutory agent.”

Despite the fact neither statute contains any reference to, much less a prohibition against the LLC from using a P.O box as the LLC’s known place of business, the ACC will no longer accept Articles of Organization that shown that the company’s only place of business address is a PO box.

Richard Keyt2012-07-18T15:38:09-07:00July 18th, 2012|Articles of Organization, AZ Corporation Commission, Forming LLCs|0 Comments

Court Rules LLC Member not Obligated to Contribute Money to LLC

The New York case of Duff v.Curto, 2012 NY Slip Op 30264(U) (Sup Ct Suffolk County Jan. 25, 2012), by Suffolk County New York Justice Emily Pines involved a claim by one LLC member that the other member failed to contribute money to the company. Duff claimed he contributed $523,000 to the capital of Fairlea Court Holding, LLC, of which Gary Duff and Peter Curto, Jr., were the only two members. Duff claimed that Curto breached the Operating Agreement because he did not contribute any money to the company and that Curto was unjustly enriched.

They signed an Operating Agreement that said:

“[u]pon the execution of this Agreement, each Member shall contribute cash and/or property to the Company as set forth opposite their names in Exhibit A”

Exhibit A stated that each member had a 50% interest in the company, but it did not show that either member was to contribute any capital to the company. The Court said:

“The Court finds that the documentary evidence provided raises an issue of the parties intent in placing the 50% figure in the Agreement and does not definitively dispose of the plaintiff’s claim”

The Court found that Duff reported on his tax returns that he loaned $309,000 to the LLC and that Curto never agreed to contribute any money to the company.

Lesson for Arizona LLCs

Arizona LLC law provides that no member of an Arizona limited liability company is liable to contribute money or property or services to the LLC unless the member agrees to do so in writing. Arizona Revised Statutes Section 29-702.A states:

“A promise by a member to make a capital contribution to the limited liability company is not enforceable unless set out in writing and signed by the member.”

If you have an Arizona LLC and want to create a legal obligation on the part of one or more members then the LLC must obtain a written document signed by the member(s) that states the amount of money or the description of the property or the nature and extent of the services and when the money or property or services must be contributed. The best place for these provisions is the Operating Agreement.

Richard Keyt2017-05-29T14:55:11-07:00March 5th, 2012|Forming LLCs, Lawsuits, Members, Operating Agreements|0 Comments

Who Can Own an Arizona Limited Liability Company?

Question: Are there limitations on who can own a membership interest in an Arizona limited liability company?

Answer: No. Arizona limited liability company law does not restrict either the type of person or entity that can own an interest in an Arizona LLC or the citizenship or residence of an LLC owner. Arizona LLCs can be owned by one person, multiple people, one entity, multiple entities or any combination thereof. All of the following types of entities can own an interest in an Arizona limited liability company:

trust
corporation (for profit)
nonprofit corporation
limited liability company (LLC)
limited partnership (LP)
limited liability partnership (LLP)
limited liability limited partnership (LLLP)
general partnership (GP)
joint venture (JV)

Any or all of the owners of an Arizona LLC can be non-U.S. citizens and non-U.S. residents.

Richard Keyt2016-11-16T08:23:51-07:00December 14th, 2011|FAQs, Forming LLCs, Members|2 Comments

KEYTLaw has Video Testimonials from Satisfied LLC Clients

Today I added our first video testimonials on our LLC Testimonials page. Several people for whom I formed one or more Arizona LLCs explain why they hired me, what they liked about my service and that they would recommend my LLC formation services to their friends. If you are shopping for someone to form your Arizona LLC, you should watch one or more of the video testimonials.

P.S. If I formed your Arizona LLC and you would consent to let my videographer film your LLC testimonial, send an email message to me at [email protected].

Richard Keyt2021-12-04T11:17:59-07:00October 20th, 2011|Forming LLCs|0 Comments

How Do I Prepare a Notice of Publication for a New Arizona LLC?

Question: I know Arizona LLC law requires that I prepare and publish a Notice of Publication in the an Arizona Corporation Commission approved newspaper for three consecutive publications. What is a Notice of Publication and where can I get it?

Answer: Effective January 1, 2017, Arizona’s LLC law was modified to provide that a Notice of Publication must be published in a newspaper only if the LLC’s known place of business is outside Maricopa County or Pima County. The Notice of Publication is a document that every new LLC with a known place of business in a county other than Maricopa or Pima must prepare and deliver to an ACC approved newspaper in the county in which the LLC has its known place of business as stated in its Articles of Organization filed with the Arizona Corporation Commission. If you need a Notice of Publication, just copy and paste the below text into your word processor and edit it to add the information for your LLC.

Use the following form Notice of Publication for an LLC that is member managed.

Notice For Publication

ACC File Number: __________________

1. Articles of Organization have been filed in the office of the Arizona Corporation Commission for _________________________________________________, LLC

2. The address of the known place of business of the company is: _____________________________________________________.

3. The name and street address of the company’s agent for service of process are: _____________________________________________________.

4. Management of the limited liability company is reserved to the members.

5. The name(s) and address(es) of each Member of this limited liability company are: _____________________________________________________.

Use the following form Notice of Publication for an LLC that is member managed.

Use the following form Notice of Publication for an LLC that is manager managed.

Notice For Publication

ACC File Number: __________________

1. Articles of Organization have been filed in the office of the Arizona Corporation Commission for _________________________________________________, LLC

2. The address of the known place of business of the company is: _____________________________________________________.

3. The name and street address of the company’s agent for service of process are: _____________________________________________________.

4. Management of the limited liability company is vested in a manager or managers.

5. The name(s) and address(es) of each Manager of this limited liability company are: _____________________________________________________.

[Option 1: If no members owns 20% or more of the LLC use the following sentence and delete Option 2.]

6. No member of the limited liability company owns a twenty percent or greater interest in the capital or profits of this limited liability company.

[Option 2: If any member owns 20% or more of the LLC use the following sentence and delete Option 1.]

6. The name(s) and address(es) of each Member who owns a twenty percent or greater interest in the capital or profits of this limited liability company are: _____________________________________________________.

Richard Keyt2017-01-07T04:57:21-07:00July 29th, 2011|FAQs, Forming LLCs, How Do I|2 Comments

Online Cash Advance Payday Loan

This is a very fast guide to everything that you need to know as to why you should get an online cash advance payday loan. This article will provide you with several tips on how you can immediately get the money that you are in urgent need of. You should be able to get the funds as soon as possible since payday loans involve very fast and simple steps.

The first thing that you need to do to find a good payday loan is to look for a website that has a good list of lenders. The purpose of doing this is so that you only have to fill out a single application form in return for more than one offer from various lenders who will look at your present money emergency. An online cash advance payday loan is simple for everyone if you do it this way because you do not have to waste time on filling out a few dozen application forms just hoping that one of them will be the perfect lender to borrow money from. This can help you to save a lot of time and help you to immediately get the money that you really need. This way, the lenders are the ones looking for you instead of you being the one looking for them.

The second thing you need to remember is that you have to fill out every field in the application form. This is not something that you want to skimp out on. The information that you get is what the lenders will use to determine whether they will approve you or not. When you leave out information from your application form, you are slowing down the procedures necessary for you to get approved. When you omit something important, you are hurting your chances of getting approved. So give the lender the information that they need right away.

The third thing for you to remember is that you should stay by the phone line that you put in the application form since they might have to call and ask you for added details. There are people who apply for the loans but do not stay by their phone lines so it takes longer for the loan to get processed. An online cash advance payday loan is easy as long as these tips are followed.

On the Net2019-06-15T07:03:09-07:00July 17th, 2011|Forming LLCs|0 Comments

Should I Form a Do-It-Myself Arizona Corporation?

Question: I am considering forming an Arizona corporation myself. All I have to do is complete the Arizona Corporation Commission’s three page fill in the blanks Articles of Incorporation and file it with the Arizona Corporation Commission. Why should I hire you to form my new corporation?

Answer: Wow! This is an actual question somebody asked me recently. The question always reminds me of another question, “would you perform surgery on yourself?” OK, it’s not quite the same thing, but there are a lot of reasons why people should not form corporations or limited liability companies themselves or use document preparers. Here are a few.

First and most important, the Arizona corporation is almost always obsolete and should rarely be used. Arizona corporate law does not give the shareholders charging order protection unlike Arizona LLC law that provides that the sole remedy of a creditor who gets a judgment against a member of an Arizona LLC is to serve a charging order on the LLC. The legal significance of the difference is that if a creditor gets a judgment against a stockholder of an Arizona corporation, the creditor can sell the stock at an auction and it is lost forever. However, if the creditor gets a judgment against a member of an Arizona LLC, the creditor can get a charging order, but cannot force a sale of the membership interest in the LLC. Bottom line: If a you own stock in an Arizona corporation and a creditor gets a judgment against you, you will probably lose your investment in the stock forever. If you are a member in an Arizona LLC and somebody gets a judgment against you, Arizona’s LLC law prevents the loss of your investment in the company.

Arizona corporations must file an annual report with the Arizona Corporation Commission and pay an annual fee of $45. Arizona LLCs do not file an annual report with the ACC or pay it an annual fee.

If an Arizona corporation fails to file its annual report, the Arizona Corporation Commission will terminate its existence. Let me say that again slower. T h e A C C w i l l k i l l the c o r p o r a t i o n! What do you suppose happens to the corporate shield provided by an Arizona corporation when it dies? It evaporates! When the ACC revokes the charter of an Arizona corporation because it did not file an annual report, the legal significance of the revocation is that the shareholders no longer have a corporation – they have a common law Arizona general partnership and every one of them is 100 percent liable for everything that goes wrong. If you have an Arizona LLC there is no annual report so you cannot forget to file it and the ACC cannot terminate your company for failing to file the annual report. If you think revocations are rare, think again. For its fiscal year ending June 30, 2011, the ACC revoked the existence of 18,342 Arizona corporations – that’s 10% of all Arizona corporations.

If you insist on forming your own corporation, the before you pull the trigger, do your self a favor and read the read “How To Incorporate In Arizona.”

For more reasons why you should not form an Arizona corporation, read my articles called “Best Arizona Entity to Form,” “LLC vs. Corporation” and “Two Phases in the Life of an LLC.”

Having said the above, if anybody insists on forming an Arizona corporation, I am happy to oblige that person. I do form Arizona corporations, but it happens less and less as time goes by and more and more people realize that the limited liability company is the entity of choice in Arizona.

Richard Keyt2016-11-16T08:23:54-07:00July 17th, 2011|Asset Protection, FAQs, Forming LLCs|0 Comments

Should I Form an LLC before or after Acquiring Real Estate?

Question: I intend to purchase an Arizona real estate property for investment in the near future. My plan is to rent the home or I might fix it and then flip it. I know I need to put the property into a limited liability company to limit my liability and protect my life savings from things that could go wrong with the property. Should I form the LLC before or after the acquisition?

Answer: Either way is fine, but you can save yourself some administrative tasks and some money by forming the LLC first so it can be the grantee on the deed that conveys title. The important fact is that you make sure the LLC holds the title so that it will be the defendant in any lawsuit that arises from the property.

The benefits of forming the LLC first so it can take title are:

1. The LLC is the original owner named in the deed from the transferring property owner.

2. The LLC can be the insured on the property and liability insurance policies from day one.

3. The LLC can be named as the insured on the title insurance policy if you purchase title insurance at the time of acquisition, which as a real estate lawyer I recommend you always do.

If you purchase the land in your name first instead of in the name of your LLC then you must do the following after you form the LLC and acquire title:

1. Prepare a deed, sign it and record it in the county where the real estate is located.

2. Cancel the property and liability insurance policy and get a new policy that names the LLC as the insured.

3. Get an endorsement on the title insurance policy that names the LLC as an additional insured.

Warning: Do not sign and record a deed to the LLC before it is created. You cannot put the title in the name of the LLC unless it exists at the time the title is transferred. A deed to a nonexistent entity is void and creates a cloud on the title.

Richard Keyt2016-11-16T08:23:54-07:00July 7th, 2011|FAQs, Forming LLCs, Real Estate Issues|0 Comments

Why You Should Form an LLC?

Question: I understand that if I form a limited liability company to operate my business and I am the only person who provides services on behalf of the business that I can be sued and be liable for my acts or omissions that cause harm to third parties. Instead of forming an LLC, can’t I just load up on insurance and not form an LLC to operate my business?

Answer: You could, but I think that would be a costly mistake. When you operate a business, commercial insurance is always your first line of defense. Your business should never operate without appropriate insurance coverage. Consult with several experienced business insurance agents and get their advice as to the type of insurance and the coverage amounts that are appropriate for your particular business. Always buy as much insurance as you can afford of the type that is appropriate for your specific type of business.

You operate a business through a limited liability company because it is your second line of defense against things that can go wrong with the business. What if you have insurance and the insurance coverage is denied? What if a plaintiff gets a judgment that exceeds the amount of insurance coverage? If you don’t form an LLC to operate your business and a plaintiff gets a judgment that exceeds the amount of your insurance coverage against you as the owner/defendant, all of your personal assets are at risk.

Fundamental Fact of Business Life: Without an LLC to operate your business, you are 100% liable for every thing that goes wrong. Do you really want to be in that position and have all of your life savings at risk? It’s hard to predict how liability may arise, but if you operate the business through an LLC, the general rule is the owners are not liable for the debts or obligations of the LLC. Wouldn’t you rather start from the position that you are not liable for anything (except your own acts and omissions) instead of the position that you are liable for everything?

Bottom Line: I believe it is foolish to operate an Arizona business without adequate insurance coverage and without operating the business through a limited liability company or a corporation.

Yes, I form Arizona limited liability companies. I’ve formed 9,300+ AZ LLCs. For the reasons why so many people hire me to form LLCs, see the contents of our Bronze, Silver & Gold LLC formation packages.”

KEYTLaw Girl Shows What Is In Every LLC Portfolio

When we form a Silver or Gold Arizona LLC we put all of the LLC’s documents in a beautiful red Arizona Limited Liability Company portfolio with the documents organized behind tabs. Every LLC gets our custom drafted Articles of Organization, organizational resolutions signed by the members, the charging order enhanced Operating Agreement, the 170 page Arizona LLC Operations Manual ebook customized for the LLC, and a numbered membership certificate for each member.

We Answer LLC Formation Questions for Free

If you have questions about forming an Arizona LLC, contact Arizona LLC lawyers Richard Keyt (480-664-7478) or Richard C. Keyt (480-664-7472). We do not charge for entity formation related questions.

Two Easy Ways to Hire Richard Keyt to Form Your Arizona LLC

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

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

Option 1 – Telephone

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

Richard Keyt – 480-664-7478
Richard’s son LLC attorney & former CPA Richard C. Keyt – 480-664-7472
KEYTLaw legal assistant Amanda Duran - 480-664-7846

Option 2: Online – Available 24/7

Complete our LLC Formation Questionnaire.

Richard Keyt2023-10-24T10:07:28-07:00July 3rd, 2011|Asset Protection, FAQs, Forming LLCs, Why People Need an LLC|0 Comments

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

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

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

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

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

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

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

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

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

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

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

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

A Better Cheaper Way to Purchase Arizona Real Estate Confidentially

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

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

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

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

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

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

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

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

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

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

I recommend you read my articles called:

“Should Richard Keyt or LegalZoom Form My LLC?“

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

IRA LLC Law Website

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why Not Form a New Business as an LLC?

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

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

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

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

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

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

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

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

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

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

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

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

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

Names & Addresses in Articles of Organization

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

Old Way We Indicated Names & Addresses of a Married Couple

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

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

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

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