Arizona LLC attorneys Richard Keyt and his son Richard C. Keyt have formed 7,800+ LLCs. They have 166 five star Google reviews and 261 five star online reviews. The Keyts recommend that ALL Arizona companies adopt an Operating Agreement written for Arizona’s new LLC law.
What You Will Learn in this Article
- What is an LLC Operating Agreement?
- 10 reasons why all Arizona LLCs need an Operating Agreement.
- 10 additional reasons why all multi-member LLCs other than a married couple owned LLC need an Operating Agreement.
What is an LLC Operating Agreement?
An LLC Operating Agreement is a contract between the LLC and all of its owners (called members) and managers that names all members and managers, the percentage of the LLC that each member owns, if a member is required to contribute money or property to the LLC, how meetings are called and when action cannot be taken without the approval of a majority or a super majority of the members or all of the members. The Operating Agreement sets the rules for governing the LLC.
- Some banks require a copy of the Operating Agreement to open a bank account.
- If the LLC borrows money the lender will want a copy of the Operating Agreement.
- If the LLC buys or sells land the title insurance company will want to see the Operating Agreement.
- If the LLC intends to enter into a substantial contract the other party will want to review the Operating Agreement to confirm that the LLC can enter into the contract and who can sign the contract on behalf of the LLC.
Arizona LLC Lawyers Who Recommend Arizona LLCs Adopt a New LLC Law Operating Agreement
Hoopes, Adams & Scharber, PLC, in its article called “New Limited Liability Company Law Impacts Arizona LLCs” says:
“As of September 1, 2020, all LLCs should have an Operating Agreement that (a) complies with ALLCA and (b) corrects some of the flawed default language that ALLCA imposes in the absence of an adopted Operating Agreement.”
This firm says the following about its fee for an Operating Agreement:
“To help our LLC clients avoid the new law’s unfavorable default provisions, we offer a $750 flat-fee option for updating most operating agreements.”
An article on this firm’s website called “New statute repeals and replaces Arizona laws governing LLCs, affects operating agreements” states:
“Because of the wholesale repeal of the 1992 law and its replacement with the 2018 law, LLC members and managers are strongly urged to initiate a review of their LLC . . . operating agreement – to ensure that your LLC is ALLCA compliant and, more important, to avoid any unwanted default provisions . . . that the ALLCA automatically imposed on your LLC on September 1, 2020.”
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About the Two Lists Below
The first list below called Why All LLCs Need the Keyt’s Operating Agreement describes ten reasons why all Arizona LLCs need an Operating Agreement. The second list is Major Problems for Multi-Member LLCs Caused by Arizona’s LLC Law. This list describes the nine reasons all multi-member Arizona LLCs (other than a married couple owned LLC) need an Operating Agreement written by an Arizona LLC law expert such as the Keyts that eliminates the problems.
Warning: If you are a member of a multi-member Arizona other than an LLC owned only by a married couple you must read the second list below to learn the many ways Arizona’s LLC law will harm you economically unless the members of your company adopt our Operating Agreement that eliminates the problems. To hire us to prepare an Operating Agreement that eliminates the problems described below submit our online Operating Agreement Questionnaire.
Click on or touch a + symbol or blue text to see the discussion of the problem.
Why All Arizona LLCs Need the Keyt’s Operating Agreement
If you are a married resident of Arizona you and your spouse will automatically own the LLC acquired after marriage as community property unless one of you received the LLC as a gift or through an inheritance or one of you disclaimed any interest in the LLC.
Arizona has two types of community property:
- Community property (CP). Each spouse owns an undivided one half of the LLC. If there is a divorce each spouse gets one half of the value of the membership interest. If a spouse dies while owning an LLC as community property that spouse’s LLC interest does not transfer automatically to the deceased spouse’s surviving spouise or heirs and may need to go through an expensive and time-consuming superior court probate. You and your spouse will own your LLCs acquired after marriage as CP, not CPWROS, even if your spouse is named in the LLC’s Articles of Organization unless both of you sign a document in which you accept ownership as CPWROS.
- Community property with right of survivorship (CPWROS). Each spouse owns an undivided one half of the LLC. If one spouse dies the surviving spouse automatically inherits the interest of the deceased spouse without the need for a probate and the survivor gets to increase the tax basis of the LLC to its fair market value on the date of the spouse’s death. This step up in the tax basis of the LLC interest can be a very important tax saving benefit of CPWROS for the surviving spouse. A married Arizona couple can only own an assets as CPWROS if the both sign an acceptance of CPWROS.
When we prepare an Operating Agreement for a married couple that owns their interest as CPWROS we include language in the Operating Agreement that designates the CPWROS ownership and that causes the two spouses to accept CPWROS, which is required by Arizona community property law. If the married couple does not accept CPWROS in writing then they own the asset as CP, not CPWROS.
If you own your LLC as CP, not CPWROS and you die your LLC interest does not transfer automatically to your spouse or anybody else. Your family may need to go through an expensive and time-consuming superior court probate to transfer your LLC interest to your heir(s). To learn more about what happens when read our article called “3 Ways Your Loved One Will Be Harmed If You Own an LLC & Do Not Prepare for Death.”
If you are an Arizona resident see “Who Inherits Property of an Arizona Resident Who Dies without a Will or a Trust?“ If you don’t have a will then to insure your LLC is inherited by the person or people you want to inherit the LLC following the death of the surviving spouse you need our LLC Beneficiary Designation document in which you designate who inherits your interest in one or more Arizona LLCs after your death. You cannot get this document from another source because Richard Keyt, invented it. To hire Richard to prepare this important document complete and submit our online LLC Beneficiary Designation Questionnaire.
If you are a married Arizona resident and you form an LLC Arizona Revised Statutes Section 25-211 provides that you and your spouse will automatically own the LLC as community property even if one spouse is not named in the LLC’s Articles of Organization. Section 25-211 states: “All property acquired by either husband or wife during the marriage is the community property of the husband and wife except for property that is . . . Acquired by gift, devise or descent.”
When a married couple owns property as community property each spouse owns an undivided one half of the property. If they divorce each spouse gets one half of the value of the property owned as community property.
If you are a married Arizona resident and you want to own all of the LLC and you don’t want your spouse to own any of the LLC then you need to own the LLC as your separate property. Separate property ownership happens only if the non-owner spouse signs a Disclaimer in which he or she acknowledges that the other spouse owns all of the LLC as separate property unless somebody gave you the LLC as a gift or you inherited it.
If you hire us to prepare your LLC’s Operating Agreement we will include language in the Operating Agreement that says you own it as your separate property. We will also prepare a Disclaimer for your spouse to sign in which he or she acknowledges that you own all of the LLC as your separate property.
If you own your LLC as separate property and you die your LLC interest does not transfer automatically to your spouse or anybody else. Your family may need to go through an expensive and time-consuming superior court probate to transfer your LLC interest to your heir(s). To learn more about what happens when read our article called “3 Ways Your Loved One Will Be Harmed If You Own an LLC & Do Not Prepare for Death.”
If you are an Arizona resident see “Who Inherits Property of an Arizona Resident Who Dies without a Will or a Trust?“ If you don’t have a will then to insure your LLC is inherited by the person or people you want to inherit the LLC you need our LLC Beneficiary Designation document in which you designate who inherits your interest in one or more Arizona LLCs after your death. You cannot get this document from another source because Richard Keyt, invented it. To hire Richard to prepare this important document complete and submit our online LLC Beneficiary Designation Questionnaire.
Arizona Revised Statutes Section 29-3407.G states: “A member is not entitled to remuneration for services performed for a member-managed limited liability company.” If you violate this Arizona law it will be used against you in a lawsuit to pierce the veil and hold the owner of the LLC liable for the LLC’s debts. Our Operating Agreement expressly authorizes the LLC to pay members for services.
Arizona Revised Statutes Section 29-3102.13 states: “‘Manager’ means a person that under the Operating Agreement of a manager-managed limited liability company is responsible, alone or in concert with others, for performing the management functions.” If your LLC is manager managed it does not have a legal manager unless the manager is named in an Operating Agreement signed by all the members. Our Operating Agreements name all managers.
Arizona LLC law requires LLCs to keep certain records for a stated period of time. The failure to maintain the required records could be used in a lawsuit to pierce the veil and hold the LLC’s owners liable for the LLC’s debts because it shows the LLC violated Arizona LLC law. Our Operating Agreement contains a provision that lists all of Arizona’s new recordkeeping requirements for LLCs so you know exactly what records to keep.
Arizona Revised Statutes Section 29-3410 creates new recordkeeping requirements for all Arizona LLCs. This statute gives members rights to seek and obtain company records that can create liability if not followed. You must know the new rules and make sure your company complies with the new recordkeeping laws.
If a member or manager of an LLC loses his or her mental capacity to manage the member managed or manager managed LLC nobody will have the authority to step into that person’s shoes and manage the LLC except for a person appointed by a court. Our Operating Agreement avoids going to court because it can designate one or more trusted people to manage the LLC if a member or manager loses his or her mental capacity.
A federal law called the Corporate Transparency Act (CTA) requires that all LLCs formed in the U.S. must file a report with the U.S. Financial Crimes Enforcement Network (FinCen) must file a report with FinCen that contains required information about each of LLC’s beneficial owners. A person who (i) willfully provides, or attempts to provide, false or fraudulent beneficial ownership information to FinCen; or (ii) willfully fails to report, complete or update beneficial ownership information may be fined up to $500 for each day that the violation continues or has not been remedied and may be fined up to $10,000, imprisoned for two years, or both. NOTE: These penalties are the reason ALL REPORTING COMPANIES AND APPLICANTS MUST TIMELY FILE ACCURATE REPORTS WITH FINCEN. See the penalty provisions of the CTA.
Our Operating Agreements contain provisions that alert you to the CTA filing requirement and how to file your report.
Arizona LLC law provides that when a person inherits the membership interest of a deceased member of an Arizona LLC that person does not become a member of the LLC. If Ned died and his wife inherited his 90% interest in the LLC she would not be able to vote on any LLC issues. The Simpsons with their 10% membership interest would have total control of the LLC. Arizona Revised Statutes Section 29-3502.A states: “A transfer, in whole or in part, of a transferable interest does not entitle the transferee to . . .participate in the management or conduct of the company’s activities and affairs [or] . . . have access to records or other information concerning the company’s activities and affairs.” Heirs inherit only an “economic interest” in the LLC. They do not have the right to vote or receive information from the LLC. An heir’s only right is the right to receive distributions arising from the interest of the deceased member. See “Bad Consequences of the Death of a Member of an LLC.” If you own a majority of the membership interests and die your heir will not be able to vote. This means the minority member(s) has/have control of the LLC. To prevent your heir(s) from losing the right to vote and the right to get information from the LLC you need our Operating Agreement that expressly provides that on your death your heir(s) automatically become a member of the LLC with all rights of membership.
Arizona’s new LLC law is completely different from the repealed law. Your company needs an Operating Agreement written for current Arizona law. If your company does not have a new law compliant Operating Agreement the members will not know the obligations imposed on them under the new law.
If your LLC has an Operating Agreement examine it to see if it refers to any of the Arizona Revised Statutes that were repealed on September 1, 2019. The repealed LLC statutes are ARS Sections 29-601 – 29-858. If your company’s Operating Agreement refers to any of these repealed statutes it is obsolete and should be replaced with an Operating Agreement written for current Arizona LLC law.
Repealed ARS sections referred to in an existing Operating Agreement are meaningless and potentially dangerous if a member tries to follow a repealed statute. If your company’s Operating Agreement contains references to any of the repealed statutes and you give a copy of it to a lender, a title insurance company, an accountant or any third party you will have egg on your face. Don’t give people copies of an obsolete Operating Agreement.
Major Problems for Multi-Member LLCs Caused by Arizona’s LLC Law
Warning: If you have a multi-member LLC (other than an LLC owned solely by a married couple) you must learn about the major problems listed below caused by Arizona’s LLC law, all of which can be eliminated by our Operating Agreement. To hire us to prepare an Operating Agreement that eliminates the problems described below complete and submit our online Operating Agreement Questionnaire.
Hypothetical LLC Facts
The problems below are based on an LLC owned by Ned Flanders, a single man, and Homer and Marge Simpson, a married couple. The Simpsons contributed $10,000 to the company. Ned contributed $90,000. Ned assumes he will get 90% of the profits because he contributed 90% of the capital. Wrong! Arizona’s new LLC law provides that if the LLC does not have an Operating Agreement that allocates the profits and votes to the members Ned gets one third of the profits and the Simpsons get two thirds of the profits. Ned also assumes he will have control of the company because he will have 90 of 100 votes. Wrong again!! Arizona’s new LLC law provides that Ned has one of three votes and the Simpsons have the other two votes. The Simpsons have control of the LLC. Homer thinks he owns his interest in the LLC as his separate property because Marge is not named as a member in the LLC’s Articles of Organization. Wrong! These problems and other problems are explained in the table below.
Click on or touch a + symbol or blue text to see the discussion of the problem.
Arizona Revised Statutes Section 29-3404.A states: “Any distribution made by a limited liability company . . . must be in equal shares among Members.” Because Ned contributed $90,000 to the LLC and the Simpsons contributed $10,000 Ned mistakenly thinks distributions of money and property will be allocated 90% to him and 10% to the Simpsons. If the LLC has $9,000 to distribute to the members, $3,000 goes to Ned, $3,000 goes to Homer & $3,000 goes to Marge. Our Operating Agreement would provide that distributions go 90% to Ned and 10% to the Simpsons.
Ned mistakenly thinks that because he contributed $90,000 to the LLC and the Simpsons contributed $10,000 that the profits will be allocated 90% to him and 10% to the Simpsons. That is not what Arizona’s new LLC law provides. The new LLC law requires that the Simpsons get 66.66% of the profits and Ned gets 33.33%. Arizona Revised Statutes Section 29-3102.12 states: “Members’ respective interests in the Company’s profits are in proportion to their rights to share distributions.” Arizona Revised Statutes Section 29-3404.A states: “Any distribution made by a limited liability company . . . must be in equal shares among Members,” which means the three members each get one third of all distributions. Because each member gets one third of all distributions under Section 29-3102.12 each member will be allocated one third of the LLC’s profits. Our Operating Agreement would eliminate both of these statutes and provide that the distributions and profits are allocated 90% to Ned and 10% to the Simpsons.
Ned incorrectly assumes he has voting control of the LLC with 90 of 100 votes because he contributed $90,000 to the LLC and the Simpsons contributed $10,000. Negative! Votes are based on how profits are allocated to the members. Arizona Revised Statutes Section 29-3102.12 states: “‘Majority in Interest of the Members’ means . . . one or more Members that hold in the aggregate a majority of the interests in the limited liability company’s profits.” Because the profits are allocated one third to Ned, one third to Homer Simpson and one third to Marge Simpson the Simpsons get 2/3 of the votes, which means they have a majority of the votes and control the LLC. Ned only has 1/3 of the votes. If you don’t want each member of your multi-member LLC to get one vote the members need to sign an Operating Agreement that states how many votes are allocated to each member.
Per Arizona Revised Statutes Section 29-3201.B.4 the Articles of Organization filed with the Arizona Corporation Commission to form an LLC does not state the members’ percentage ownership of the LLC. Avoid disputes over member’s percentage ownership of your multi-member LLC by stating the members’ membership percentages in an Operating Agreement.
Homer and Marge decide they no longer want to own any part of the LLC. They transfer their membership in the LLC to Andrew Spencer, a man who is Ned’s enemy. Ned is now “partners” with somebody guaranteed to create problems for Ned. A.R.S. Section 29-3502.A states: “A transfer, in whole or in part, of a transferable interest . . . is permissible.” If you don’t want a member of your multi-member LLC to be able transfer the member’s transferable interest in the LLC to without the consent of the other members you need an Operating Agreement that restricts transfers that are not approved by the members. Our Operating Agreement prevents transfers without the members’ approval.
A.R.S. Section 29-3409.B.4 states: “Members must disclose to other members voting on a company matter: “(a) any material conflict of interest on the part of the disclosing member with respect to the decision or transaction, and (b) if a material conflict of interest exists, all material facts relating to the decision or transaction that are within the disclosing member’s knowledge and not known or reasonably available to the affected members.” This law does not define “material conflict of interest” so you can never know what must be disclosed. If you do not want to be sued for failing to disclose a material conflict of interest your LLC’s Operating Agreement should state that this statute does not apply to the members.
If your company does not have an Operating Agreement that states the fiduciary duties that apply to all members how will members know what their fiduciary duties are so they will know how to avoid the liability that arises from breaching a fiduciary duty? An Operating Agreement can eliminate most, but not all of the fiduciary duties of members of a member managed company. The best way to eliminate all fiduciary duties of members is to have a manager managed company because members of a manager managed Arizona LLC do not have any fiduciary duties.
If your manager managed company does not have an Operating Agreement that states the fiduciary duties that apply to its managers how will managers know their duty so they can avoid the liability that arises from breaching the fiduciary duty? An Operating Agreement can eliminate most, but not all of the fiduciary duties of managers of a manager managed company. Our Operating Agreement states the managers’ fiduciary duties unless the members want some or most of the fiduciary duties to be eliminated.
If your LLC is or will be taxed as a partnership rather than an S corporation or a C corporation it must designate a person as its partnership representative who has the power to represent the LLC in negotiations with the IRS if the LLC were to be audited. If the LLC does not designate a partnership representative the IRS can designate the partnership representative who has the power to bind the LLC on partnership tax issues.
Very few Operating Agreements have language that appoints a partnership representative or that states the partnership representative’s rights and obligations owed to the LLC and its members. Our Operating Agreement has 3+ pages of text that appoints a person selected by the LLC to be the LLC’s partnership representative and that describes the partnership representative’s duties.
P.S. If you have an Operating Agreement that contains the term “tax matters partner” you have an out dated Operating Agreement. That term was used before the law changed and partnership representative replaced tax matters partner.
Dissociation now exists for the first time in Arizona’s new LLC law. Arizona LLC’s Operating Agreements need dissociation language that explains the new requirements of dissociation. See Arizona Revised Statutes Section 29-3601 Power to Dissociate as Member; Wrongful Dissociation, Section 29-3602 Events Causing Dissociation and Section 29-3603 Effect of Dissociation. Our Operating Agreement provides that a member who dissociates without the consent of the other members is liable to the company for damages arising from the dissociation.
See the Table of Contents of Our Two Operating Agreements
Below are links to pages that show the table of contents of our single member / married couple LLC Operating Agreement and the table of contents of our multi-member LLC Operating Agreement. Review them to see how comprehensive our Operating Agreements are. If you have an LLC Operating Agreement compare your agreement to ours.
Members May Digitally Sign Our Operating Agreement
For an additional $97 you can purchase our DocuSign digital signature service. If you do not purchase this service we will send an email to the LLC’s contact person that has the Operating Agreement attached as a pdf file. The contact person or another person then needs to print the Operating Agreement and arrange for all members to sign it.
If you buy our DocuSign digital signing service we will cause DocuSign to send an email to all the signers asking them to digitally sign the Operating Agreement. When everybody has signed DocuSign will send every signer a second email that has the fully signed Operating Agreement attached as a pdf file. See DocuSign’s secure eSignature system.
We Have 261 Five Star Reviews
In forming 7,800+ Arizona LLCs we have had thousands of happy clients. Read some of our 166 five star Google reviews and our 261 five star online reviews. Here are a few of our reviews.
Michael Kuby: “Mr. Keyt was recommended to us an ASU law professor. You can’t ask for a much better recommendation than that, and he proved why with great explanations, reasonable prices, and fast turnarounds and responses. If you are a computer/internet savvy person, Keyt takes maximum advantage of those capabilities.”
Mark Lerner of the Lerner & McDonald law firm: We formed 29 LLCs for Mark. “As a California attorney, I have used Richard Keyt’s LLC formation services for many of my clients as well as myself over the past 7 years. Richard and his staff do an excellent job of creating high quality documentation in a very efficient manner. I have always been quite satisfied with each time that I have used Richard Keyt to form an Arizona LLC. I would strongly recommend his LLC formation services to others as well.”
David Bakody: “I’ve referred many people to Keytlaw for the past 17+ years. Service has always been consistent, excellent and incredibly reasonable. A great resource if you want to form an LLC or Corporation at Legal Mill prices with Big Law level of service.
Will Getty: “What a great experience. The process was easy and follow up is remarkable. I get updates on process and procedures that I very much appreciate. Don’t fool yourself with boilerplate companies, KEYTlaw is the real deal.”
Barbara Klegar: “Fabulous work! Great experience working with them. They were so thorough and efficient in setting up my LLC. Gave me so much guidance not only about setting up the LLC, but also operating it going forward! Advice is excellent! I highly recommend KEYTLaw!”
Jag S: “The best choice I could have made. They are great and provide a lot of valuable information on daily basis. Richard takes time to explain all your questions on one-on-one basis and is easy to reach for follow-ups via emails too. Highly recommended!!”
100% Satisfaction Guaranteed
If you hire us to prepare an Operating Agreement and are not happy we will refund your money in full if you request a refund within thirty days of the date you paid the fee.
How to Hire Us to Draft an Operating Agreement
Buy a Custom AZ LLC Operating Agreement
We want you to hire us to draft a state of the art new Arizona LLC law compliant Operating Agreement for your Arizona LLC. We are Arizona LLC attorneys we have drafted 7,800+ Arizona LLC Operating Agreements. We offer two different Operating Agreements, one for a single member or married couple owned LLC and a different one for a multi-member LLC.
No need to meet or come to our office. It’s all done online after we answer any questions you have in a phone call to Arizona LLC attorney Richard Keyt at 480-664-7478 or his son Arizona LLC attorney Richard C. Keyt at 480-664-7472.
How to Schedule a Date & Time for a Free Phone Call or Meeting with Richard Keyt or Richard C. Keyt
Here’s what you get if you hire us to draft an Operating Agreement for your Arizona LLC:
- Unlimited phone calls and emails with Arizona LLC attorneys Richard Keyt and his son Richard C. Keyt
- Custom drafted Operating Agreement for your LLC, not a boilerplate document.
- We email the Operating Agreement to you in digital format.
- No charge to make corrections if we incorrectly enter the information you give us.
- Money back guarantee if you are unhappy with your Operating Agreement and request a refund within 30 days of payment.
Buy a Custom AZ LLC Operating Agreement