New LLC Law Warning: Majority in Interest Nightmare

Why LLCs Must Have an ALLCA Compliant Operating Agreement: Reason # 3

Current Arizona LLC law Section 29-681.E provides a default method for determining what constitutes a majority of the members when an LLC lacks an Operating Agreement that defines members’ voting rights.  Current LLC law Section 29-681.E states:

a majority consists of more than one-half of the members

The new Arizona Limited Liability Company Act (ALLCA) contains a bizarre and potentially unfair method for determining which members constitute a majority in interest who have control of the LLC.  ALLCA Section 29-3101.12 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 . . . . The Members’ respective interests in the Company’s profits are in proportion to their rights to share in distributions that exceed the repayment of their contributions on dissolution and winding up of the Company.

This troubling statute says that the majority in interest of the members is derived from how the members “share in distributions.”  ALLCA Section 29-3404.A states:

“Any distribution made by a limited liability company . . . must be in equal shares among Members.”

When you apply Section 29-3404.A (equal distributions to members) to Section 29-3101.12 (members’ profits equal how they share distributions) the result is a majority in interest of members of an Arizona under ALLCA is the same as current LLC law Section 29-681.E, i.e., a majority in interest consists of more than one-half of the members.

Multi-member LLCs whose members share profits equally don’t need an ALLCA Operating Agreement that defines how members vote because each member gets one vote.  However, all multi-member LLCs that want a voting method that does not give each member one vote must sign an Operating Agreement that defines the desired voting method.

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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.

2018-05-06T10:07:36+00:00May 4th, 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+