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 a Custom Operating Agreement
Option 1: Form a New LLC with a Custom Operating Agreement: When you hire me, Arizona LLC attorney Richard Keyt who has formed 8,400+ and has 287 five star Google & Facebook reviews), to form a new LLC I will prepare a custom Operating Agreement. Complete our online LLC formation questionnaire or call me at 480-664-7478 and give me your information. We form new LLCs and get them approved by the Arizona Corporation Commission the same day we are paid and you approve the LLC formation questionnaire you submit to us. See the “contents of the Bronze ($397), Silver ($597) & Gold ($997) LLC packages.
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.