Arizona LLC statutes provide only very basic rules to govern the rights and obligations of the members. Most people choose an LLC because it is simpler than a corporation to form and to maintain but provides the members and managers protection from being liable for the debts, obligations and liability of the LLC.
Formation
To form an LLC, Articles of Organization are filed with the Arizona Corporation Commission for approval, followed by publication in a newspaper approved by the Commission. The Articles of Organization set forth the name and address of the LLC, its members and statutory agent, its general purpose, the term of the LLC, and whether the LLC will be managed by its members or a designated manager.
There are no minimum limits on the number of members an LLC can have. Therefore, one person may start an LLC and serve as the sole member, manager and statutory agent, or there may be several members, a separate manager and a separate statutory agent.
Unlike the rules for corporations, there are no requirements in Arizona for an LLC to hold meetings or file annual reports. Maintaining an LLC in Arizona is relatively easy, but formalities include filing Articles of Amendment when any of the information provided in the Articles of Organization changes and securing necessary licenses from federal, state and local jurisdictions.
Management
In a member-managed LLC, all members are responsible for management of its operations, while in a manager-managed LLC, the members designate a person or persons who will control the LLC activities. A manager can also be a member of the LLC.
Although not required, members should consider entering into an Operating Agreement regarding the LLC's operation and management. An Operating Agreement is an understanding among the members regarding business matters including, but not limited to:
- allocation of profits and losses
- management rights and duties
- procedures for business decisions
- restrictions on transfers of ownership interests
- right of first refusal for existing members to acquire a selling member’s share
An Operating Agreement is necessary if the members intend to operate the business in any manner different from the Arizona statutory default rules.
Fiduciary Duties
In June 2019, the Arizona Supreme Court ruled, in In re Sky Harbor Properties, LLC v. Patel Properties, LLC,
that fiduciary duties do exist in Arizona LLCs.
Also, under the 2018 Arizona Limited Liability Company Act (ALLCA), a member of a member-managed LLC owes the company and other members a duty of loyalty and should act in a manner consistent with a contractual obligation of good faith and fair dealing. Similarly, the manager of a manager-managed LLC owes the company and its members a duty of loyalty and must discharge his duties and obligations under the ALLCA with a contractual obligation of good faith and fair dealing.
Those duties are among the default provisions contained in the ALLCA. LLC members wishing to waive that default provision may do so through the wording of the LLC's operating agreement.
Planning Ahead
It is important for individuals wanting to form an LLC to decide at the outset how they would like the LLC to be managed and how the affairs of the business and the individuals involved will be addressed. Having such foresight will assist the LLC and its members when dealing with any unanticipated matters or disputes.
