Arizona has a new limited liability company act that became effective on September 1, 2019. The new law (the “New LLC Act”) comprises sections 29-3101 through 29-4202 of the Arizona Revised Statutes and applies to all limited liability companies formed in Arizona on and after September 1, 2019. The New LLC Act will automatically also apply to all Arizona limited liability companies, regardless of when formed, from and after September 1, 2020. An existing Arizona limited liability company can “opt in” to the New LLC Act at any time prior to September 1, 2020 by amending its operating agreement to so state.
Though not an exhaustive list, there are many issues that every limited liability company, its managers and its members need to consider. Under the New LLC Act, a company’s operating agreement governs most aspects of the relationship between the company and its members. If the operating agreement is silent on a particular matter, or if the operating agreement includes any provision that is not permitted under the New LLC Act, then the provisions of the New LLC Act will govern and either “fill in the blanks” in the operating agreement or override the impermissible provisions.
- To what extent can an operating agreement change the statutory norms? What can an operating agreement not do?
- Does the New LLC Act impose fiduciary or other duties on managers?
- Does the New LLC Act impose fiduciary or other duties on members?
- Can any of the fiduciary or other duties be modified, limited or eliminated? If so, do you want to limit them?
- The New LLC Act adds two new dissolution rights – should you add them in your operating agreement?
- Transfer of member interests causes “dissociation”, which is a new term for what used to be called “withdrawal of a member”. The default rules in the New LLC Act require particular attention to avoid unintended consequences upon dissociation.
- Indemnification and reimbursement are concepts that are included in the New LLC Act, but were entirely absent in the prior statutory scheme.
By addressing these issues before you have any problems, you can be certain that your operating agreement will facilitate the results that you really want, rather than leading to unintended consequences, and can assure that your operating agreement provides an orderly and planned termination of the company or the transition to a successor generation of members and managers. Remember, if you leave the planning to a future time and just hope that the “default rules” of the New LLC Act will be okay for your situation, the results might be less than ideal.
Contact one of Gammage & Burnham’s experienced business attorneys to think through what changes you might need to make in your operating agreement
If you have questions about this article, please contact the author Joseph P. Richardson.