I formed my first Arizona LLC the day the Arizona LLC law became effective in October of 1992. Since then I have formed 8,560+ Arizona LLCs. In practicing LLC law for 28 years I have seen the same LLC operational problems over and over. When I learn about an operational problem I add new language to my LLC Operating Agreement to “fix” or prevent the problem.
For example, one of the most common LLC operational problems occurs when members cannot agree and need a company divorce. When members have major disagreements over running the LLC it is very common for a member without any authority or basis to file an amendment to the LLC’s Articles of Organization that removes one or more members as members of the LLC. The culprit may also open a new bank account and misrepresent to the bank who the members of the LLC are.
People who file false documents with the ACC are usually unaware that they could be committing a felony. Arizona Revised Statutes Section 29-3205.C states:
“An individual who signs a record authorized or required to be filed under this Chapter affirms under penalty of perjury that, to that individual’s knowledge, the information stated in the record is accurate.”
Arizona Revised Statutes Section 13-2702 states:
A. A person commits perjury by making either:
1. A false sworn statement in regard to a material issue, believing it to be false.
2. A false unsworn declaration, certificate, verification or statement in regard to a material issue that the person subscribes as true under penalty of perjury, believing it to be false.
B. Perjury is a class 4 felony.
I am not aware of that the Arizona Attorney General has prosecuted anybody who filed a false document with the Arizona Corporation Commission.
The purpose of Arizona Revised Statutes Section 29-3205.D is to reduce false filings with the Arizona Corporation Commission and give aggrieved members a remedy. This statute states:
“A person that signs a record, or causes another to sign it on the person’s behalf, knowing that the record contains inaccurate information at the time it is signed, is liable to the limited liability company and to each member of the company for damages resulting from the inaccurate information.”
The problems with this statute are: (i) proving damages for a false filing is very difficult, and (ii) the cost to sue coupled with the risk of winning and collecting a judgment makes this remedy very risky. Few members will actually use this statute to sue another member.
After seeing the false amendment to the Articles of Organization too many times I added a clause to my Operating Agreements that provides that a member who files a false document with the Arizona Corporation Commission is liable to all other members for liquidated damages of $10,000 and if the damages are not paid in full within sixty days the member who filed the false document ceases to be a member.
Why Your Existing or New Arizona LLC Needs Richard Keyt’s State of the Art Operating Agreement
I have prepared 8,560+ Arizona LLC Operating Agreements. My Operating Agreement is unlike any Operating Agreement prepared by anybody else including attorneys because it contains provisions I created to prevent or solve common LLC operational problems I have seen representing thousands of LLCs. For a partial list of common LLC operational problems see my article called “Common LLC Disasters a Good Operating Agreement Prevents.”
To hire me to prepare an Operating Agreement for an LLC that does not have one or to amend an Operating Agreement for an LLC whose members signed an Operating Agreement complete my comprehensive Operating Agreement Questionnaire.