Why LLCs Must Have an ALLCA Compliant Operating Agreement: Reason #6
New Arizona Limited Liability Company Act (ALLCA) Section 29-3407.C.3 provides:
“a majority of the managers shall decide . . .
(a) matters that are outside the ordinary course of the company’s activities and affairs but within the company’s purpose.
(b) matters on which there exists a known difference among managers.
This is a troubling statute that I recommend be amended or deleted in Arizona LLCs’ Operating Agreements. The problem with subsection (a) is ALLCA does not define: (i) the ordinary course of the company’s activities, and (ii) the company’s purpose.
If the manager managed LLC does not have an Operating Agreement that defines the ordinary course of the company’s activities or the company’s purpose then subsection (a) is meaningless. Few LLC Operating Agreements define the LLC’s purpose.
The practical significant of Section 29-3407.C.3(a) is that an LLC manager cannot exercise any power under this subsection unless the LLC has an Operating Agreement that defines the LLC’s ordinary course of activities and/or the company’s purpose, but very few LLCs have an Operating Agreement with that kind of language.
Another problem with Section 29-3407.C.3 is subsection (b), which provides “a majority of the managers shall decide . . . matters on which there exists a known difference among managers.” This provision could be interpreted to mean that any time the managers differ on a proposed action a majority of the managers can decide to adopt or reject the action despite contrary language in the LLC’s Operating Agreement. This provision is too broad and potentially dangerous to some of the members. It should be eliminated by an ALLCA compliant Operating Agreement.
An Arizona LLC’s Operating Agreement should contain language that expressly states what a manager can do and what the manager cannot do without getting approval from the members. My Operating Agreements contain these types of provisions.
In addition, my ALLCA compliant Operating Agreement deletes Section 29-3407.C.3 and many other problem provisions contained in Arizona’s new ALLCA.
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Option 2: Purchase a Custom Operating Agreement: If your Arizona LLC's Operating Agreement was drafted for the obsolete Arizona LLC law or if it doesn't have an Operating Agreement its members should hire us to draft a custom Operating Agreement by submitting our online Operating Agreement questionnaire.