What You Need to Know About the New Arizona LLC Law

Whether you already own an existing limited liability company (LLC) or are starting a new company next year, Arizona has a new set of laws for LLCs that may apply to you.  Prior to passing and signing into law the new Arizona Limited Liability Company Act (“ALLCA”) under SB 1353 by Governor Ducey on April 10, 2018, Arizona’s LLC law was functioning primarily on a set of statutes from 1992.

While much of the substance has been carried over from the old statutes, the new ALLCA will completely abrogate and replace the 1992 statutes, which is set to be completely repealed after August 31, 2020.  As such, the ALLCA will be immediately effective and binding upon LLCs that are formed after August 31, 2019 but will also apply to those pre-existing LLCs after August 31, 2020.

Arizona LLCs will still operate primarily as partnerships that govern the members and managers with an agreed-upon operating agreement, but there are some important differences that business owners will need to understand.  Chief among these are various changes to operating agreements.

The new ALLCA clarifies that operating agreements can be written documents, oral agreements, or some combination of both.  All existing agreements among members are still considered enforceable.  However, LLCs former before August 31, 2019 will still need operating agreements that contain specific compliant language by August 31, 2020—the date in which the old statutory LLC is completely repealed by the ALLCA.

Here at MacQueen & Gottlieb, PLC, we have reviewed the ALLCA and can help draft compliant operating agreements for LLCs that are forming after the new effective date, and those pre-existing LLCs that may need to alter their operating agreements by August 31, 2020.

Duties of Managers and Members Under New Arizona LLC Law

The new Arizona LLC law expressly lays out the obligations of all members and managers of an LLC.  All members and managers are bound by a duty of loyalty—they are required to act on behalf of the company and are prohibited from competing directly with the company.  This duty also requires any member or manager to disclose any conflicts of interest to the other members and managers.

Members and managers are also required to act with a duty of care.  This means they cannot engage in any reckless misconduct or negligence.  Existing operating agreements can still eliminate some of these specific obligations, but all members and managers will have a duty of good faith and fair dealing, which cannot be eliminated.

The new Arizona LLC law does allow an operating agreement to restrict the transferability of membership interests.  The new law also details that a creditor cannot foreclose on the membership interest of a member.  They do have the right to collect on any disbursements that members make receive from the LLC, though.

The members of the Arizona LLC can still elect the management and spell out the duties and responsibilities of each member.  However, the new Arizona LLC law details the responsibilities of each member if the operating agreement does not include these provisions.

Arizona LLC Taxation and Liability

Taxation laws for Arizona LLCs will remain the same under the new ALLCA.  Managers and members will also receive the same protections from personal liability for company debts and operations.  Although the new Arizona LLC law does not change the laws on taxation, it is a good time to review your company structure with accounting and tax professionals.

Experienced Arizona LLC Attorney

Most Arizona LLC operating agreements will continue to be enforceable under the new law.  It is still important to have an attorney with experience in the formation and operation of Arizona LLCs to review your operating agreement.  MacQueen & Gottlieb has significant experience with Arizona LLC law and our firm can help you prepare for any upcoming changes required by the new law.  Contact us today at 602-533-2840 to schedule your initial consultation or make an appointment online.