New LLC Law Warning: Operating Agreement Should Limit Managers’ Powers

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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How to Hire Richard Keyt to Prepare an ALLCA Compliant Operating Agreement

I invested a lot of time reading and studying Arizona's new LLC law because I know that all existing and future Arizona LLCs need an Operating Agreement that is drafted specifically for Arizona's new ALLCA.  My ALLCA compliant Operating Agreements contains 17 pages of new text that addresses Arizona's new LLC law.

Two ways to get an ALLCA compliant Operating Agreement:

  1. Hire me to form a new Arizona LLC, or
  2. If you have an existing Arizona LLC, hire me to prepare an Operating Agreement for the LLC.

Option 1 Form a New LLC: To hire me, Arizona LLC attorney Richard Keyt (6,200+ LLCs formed and 138 five star Google & Facebook reviews), to form your new LLC complete our online LLC formation questionnaire or call me at 480-664-7478 and give me your information. Your LLC will be formed the first Wednesday or Friday after we are hired.  See the “Contents of the Bronze ($397), Silver ($597) & Gold ($997) LLC Packages.

Option 2 Purchase an Operating Agreement:  If you have an existing Arizona LLC and want to upgrade to a new ALLCA compliant Operating Agreement complete our online Operating Agreement questionnaire.

2018-05-20T15:12:33+00:00May 7th, 2018|New Arizona LLC Act|0 Comments

About the Author:

The author of this article is Richard Keyt, an Arizona limited liability company attorney who has formed 6,000+ LLCs. His Silver & Gold LLC packages include the $85 expedited filing fee, a custom Operating Agreement and 170 ebook called the Arizona LLC Operations Manual. Connect with Richard at 480-664-7478 or on Google+