Keeping up with Arizona LLC laws can be tough. Arizona recently implemented a new Limited Liability Company Act. The new law went into effect on September 1, 2019 as to LLC’s created before that date.
As of September 1, 2020 it will govern all LLCs formed in Arizona, regardless of formation date.
What you need to know about the law
A major change in the law has to do with distributions and voting rights. The new law states that distributions are made in equal shares.
Unless an operating agreement says differently, members will receive distributions in equal shares, regardless of how much interest the members intended to hold.
For example… There are two partners. One contributed $70,000 and the other $30,000. Without an operating agreement, these partners will mistakenly assume that’s a 70/30 split for distribution and voting.
Without an operating agreement that states this, they split any distribution 50%/50%. Also, each will have 50% voting rights.
Why it’s important to have an operating agreement for partnerships
An operating agreement is like a pre-nuptial agreement or estate plan for business partners.
An operating agreement should be comprehensive. Enough to cover all foreseeable issues that may arise between members.
So that the members may decide in advance how to navigate various issues. An operating agreement allows Arizona LLC members to keep important decisions in their hands… rather relying on default laws that may or may not be favorable.
It allows members to plan for important issues in advance. With clear heads and everyone has the entity’s best interest at heart.
Without a clear and comprehensive operating agreement in place, all members may have to spend time and resources litigating a dispute.
There are few law firms who understand business formation intricacies. Schedule a consultation today so that we can get an appropriate operating agreement in place for your LLC.