This article is the second of what will become many articles I write about the proposed Arizona Revised Limited Liability Company Act (RULLCA) that some Arizona lawyers intend to ask the Arizona legislature to adopt.  If the Arizona RULLCA were to become law it would replace Arizona’s 25 year old LLC law in its entirety. See After 7 Years of Drafting a Small Group of Lawyers Wants to Replace Arizona’s LLC Law for the complete text of the proposed LLC law.

On July 11, 2017, I sent the following email to 39 lawyers on an Arizona State Bar business law section email list:

“I am writing an article about the RULLCA as revised by the committee. I would like to include the names and backgrounds of the people who are willing to admit they are responsible for the proposed law. If you are one of the authors of the law please send me an email with the following information:

1. Your name
2. Name of your law firm
3. Your primary area(s) of practice
4. Your experience forming and administering Arizona LLCs.
5. How many LLCs did you form in the last year?
6. How many LLCs have you formed since 1992?
7. Why you think Arizona should replace its current LLC law with RULLCA as revised by you.
8. Whether or not you authorize me to include your email address in the article.

I sent the people on the email list the message above because I knew that all of the people who were responsible for drafting the proposed Arizona RULLCA were on the email list.  The purpose of my email message was to identify the people who were involved in drafting the Arizona RULLCA and learn about their experience with LLCs.  I also invited the drafters to tell me why Arizona should adopt the drafter’s Arizona RULLCA.  The public should know this information about the drafters of the proposed law. Sadly only one person admitted to me that he worked on the committee. I hope that the people who drafted the proposed Arizona RULLCA are not afraid to tell the public their names.  If a drafter of the proposed Arizona RULLCA sends me information or text for an article about the proposed law I will be happy to publish it on this website.

I have not decided if I will support or oppose the Arizona RULLCA. I’m still reading and studying the proposed law and making notes. When I am done I will publish my analysis and whether I support or oppose the proposed Arizona RULLCA.  If adopted the proposed law would replace Arizona’s existing LLC law in its entirety.  To get updates of the blog posts I will be making over the next year or so enter your email address in the right column of this page under the text “Subscribe to LLC Law Blog.”

My initial impression of the Arizona RULLCA is that the proposed law needs to be tweaked.  Here are some problems I found just in the Section 102, Definitions, which is the second section of the new law:

Section 102(12)

This subsection states “’Majority in interest of the members’ means, at any particular time, one or more members that hold in the aggregate a majority of the interests in the limited liability company’s profits held at that time by all members, disregarding any profit interests held by persons who are not members. The members’ respective interests in the company’s profits shall be in proportion to their rights to share in distributions that exceed the repayment of their contributions.”

Problem 1: The term “profits” is not defined in the new law.

Problem 2: What does the last sentence mean?

Problem 3: If the members want to define Majority in interest to be a majority of the members (2 of 3 members or 3 of 4 members) regardless of their share of the profits, can they do it?

Section 102(13)

This subsection 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 stated in Section 407(c).”

Problem 4: This means that despite the Articles of Organization stating the LLC is manager managed and naming all the managers, nobody is actually a manager unless the LLC has an Operating Agreement that names the manager(s). Requiring all manager managed LLC to have an Operating Agreement would be a major change to existing LLC law.

Section 102(19)

This subsection defines Person as “an individual, business corporation, nonprofit corporation, partnership, limited partnership, limited liability company, general cooperative association, limited cooperative association, unincorporated nonprofit association, statutory trust, business trust, common-law business trust, estate, trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.”

Problem 5: How does the group of business lawyers who worked on the proposed law for seven years fail to include in the definition of Person the following types of entities recognized by Arizona law: benefit corporations, general partnerships, real estate investment trusts, limited liability partnerships and limited liability limited partnerships?  The drafters might say that they didn’t need to mention GPs, LLPs and LLLPs because the definition includes the word partnership.  If that is the answer then why doesn’t the definition mention corporation and eliminate the words business corporation, nonprofit corporation and public corporation and why does it list limited partnership if that type of entity is included in partnership?

How to Stay Informed of the Status of the Proposed Arizona RULLCA

To get updates of the blog posts I will be making over the next year or so enter your email address in the right column of this page under the text “Subscribe to LLC Law Blog.”