AZ Corporation Commission

Arizona’s New LLC Law Is Now Effective (9/1/19)

Today, September 1, 2019, is the day that Arizona’s new LLC law replaces entirely the LLC law that was adopted in 1992.   I’ve written extensively about the new law.  I think it sucks for two reasons:

  • It replaced a law that was not broken and did not need to be replaced.
  • It replaces Arizona’s limited liability company act with what I call the liability company act because the new law creates many new ways that members and managers of an Arizona LLC can be sued.

One Example of a New Way a Member of an Arizona LLC Can be Sued

New Arizona Revised Statutes Section 29-3409.B.4 gives a member of an Arizona LLC the right to sue another member as a result of a the members’ vote on a company matter.  Section 29-3409.B.4 states:

B. The fiduciary duty of loyalty of a member in a member-managed limited liability company includes the following duties:

4. to disclose to each of the other members that are considering or voting on a decision or transaction regarding the company or one or more of the members’ interests in the company both of the following:

(a) any material conflict of interest on the part of the disclosing member with respect to the decision or transaction.

(b) if a material conflict of interest exists, all material facts relating to the decision or transaction that are within the disclosing member’s knowledge and not known or reasonably available to the affected members.

Fortunately most of the liability creating provisions in the new LLC act can be eliminated or minimized by a well drafted Operating Agreement signed by all of the members.

What You Need to Know About Arizona’s New LLC Act

The good news is that new LLC act does not significantly affect single member LLCs or PLLCs or companies that are owned by a married couple because the single member won’t sue himself or herself and the married couple won’t sue themselves.  The new LLC act has major negative consequences to multi-member LLCs and PLLCs other than those owned solely by a married couple.

Bottom Line

All multi-member Arizona LLCs and PLLCs should must have an Operating Agreement that is written to eliminate or minimize some or all of the liability creating provisions in the new LLC act.

Effective Date of the New Law

Arizona’s new LLC law applies to all Arizona LLCs and PLLCs created on or after September 1, 2019.  Prior Arizona LLC law applies to all Arizona LLCs and PLLCs created before September 1, 2019, but the new law will apply beginning of September 1, 2020.

My Three Types of Operating Agreements

I give people a choice between three different Operating Agreements unlike almost all other Operating Agreement preparers who offer a one size fits all Operating Agreement. My three types of Operating Agreements are:

  • $247 for a one member LLC or an LLC owned solely by a married couple.
  • $497 for multi-member LLCs other than an LLC owned solely by a married couple.
  • $897 for multi-member LLCs that want a custom Operating Agreement by picking and choosing from 20+ clauses they can add or delete from the Agreement.

How to Purchase an Operating Agreement for an Arizona LLC

To hire us to prepare an Operating Agreement for your Arizona LLC complete and submit our online Operating Agreement questionnaire.  You may also call me, Arizona LLC attorney Richard Keyt (480-664-7478) or my son Arizona LLC attorney and former CPA Richard C. Keyt (480-664-7472) if you have questions (we don’t charge to answer) and give us your LLC information over the phone.

Arizona Corporation Commission’s Website Broken Again

On June 28, 2019, the Arizona Corporation Commission’s website stopped displaying documents associated with entities and that problem exists today, July 1, 2019.  When you look up a company on the ACC’s website you can click on the icon on the bottom right that says “Document History” and the site will display documents associated with the company.  However, when you click on the link to a document you get an error message “No Documents To Display.”

The ACC is aware of the problem.  Let’s hope the problem is fixed soon.

2019-07-01T09:32:02-07:00July 1st, 2019|AZ Corporation Commission|0 Comments

Arizona Corporation Commission’s eCorp Website Is Broken

On March 28, 2019, and again on April 1, 2019, I filed Articles of Organization on the Arizona Corporation Commission’s website using its online filing system.  All the data that I entered was displayed correctly on the ACC’s review screen so I paid the $85 expedited filing fee and saved the invoice.  So far so good.  I went to my dashboard and accepted the nomination to be the statutory agent of each LLC.

What should have happened next was the ACC’s system should have approved the Articles of Organization and given me links to the actual Articles of Organization and the ACC’s approval letter so I could download and save the documents.  I got a link to each each document, but when I opened a document it did not contain any information about the newly formed LLC.  Nor could I find the LLC in the ACC’s system when I searched for the LLC by its name.

The Articles of Organization for each of the LLCs looked like this:

AOO 190327P Filed no data

When this happened on March 28, 2019, I contacted the ACC and reported the problem.  It notified its website vendor of the problem and the vendor fixed it the following day.

When I got the blank Articles of Organization on April 1, 2019, I notified the ACC of the problem, but as of writing this article the ACC has not approved the Articles of Organization and the LLC is pending.  We’ve sent several email messages to the ACC without any response.  Calling the ACC is a waste of time because we are on hold for 45 – 60 minutes and then get a person who cannot solve the problem.

Bottom line:  The ACC’s online LLC formation system is broken.  Do not use it because you risk having your data lost in cyber-space and not being able to get any help from the Arizona Corporation Commission.

We Now Offer Same Day LLC Formation & Arizona Corporation Commission Approval

We will form your new Arizona LLC or PLLC and get its Articles of Organization approved by the Arizona Corporation Commission the same day you hire us (including Saturdays and Sundays) if you:

  • Pay the entire fee for your LLC or PLLC plus an additional $97 for same day approval service, and
  • Confirm that the information you submit to us in our LLC Formation Questionnaire is correct.

If you satisfy both of the above requirements before 4 pm Arizona time any day of the week we will form your company and get the ACC approval the same day otherwise we may form the company the next day.  We will also email to your company’s contact person a copy of the ACC approved Articles of Organization the same day we get its approval.

Bottom line:  With same day service it is possible to open a bank account for your new LLC or PLLC the same day you hire us to form your company.

[bctt tweet=”Arizona LLC attorney Richard Keyt who has formed 6,300+ LLCs now offers same day LLC formation and state approval.” username=”azattorney”]

 

How to Open a Bank Account for an Arizona LLC Before the ACC Approves Its Articles of Organization

Because the Arizona Corporation Commission’s new database is broken and apparently can’t be fixed the time the ACC takes to review and approve the Articles of Organization filed to create a new Arizona LLC or PLLC has sky-rocketed through the roof.  To see how long it will take for the Arizona Corporation Commission to review and approve your company’s Articles of Organization go to the ACC’s processing times web page.  See also my article called “Arizona Corporation Commission’s New Database System Sucks.”

This delay is preventing people from opening a bank account in the name of the newly formed company.  Most of the large national banks and some smaller banks in Arizona will not open a bank account for a newly formed LLC or PLLC until after the Arizona Corporation Commission approves the company’s Articles of Organization.  If you cannot wait until the ACC approves the Articles of Organization of your newly formed Arizona LLC or PLLC you can open a bank account before the Articles are approved if you go to one of the banks listed below.

1. First Western Trust. Call Anna Popova, Assistant Vice President, at 602-224-7616 or email her at Anna.Popova@myfw.com. Her office is at 2425 E Camelback Road, Suite 100, Phoenix, AZ 85016. To open an account this bank needs the company’s EIN, Articles of Organization with the ACC stamp on it and the company’s Operating agreement. LLC owners can open a new business account as early as the day they file the Articles of Organization with Arizona Corporation Commission. They bank also has an office at 7025 North Scottsdale Road, Suite 100, Scottsdale, AZ 8525.

2. Trust Bank. Call Angela M. Chavira, Arizona Banking Manager, at 480-883-6819 or email her at Angela.Chavira@tbaz.com. Her office is at 2375 E. Camelback Road, Suite 155, Phoenix, AZ 85016. Trust Bank has four offices in Arizona. See its list of locations.

Arizona Corporation Terminates Its Email Address for Problems

We got the following message in an email we received from the Arizona Corporation Commission today, October 1, 2018:

“THE DOCUMENT INTAKE MAILBOX IS BEING DISCONTINUED, EFFECTIVE AT 5:00 P.M. MST, OCTOBER 5, 2018.  We will continue to accept documents emailed to DOCUMENTINTAKE@AZCC.GOV through October 5, 2018 at 5 pm MST.  After that point, the mailbox will be closed and will not accept any additional emails.  We strongly encourage you to use online filing available at http://ecorp.azcc.gov.  We will continue to accept paper documents mailed or walked in to 1300 W. Washington St, Phoenix, AZ  85007.  If you have any questions, please call Customer Service at 602-542-3026.”

This is very troubling.  We have sent problems that needed fixing for LLCs and corporations to this email address for a very long time.  Now instead of continuing a reliable method of communication the Arizona Corporation Commission wants people to use its broken online ecorp system.

2018-10-01T16:37:06-07:00October 1st, 2018|AZ Corporation Commission|0 Comments

How to Get a Certificate of Good Standing for an Arizona LLC

Question:  How can I get a Certificate of Good standing for my Arizona LLC from the Arizona Corporation Commission?

Answer:  The first thing you need to know is you should not follow the instructions on the Arizona Corporation Commission’s website because those instructions are wrong.  Second, the process is complicated, which is why I created an instructional video that shows you what you must do to purchase the COGS for $45 and immediately download a Certificate of Good Standing.

Watch my video below called “How to Get a Certificate of Good Standing from the ACC” then you will be able to get the COGS in 5 – 10 minutes using the Arizona Corporation Commission’s online ecorp system.

Arizona Corporation Commission Responds to My ACC Sucks Article

Last month I wrote a blog post called “Arizona Corporation Commission’s New Database System Sucks.”  The article alerts the public to some of the many problems created by the ACC switching to a new software system on May 20, 2018.  Here is the Arizona Corporation Commission’s response to my blog post:

“Commissioner Olson forwarded your e-mail to me and asked me to investigate the progress that the Corporations Division has made so far on their new database system. Here are some of the updates:

1. They are familiar with Rick Keyt’s complaints which have mostly been resolved, but they will be following up. Some of the customers who made filings during the first 3 months of rolling out the new program still have some minor issues which are being resolved.

2. They do have a system in place to accommodate urgent requests from customers who reach out to the Commission Offices, so as soon as Commissioner Olson’s office hears about a specific issue, we inform the Corporations Division and they are able to resolve the issues pretty quickly on an individual basis.

3. Overall, the early issues they experienced with the new system during the first two months are much, much better. The little things, like the search date/time that Mr. Keyt pointed out, are resolved. The bigger things, like dates, have seen substantial improvements, but they are still working out a few bugs. They just entered the warranty phase of the contract with the vendor, and the remaining bugs should be fixed over the next 90 days, per the contract.

4. Unfortunately, they are still struggling with processing times right now. Some of that was due to a back-log that built up during the initial phase of the transition, but they have now gotten through all the documents that migrated from the old system, and are now examining documents filed during the first 2 months in the new system. These documents require a lot of corrections, and that takes time. The Corporations Division is working with the Executive Director, Matt Neubert, on potential solutions to improve the processing times, since it usually boils down to additional resources.

That is the update so far, we are hopeful that more information and progress will be forthcoming and we will continue to update the interested parties as we are given new information.

Thank-you for reaching out to Commissioner Olson, we are keeping a close eye on this issue. Also thank-you for the article you shared, if you know of anyone else having similar issues, please send them our way!

Thank-you,

Jacqueline Parker, Esq.
Deputy Policy Advisor to Commissioner Olson
Arizona Corporation Commission
1200 W. Washington Street
Phoenix, Arizona 85007
(602) 542-0745 (office)
(602) 542-4144 (direct line)
JParker@azcc.gov
www.azcc.gov

We have noticed that the ACC is making fewer errors.  Hopefully it will be able to work out all of the kinks and get the new software system working smoothly.

2018-09-07T08:48:03-07:00September 7th, 2018|AZ Corporation Commission|0 Comments

Arizona Corporation Commission’s New Database System Sucks

This article explains a very serious problem that affects most Arizona LLCs and PLLCs that have filed paper (not online filed) Articles of Organization or amendments to Articles of Organization after May 19, 2018.  If you have a company that filed paper articles or amended articles with the Arizona Corporation Commission after that date you need to read this article so you will understand the problems the ACC probably created for you and your company.

ACC Adopts New Software System that Is Crap

On May 20, 2018, the Arizona Corporation Commission stopped using the database and related software that served the public well for many years and switched to a new database system that is broken and may not be fixable.  Before the new software went live the ACC was reviewing expedited filings in 3 – 5 business days and non-expedited filings in 20 – 25 business days.  According to the ACC’s processing time report dated July 30, 2018, the new and improved software system enables the ACC to review expedited filings in 15 -20 business days and non-expedited filings in 54 – 59 business days.

Here’s an example of the broken software system.  I did a search for an Arizona LLC.  Note the date and time of the search, which was 1/1/0001.  My search did not occur in the year after Jesus was born.  How is it possible the software programmers were unable to program the software to display the date and time of a search?  Very troubling.

The Biggest Problem is the ACC Cannot Put Correct Information on Approved Filings

The new software system prevents the Arizona Corporation Commission from compiling and disseminating accurate and correct information.  Between May 24, 2018, and July 13, 2018, we filed Articles of Organization for SIXTY-FIVE LLCs that the ACC has approved, but whose approval documents contain ACC created errors that the ACC is unable to fix.  Despite our many requests to fix incorrect dates and text the ACC put on approved documents the ACC has been unable to correct a single item  of bad information it stamped on the companies’ approval documents.  Update 8/14/18:  On this date we got the first entirely correct approved Articles of Organization, ACC approval letter and ACC website information of the 110 Articles we filed after May 20, 2018.

When the ACC approves new Articles of Organization there are three ACC created sources of information about the new company.  Information about the new company is found in the following locations:

  1. the top of the first page of the filed Articles of Organization returned to the company
  2. the ACC’s approval letter given to the company
  3. the ACC’s website

Not one of the 65 companies we formed between May 20, 2018, and July 13, 2018, that have been approved by the ACC has the correct filing date and correct information on all three of the above sources.  Despite repeated requests given to ACC personnel asking them to correct the ACC errors it has not corrected a single company’s incorrect data.

Illustrations of ACC Created Problems

The images below contain numbers in circles that refer to areas of Articles and approval letters and the website that have un-fixable errors.  The numbers in circles will be explained below.

Top of the Filed Articles of Organization

 

Articles of Organization Problems

The information next to numbers in a circle above is imprinted on the Articles of Organization by the ACC and then given to the company after it approves the filing of the Articles of Organization or amendment to the Articles of Organization.  The significance of each type of information shown above that has a number in a circle:

Circle 1:  The “received” date.  This is supposed to be the date the ACC received the Articles of Organization or the amendment.  This line may or may not be the actual date the ACC received the document.

Circle 2:  The “pending” or “filed” date.  Some times this line says “pending” followed by a date.  Some times it says “filed” followed by a date.  The filed date should always be the date the ACC received the Articles of Organization or the amendment.  Note:  If the ACC approved the document this line should say “filed” (not “pending”) followed by the date the ACC received the Articles of Organization or the amendment.    This line may or may not be the actual date the ACC received the document, which date is the actual date the document was filed.

Circle 3: I don’t have a clue what this long number is, but the ACC stamps it on the top right of each page of the approved document.

Circle 4: The approved document may or may not have this stamp under the first two lines the ACC puts on the top left of the first page.  In the good old days when the ACC was doing its job it always stamped its “Filed” stamp on the top of the first page of the document.  The stamp include the ACC’s file number given to the company.  Now the ACC never stamps its “Filed” stamp or the company’s file number on the approved document.  Sometimes the document may display the “Received” stamp, which is a good thing because the Received stamp always displays the correct date the document was received and filed.

ACC Approval Letter Problem

 

Circle 5:  This image is the top of the ACC’s letter given to companies when it approves the filed Articles or Organization or amendment to the Articles of Organization.  The document received date should be the date the ACC received the document.  This date may not be the actual date the ACC received the document.

ACC’s Company Web Page

 

Circle 6:  The formation date should be the date the ACC received the Articles of Organization or the amendment to the Articles of Organization.  This date is frequently wrong.

Circle 7: The Original Incorporation Date is the Formation Date.  These two dates should be the same and should be the date the ACC received the Articles of Organization or the amendment to the Articles of Organization.  This date is frequently wrong.

Circle 8: The Entity Status should say “Active,” which means the company exists.

Circle 9: The Reason for Status should say “In Good Standing.”

Important Note: If a third party asks for proof that your company exists show the ACC’s web page for the company and point out that the Entity Status is “Active” and the company is “In Good Standing.”

Bottom Line

When your company’s paper filed (not filed online) Articles of Organization have been approved by the ACC the date the ACC received the document should be the same as the filed date.  The received/filed date should be the same on each of the following locations:

  • Circle 1
  • Circle 2: This should say filed, not pending.
  • Circle 4: If this stamp is on your document it should show the date the document was received by the ACC
  • Circle 5
  • Circle 6
  • Circle 7

If your approved Articles of Organization, ACC approval letter or ACC website listing contain errors and you want to fix the errors call the Arizona Corporation Commission at 602-542-3026.

Arizona Corporation Commission Way Behind on LLC Reviews

Just a few weeks ago the Arizona Corporation Commission was reviewing Articles of Organization filed with the $85 expedited filing fee in 3 – 9 business days.  We had many Articles reviewed and approved in three business days.

That was the good old days.  Since the ACC’s new online filing system went live on May 20, 2018, the ACC is taking 20 – 26 business days to review Articles of Organization filed with the expedited filing fee and 60 – 66 business days to review Articles filed with the regular $50 filing fee.  When the Articles are approved the effective date (birth date) of the LLC is the date the Articles of Organization was received by the ACC unless the Articles provide for a later date.

This delay in approvals creates the following problems:

  • Some banks will not open a bank account for the LLC until its Articles of Organization are approved.  If you can’t wait to open a bank account go to a bank that doesn’t require that the Articles be approved by the ACC before opening a bank account.
  • Real estate closings.  A title insurance company will not issue title insurance when the buyer is an LLC until the ACC approves its Articles of Organization.  Several years ago when the ACC had a 60+ day delay, it had a proceed that enabled a pending LLC to move to the front of the review line and get approved so that a real estate transaction could close.  I don’t know if this procedure is still available, but call me if you need to expedite for a closing.

Moral of this story:  Always pay the additional $35 and file using the $85 expedited filing fee when you form a new LLC or PLLC.

Changes to Arizona LLC Law Effective August 9, 2017

The Arizona legislature passed SB1272, which was signed into law by the Governor or Arizona.  This new law makes minor changes to Arizona’s LLC and corporate laws.  These new laws are effective on August 9, 2017.  A summary of the changes is below.

NEW LEGISLATION SUMMARY

SB1272 was passed this last session. It was a corporation omnibus bill, and it affects several filing requirements for both corporations and LLCs. The changes are summarized below in the order in which they appear in the bill. To read the entire bill, click on the bill number.

MOD accounts:

The bill grants the Commission the discretion to allow the use of MOD (money-on-deposit) accounts. Previously, the statute did not give the Commission any discretion. (See changes to A.R.S. § 10-122(K).) For the foreseeable future, the ACC will continue current procedure with MOD accounts.

Approval of documents:

The Commission is no longer obligated to return a copy of an approved document to the customer; the obligation now is to provide notice of the approval. (See changes to A.R.S. § 10-125.) Effective August 9, 2017, the Commission will no longer send out a copy of the document with the approval letter; only the approval letter will be returned to the submitter. Approved documents are available on our website.

Rejection of documents:

The Commission will continue to return a copy of a rejected document along with the letter explaining the rejection. (See changes to A.R.S. § 10-125.)

Electronic transmission and Notice:

Definitional changes were made, and other references throughout the corporation and LLC statutes have been modified to refer to “electronic transmission” where appropriate, and that definition links back to the definition of “electronic record” found in the electronic transactions statutes, A.R.S. § 44-7001, et seq. This is an attempt to codify the use of email as an allowable means of communication and for giving Notice between the Commission and entities. (See, e.g., A.R.S. §§ 10-140(21), 10-141, and 10-504.) The Commission now can send official notices, such as a Notice of Pending Administrative Dissolution, via email. Please note that this will NOT be implemented until the new computer system is up and running. When the new system is in use, the Commission will ask for the entity to consent to receive such notices by email. If the entity does not consent, notices will be sent via the U.S. Post Office.

Change documents:

The requirements for Statements of Change have been simplified. Only the new information for address and agent will be required. We are revising our forms to reflect the minimal requirements and will have those available as of August 9.

Annual Reports:

The dissolution and withdrawal statutes have been revised to allow for a six-month suspension of the annual report requirement for corporations that file for a voluntary dissolution/withdrawal. (See, e.g., changes to A.R.S. § 10-1403.) Corporations have six months after submission in which to complete a dissolution or withdrawal. Often, corporations will try to complete the dissolution/withdrawal but find that they now owe their annual report and/or owe penalties for not filing it on time. This bill provides that the annual report requirement is suspended for six months from the date the dissolution/withdrawal is submitted. Note: once the six months passes, the annual report is due and so are penalties, if enough time has passed since the due date. TIP – obtain the tax clearance certificate before submitting the dissolution. That way, you will never run into a penalty situation with the annual report. This change is being programmed into the current system and should be implemented by August 9. The new law applies only to dissolutions or withdrawals delivered to the ACC on or after August 9, 2017.

Foreign nonprofit corporations:

The gap left by last year’s SB1356 is now closed – foreign nonprofit corporations no longer have to file applications for new authority when they amend their articles. A foreign nonprofit corporation that amends its name, duration, or state of jurisdiction will now file Articles of Amendment to Application for Authority (along with a certified copy of the amendment) – a significant cost savings ($25 fee instead of $175). This change is already in effect for foreign for-profit corporations, from last year’s SB1356. The ACC’s form will apply to both for-profit and nonprofit corporations as of August 9, 2017.

Nonprofit corporations:

Another gap was closed – nonprofit corporations can sue for false filings. For-profit corporations and LLCs were granted this right of action in last year’s SB1356. Note – this is a private right of action and is not something the ACC will do for the corporation.

LLC administrative dissolution:

LLCs whose latest date to dissolve has passed will now be administratively dissolved. (See changes to A.R.S. § 29-786.) The LLC does have an option of amending its articles, or, if it is administratively dissolved, of reinstating and then amending its articles. There are several thousand LLCs that will be administratively dissolved pursuant to this provision, beginning on or after August 9, 2017.

Imposter Signs & Files False Articles of Termination & ACC Terminates the LLC

This week I learned about a now defunct Arizona LLC that was terminated by the Arizona Corporation Commission (the “ACC”) without the prior knowledge or consent of the sole member and manager of the LLC.  The Articles of Organization filed with the ACC to create the LLC named Homer Simpson (not the member’s real name) as the member and manager of the manager managed LLC called World Wide Widgets, LLC (not real LLC’s name).

Sometime in 2015 somebody filed Articles of Termination to terminate World Wide Widgets, LLC.  The document was not signed by Homer Simpson.  It was signed by Bob Faker (not the real name of the signer) who signed as the manager of the LLC.  The ACC approved the filing and terminated World Wide Widgets despite the fact Bob Faker was not listed on the records of the ACC as a member or a manager of the LLC.

I notified the ACC about the fraudulent termination of the LLC and this is its response:

“We accept filings at face value, and do not request any verification of authority to act.  As you know, we are just a filing agency, not an enforcement agency.  We do not investigate or have any authority to enforce any laws with respect to allegations of fraud.  We are unable to assist with reinstating this entity.  If you were to get a court order requiring reinstatement, we would follow that order”

The fraudulent termination of an LLC could have extremely negative consequences for the members of the terminated LLC.  Here are just a few problems that the termination causes:

  • The termination would cause the IRS to take the position that the termination caused all of the assets of the terminated LLC to be distributed to the members in the year of the termination.  If the value of the distributed assets exceeds the member’s tax basis in the LLC the member has taxable income equal to the value of the distributed assets minus the tax basis.  For example, if the LLC’s only asset is a parcel of real property valued at $200,000 and the  sole member of the LLC has a tax basis of $100,000, the member has taxable income of $100,000 in the year of the fraudulent termination.
  • If the LLC owns assets that have a title, there is no document that evidences a transfer of ownership from the LLC to the member.  In the example above, the member would be the beneficial owner of the real estate, but there is no deed signed by the terminated LLC that transfers the title to the land to the member.  Because the LLC was terminated, it is not possible for it to sign a deed that transfers title.  The member will be forced to file a quiet title lawsuit to get the title changed from the LLC to the member.
  • If the terminated LLC has intellectual property such as patents or trademarks those assets will be in limbo.
  • The financial history of the terminated LLC will be lost.  The member can form a new LLC with the same name, but could not say that the new LLC has been in business since 1995.

I am sure there are many additional problems a fraudulent termination can cause.

Consequence of Filing a False Document with the ACC

Arizona LLC law provides that it is a felony to file a false document with the ACC.  Arizona Revised Statutes Section 29-613.A states:

“A person who . . . signs any articles, statement, report, application or other document filed with the [Arizona Corporation] commission that is known to the person as false in any material respect is guilty of a class 4 felony.”

Solution to the Problem

The issue becomes what, if anything, can the members of the terminated LLC do to correct the problem.  The answer alluded to by the ACC’s response above is for the members of the LLC to file a lawsuit and ask the superior court to issue an order to the ACC that the ACC reinstate the existence of the terminated LLC and correct its records to reflect that the fraudulent termination of the LLC never occurred.

This sad story reinforces something I have been telling my LLC clients for years:  YOU MUST CHECK THE ACC’S WEBSITE AT LEAST ONCE EVERY THREE MONTHS TO CONFIRM THAT ALL THE INFORMATION ABOUT YOUR LLC IS CORRECT.  If you find that your LLC was fraudulently terminated then you can file your lawsuit to correct the problem sooner rather than later.

If your LLC was fraudulently terminated, call me at 480-664-7478 or send me an email message at rickkeyt@keytlaw.com

Go the the ACC’s ecorp website to search for your LLC and confirm it exists and all information is correct.

Arizona Benefit Corporations Update

On January 1, 2015, Arizona’s benefit corporation law became effective.  This new law allowed people to form a new type of Arizona corporation called the “benefit corporation.”  An Arizona benefit corporation is a corporation whose Articles of Incorporation states that the corporation is a benefit corporation.  The benefit corporation may have a general public benefit goal, i.e., to have a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.

Yesterday I asked the Arizona Corporation Commission how many benefit corporations have been formed under Arizona’s relatively new benefit corporation law.  The answer is twelve!  Yes.  Twelve benefit corporations formed in Arizona in two years.  Of the twelve Arizona benefit corporations ten of them became b corps in 2015 and two became b corps in 2016.  Here are the only corporations in Arizona that are benefit corporations:

  • Goodmans, Inc.
  • Sechler, CPA, P.C.
  • Desert Sky – Music, Art & Sustainability Festival, Inc.
  • Elevate by Will Claye Inc.
  • Spirit of Esther Incorporated
  • Individualized Pool Care, Inc.
  • Spex: Sedona Philosophy Experience Corporation
  • Nail Art Club, Inc.
  • Good Market Inc.
  • Upcycle Tucson Inc.
  • The Bull Market, Inc.
  • Envusion, Inc.

You might ask “why would anybody form an Arizona benefit corporation?”  My answer is I don’t know.  If you can think of a good reason to form a benefit corporation rather than a form a for profit corporation, a nonprofit corporation or a limited liability company, leave a comment and tell me.

ACC Procedure Change

On July 15, 2016, Patricia Barfield, Director, Corporations Division, of the Arizona Corporation Commission, announced the following change in procedures of the Arizona Corporation Commission:

“This is notice that we are changing the procedure for requesting copies and certificates of good standing.  The change is being made as part of our ongoing effort to improve the document processing times.  We will be channeling all copy or certificate requests to our Records Section.

Beginning Monday, July 18, 2016, you will no longer be able to request plain or certified copies of documents or certificates of good standing on the Cover Sheet.  We are removing these options on the Cover Sheet.  Instead, we suggest using our Records Request Form to request copies or certificates, and that will be sent directly to the Records Section.

IMPORTANT — FEES:  If you submit your own cover sheet or letter and you request copies or certificates at the time you submit the document for filing, you must pay the correct fees.  If the correct fees are not paid or the correct amount is not authorized to be deducted from the MOD account, the document will be rejected.

The fees for copies are as follows:

Certified copy – corporations (per document): $5.00 + $.50/page

Certified copy – LLCs (per document): $15.00 + $.50/page

Certificate (any type that is not for copies): $10.00

Uncertified or plain copy – corporations (per document): $.50/page

Uncertified or plain copy – LLCs (per document): $5.00 + $.50/page

*Expedited processing is available by adding $35.00 to the fee for any request or service.

Plain or certified copies of documents that have been filed can be obtained directly from our Records Section, by submitting a Records Request Form.

Certificates of Good Standing for active entities can be obtained online after the entity is formed, or by submitting Records Request Form.

We greatly appreciate your cooperation with our efforts at improving our customer service by improving our processing times!

Patricia L. Barfield

2016-07-23T16:29:38-07:00July 18th, 2016|AZ Corporation Commission|0 Comments

Member Fraudulently Amends Articles of Organization to Remove Other Member

From time to time a member of an Arizona LLC calls and tells me that another member of the LLC filed an amendment to the Articles of Organization with the Arizona Corporation Commission that removed the caller as a member of the LLC without the caller’s knowledge or consent.  There was no legal basis to file the amendment.

The caller always asks “what can I do?”  The simple answer is the caller should prepare and file another amendment to the Articles of Organization to correct the removal of the caller as a member.  This solution, however, is only a temporary band aid.  It does not solve the fundamental problem which is the members cannot get along.

Unfortunately this scenario is an all too common problem.  The Arizona Corporation Commission is, in actuality, a mere filing service.  If a person submits a document for filing and it satisfies the ACC’s filing requirements, the ACC will file the document.  The ACC does not confirm or verify that the information set forth in a document is correct.  Many times when members of an Arizona LLC can not agree on the management of the LLC one of the members will file an amendment to the Articles of Organization that removes another member without any legal basis for the removal.

People who file false documents with the ACC are usually unaware that they could be committing a felony.  Arizona Revised Statutes Section 29-613.A states:

“A person who . . . signs any articles, statement, report, application or other document filed with the [Arizona Corporation] commission that is known to the person as false in any material respect is guilty of a class 4 felony.”

The bottom line is that when this happens the members need to consummate a “company divorce,” i.e., a legal termination of their relationship as members of the same LLC.  The best solution occurs if the members agree on the terms and conditions of their company divorce and they sign documents that evidence their agreement.  If the members cannot agree, they have two options:

  • Continue their relationship as members of the LLC, which means ongoing disputes, problems and stress.
  • File a lawsuit in an Arizona Superior Court and ask the court to dissolve the LLC.  This option takes time and causes both members to pay large amounts of money to their lawyers.

As a result of this latest call, I revised my multi-member Operating Agreement (yes I have a single member and husband and wife owned Operating Agreement that is about 20 pages shorter) to include a section that obligates a member who causes a fraudulent amendment to the Articles of Organization to be filed with the ACC to pay each other member liquidated damages in the amount of $10,000.  If the liquidated damages are not paid within 30 days of the filing date the unpaid amount accrues interest at the rate of 10% per annum.  If the entire amount is not paid within one year of the filing date, the offending member’s membership interest in the LLC will be forfeited on the first anniversary of the date the false amendment to the Articles of Organization was filed with the ACC and the unpaid portion of the liquidated damages will be forgiven.

For more on this topic read my blog post called “Can One Member of an Arizona LLC Expel Another Member?

Arizona Legislature’s HB 2447 Eliminates Newspaper Publication

On May 17, 2016, Arizona Governor Doug Ducey signed Arizona Legislature House Bill 2447.  This new law is a tremendous victory for the people and a huge defeat for Arizona newspapers.  HB 2447 eliminates the long standing rip off known as the publication of legal notices when corporations or limited liability companies are formed in Arizona.  Unfortunately, publication was eliminated only for entities with known places of business in Maricopa or Pima counties.

Beginning December 31, 2016, new Arizona LLCs and corporations with a known place of business in Maricopa and Pima Counties will not have to publish Articles of Incorporation (corporations) or Notices of Publication (LLCs) in a newspaper.  Instead, the Arizona Corporation Commission will enter information about the newly formed entities into a database it is obligated to create.

HB 2447 states that publication is eliminated only for entities that have a known place of business in a county that has a population greater than 800,000.  Currently only Maricopa County and Pima County have populations that exceed 800,000.

Entities that have known places of business in counties other than Maricopa and Pima must continue to donate money to the few Arizona Corporation Commission approved newspapers in the eleven counties with less than 800,000 people.  Publication is a total rip off.  For example, a few years ago we published Articles of Incorporation for a nonprofit corporation in a newspaper in a less populated county and it cost my client $600 after a 10% discount for the nonprofit corporation.  Outrageous!

 

How Can I See If My Desired LLC Name is Available?

Question:  I intend to form a new Arizona limited liability company.  I know that the Arizona Corporation Commission will reject my Articles of Organization if my desired LLC name conflicts with the name of an existing Arizona entity or an Arizona trade name issued by the Arizona Secretary of State. How can I insure that my desired LLC name will not be rejected by the ACC?

Answer:  Actually, the latest version of the ACC’s online database has an easy to use name checker that will tell you if your desired name will be accepted or rejected.  Here’s how to check a prospective LLC name.

  • Go the the Arizona Corporation’s name checker website.
  • Click on the text that says “Name – Forms for entity name reservations.”
  • Click on the text that says “Check Entity Name Availability.”
  • Enter your desired LLC name in the Name field.
  • Click on the down icon to the right of the text that says “Select an Entity Type.”
  • Click on the letters “LLC.”
  • Click on Check Name.

The ACC’s database will then tell you the desired name is bad or it is available.

Name Reservation Warning:  Although the ACC’s database will ask if you want to reserve the name, I don’t recommend that you waste the $45 unless there is a lot of money riding on the name.  Before purchasing a name reservation ask yourself this question:  Given that the desired name has been available from the beginning of time up to the moment you checked the name, what are the chances somebody will use your desired name before you file your Articles of Organization?

Arizona LLCs Can Now Be Formed Online

The following is the text of a September 30, 2015, press release issued by the Arizona Corporation Commission:

Creating an LLC in Arizona just got a lot easier. The Arizona Corporation Commission is accepting online filings for the first time. Before the online efiling became available earlier this month, someone wishing to create a limited liability company had to either come to a Commission office or mail in the paperwork.

LLC formation is one of the commission’s most important missions, Commission Chairman Susan Bitter Smith said. Shortening the amount of time it takes to file the paperwork and making sure all necessary information is submitted up front allows a business to start functioning sooner.

‘I’m proud the commission now allows for a secure and easy way to create an LLC,’ Bitter Smith said. ‘This innovation makes it faster for people to start the businesses of their dreams.’

Last year, more than 52,000 Arizona businesses were formed as LLCs, many of those coming from people who drove to a commission office to submit paperwork. Filing for an LLC online can be done here http://ecorp.azcc.gov/Entity or by going to the commission’s home page www.azcc.gov

The ability to create an LLC through online filings won praise from the business community.

‘Electronic filing of LLC documents has been long awaited by the business community and I applaud the Commission for taking this bold step. Innovation such as this will make starting businesses in Arizona easier, more efficient, and timely,’ Greater Phoenix Chamber of Commerce President and CEO Todd Sanders said. ‘We look forward to the Commission expanding electronic services even further in the future.’

Commissioner Doug Little said the Commission is sending an important message to the business community.

‘I believe this innovation by the Commission will dramatically improve and streamline the process of establishing an LLC in Arizona,’ Little said. ‘This is exactly what we need to be doing to support Governor Ducey’s initiative to let people know that Arizona is ‘open for business.’”

ACC Stops $4.9 Million Investment Scam

The following is the text of a February 3, 2015, Arizona Corporation Commission press release:

The Arizona Corporation Commission today ordered Tucson residents Michael and Betsy Feinberg and their affiliated company, Catharon Software Corporation, to pay $4,926,559 in restitution and a $250,000 administrative penalty for defrauding investors with an unregistered investment program. The Commission found that the Feinbergs, formerly of Sedona, represented that they had created and owned a patented computer language technology named “V∆Delta”that would enable Catharon to compete with Microsoft and other computer language systems manufacturers.

While not registered to offer or sell securities in Arizona, the Feinbergs induced investors to purchase Catharon stock by repeatedly representing that Catharon would launch its technology within months of the investors’ investment, Catharon would generate $2 billion in revenue within three years and investors would receive returns of between 400 and 1,572percent.  The Commission found, however, that the Feinberg never launchedCatharon’s technology.

The Commission found, and the Feinbergs admitted, they did not have any reasonable factual basis for the projected launch dates, the projected $2 billion revenue figure and investment returns, or their representations that Catharon would compete with Microsoft and similar companies. Further, the Commission found that the Feinbergs failed to disclose their use of investor monies to pay for personal living expenses, including a bird-watching trip to Mexico, as well as the transfer of more than $891,000 to their personal bank account. In settling this matter, the Feinberg admitted to the Commission’s findings for the purposes of its administrative proceeding and any other proceeding in which the Commission is a party and consented to theentryof the consent order.

For more details about this case, view the full text of the Commission’s order S-20905A-14-0061. The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners.

2019-07-04T10:28:52-07:00February 3rd, 2015|AZ Corporation Commission|0 Comments

Beware Certificate of Good Standing Rip Off

Today we received in the mail about 30 envelopes from Arizona Business Filing Services.  The envelopes contained an official looking document entitled “2014 Certificate of Good Standing Request Form.” The document suggests that the brand new Arizona LLC should pay ABFS $59.99 to obtain a Certificate of Good Standing for the new LLC.  As soon as I saw the document I knew it was a scam.  Here are some tell tale signs that the letter should be ignored:

  • It starts with IMPORTANT!
  • It states “Your Articles of Formation have been filed with the Secretary of State of Arizona.”  Arizona LLC’s don’t file Articles of Formation with the Secretary of State.  Arizona LLCs file Articles of Organization with the Arizona Corporation Commission.
  • The cost for the Certificate of Good Standing is $59.99, but anybody can obtain a COGS from the Arizona Corporation Commission for $10.

FYI:  We never get a Certificate of Good Standing for LLCs we form.  Your LLC does not need a COGS unless some party like a bank or title insurance company asks for it.  When somebody does demand a COGS the requestor wants a current document, not one obtained two years before the request for the COGS.

The following is the text of a June 9, 2014, press release from the Arizona Corporation Commission concerning the Arizona Business Filing Services COGS letter:

Corporation Commission Warns Business Owners of
False Service Claiming to Offer “Official” Documents

PHOENIX — The Arizona Corporation Commission is warning business owners that an individual or group calling itself “Arizona Business Filing Services” is sending out an official – looking document offering to provide an “Arizona Certificate of Good Standing” for a fee of $59.99. This entity is not affiliated with the Corporation Commission, and business owners do not need to go through any third party to obtain their Certificate. Further, the Commission cannot guarantee the authenticity of such a document.

Valid Certificates of Good Standing can only be obtained directly from the Corporation Commission. The entity status can be viewed online, or a hard – copy certificate of good standing can be obtained by corporations and limited liability companies immediately online for a fee of $45, or by mail, for a fee of $10 (regular processing time).

The Commission has referred this false advertisement to the Attorney General’s office for investigation. I f you have received it, please contact the Arizona Attorney General’s Office in Phoenix at (602) 542-5763, in Tucson at (520) 628-6504, or outside the Phoenix and Tucson metro areas at 1 (800) 352-8431. To file a complaint online, please visit the Attorney General’s web site at www.azag.gov. To file a complaint in person, the Attorney General’s Office has 37 satellite offices throughout Arizona with volunteers available to help. Locations and hours are posted on the Attorney General’s web site .