Articles of Organization

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”]

 

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.

How to Determine if an Arizona LLC is Member or Manager Managed

A client sent me an email in which he said, “the “Arizona Department of Real Estate is asking for ‘a copy of the resolution signed by members stating: whether management of LLC is established as manager/member controlled’.

This is the first time in the 34 years I’ve been forming Arizona LLCs that anybody ever asked that question.  If that is really what the Department of Real Estate wants then it/they are ignorant of Arizona LLC law and are asking for an irrelevant document that does not actually prove the LLC’s type of management.

The type of management of an Arizona LLC is not determined by resolutions signed by the members.  Management type is stated in the Arizona LLC’s Articles or Organization filed with the Arizona Corporation Commission.  Arizona Revised Statutes Section 29-632 states:

“The articles of organization shall state . . . Either of the following statements:

(a) Management of the limited liability company is vested in a manager or managers.

(b) Management of the limited liability company is reserved to the members.”

The Articles of Organization filed with the Arizona Corporation Commission to create an Arizona LLC contains a statement that the LLC is manager managed or member managed.  Anybody who wants to verify the type of management of an Arizona LLC should look up the LLC on the ACC’s website (enter the name of the LLC in the search box on the top right) then click on the link to the Articles of Organization and read the management type set forth in the Articles.

2017-02-15T08:00:52-07:00February 15th, 2017|Articles of Organization, Miscellaneous|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?

New Arizona Law Exempts LLC Organizers from Arizona Securities Laws

Arizona House Bill 2303 signed into law by Governor Doug Ducey contains a significant change to Arizona’s securities laws.  The new law allows the issuance of LLC membership interests to as many as ten LLC “organizers” to be exempt from Arizona securities laws.

Arizona Revised Statutes Section 44-1844.A was amended to read (new language is in bold red text):

“sections 44‑1841 and 44‑1842, section 44‑1843.02, subsections B and C and sections 44‑3321 and 44‑3325 do not apply to any of the following classes of transactions: . . .

10.  The issuance and delivery of securities of a corporation, limited liability company or limited partnership to the original incorporators, organizers or general partners, not exceeding ten in number, where the securities are not acquired by the incorporators, organizers or general partners for the purpose of sale to others and are not directly or indirectly sold to a third party within twenty-four months unless an incorporator, organizer or general partner experiences a bona fide change of financial circumstances within such time period, providing original incorporators, organizers or general partners are notified of their right pursuant to title 10 or 29 to review the financial books and records of the corporation, limited liability company or limited partnership at reasonable times.”

The term “organizer” is not defined in any Arizona statutes.  The Arizona Corporation Commission’s hard copy form Articles of Organization contains the following statements in Section 9 of the document:

“ORGANIZERS and SIGNATURE – the individual or pre-existing entity submitting this document is the Organizer – list the name of the Organizer below. If the Organizer is an individual, that individual must sign below. If the Organizer is a pre-existing entity, provide the signature of the individual acting for that entity, then print the individual’s name.”

Without any statutory reference that supports the statements, the first paragraph of the ACC’s instructions for its hard copy Articles of Organization states:

“One or more persons can form an Arizona LLC by signing and filing Articles of Organization with the Arizona Corporation Commission. . . . These persons are called “organizers.” “Person” includes individuals and entities.”

Significance of the New Law

This change in Arizona law is very important for every Arizona LLC that will issue membership interests that the securities regulators would designate as a security.  If you think an LLC must issue stock to investors before it is considered issuing a security you are wrong.

If the promoters of the LLC say to an investor give me your money for an X% membership interest in our LLC and the LLC will make a profit for you the LLC is issuing a security to the investor.  This is an example of an “investment contract,” which is a type of security under federal and state securities laws.

When securities laws apply to the issuance of membership interests in an LLC the LLC must comply with federal and applicable state securities laws or the promoters and the LLC become guarantors of the investors’ investments.  Promoters who cause an LLC to issue membership interests that are securities the issuance of which does not comply with applicable securities laws will have substantial liability to the investors and to the securities regulators.

To learn more about securities laws and how they can affect LLCs read the article my son and I wrote called “California LLCs & Securities Laws.”  Although the article is about California LLCs, many of the concepts apply to Arizona LLCs.

Bottom Line

If your to be formed Arizona LLC will be issuing membership interests to people or entities that are investing substantial amounts of money to purchase their membership interests, you must have EVERY INVESTOR (without exception, but no more than ten) sign the Articles of Organization as an organizer so the LLC can claim the exemptions provided from Arizona securities laws by Section 44-1844.A.10.

If you need your LLC to be able to use the ten exemptions provided in Arizona Revised Statutes Section 44-1844.A.10 hire us to form your LLC.  Our Articles of Organization for LLCs that want to take advantage of Section Section 44-1844.A.10 contain special Section 44-1844.A.10 language.

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.’”

Can One Member of an Arizona LLC Expel Another Member?

Question:  I am named in the original Articles of Organization of an Arizona limited liability company as a member.  Another member of the LLC signed an amendment to the Articles of Organization that removed me as a member.  Is that legal and does it terminate my membership in the LLC?

Answer:  No and no unless the member who signed the amendment had a contractual right to sign and file the amendment that removes you as a member of the LLC.  Arizona LLC law does not give a member of an Arizona LLC the right or power to unilaterally terminate the membership interest of another member.

As an Arizona limited liability company attorney who formed my first AZ LLC in October of 1992 and who has formed 6,700+ LLCs since then I must say that this is a very common scenario.  People think that the mere fact they file an amendment to the Articles of Organization that removes a member that the filed document has legal significance, i.e., that the person or entity that was a member yesterday is suddenly no longer a member today merely because the Articles were amended.

When a person or an entity acquires a membership interest in an Arizona LLC that person or owner has a property right recognized by Arizona law.  The owner of a property right cannot be divested of the property merely because somebody files a false document.  Example:  Homer Simpson owns a parcel of Arizona land.  Ned Flanders signs a deed that says Homer Simpson conveys the land to Ned and then records the deed.  This false deed does not transfer title to the property to Ned.  Ned’s deed is a legal nullity because it was not signed by the owner of the property.

The same concept applies to the property right that attaches to the member of an Arizona LLC.  If Ned Flanders signs and files an amendment to the Articles of Organization that removes Homer Simpson as a member that document does not cause Homer to cease to be a member.  There are four ways that Homer can cease to be a member of the company:

  • Homer dies.
  • Homer signs a document by which he assigns his membership interest to the LLC or one or more other people or entities.
  • Somebody has a legal or contractual right to terminate Homer’s membership interest.
  • A court terminates the membership.

Warning:  Arizona Revised Statutes Section 29-613.A states: “A person who . . . signs any articles, statement, report, application or other document filed with the commission that is known to the person as false in any material respect is guilty of a class 4 felony.”

Should I Pay the $50 or $85 Arizona LLC Filing Fee?

Question:  I know the fee to file Articles of Organization to create a new Arizona limited liability company is $50 or $85.  Why would I pay the $85 filing fee?

Answer:  The main reason to pay the $85 expedited filing fee is because the Arizona Corporation Commission will review the new LLCs Articles of Organization and approve it (hopefully approve rather than reject) within 5 – 8 business days rather than the 30 – 35 business days that applies to the standard $50 filing fee.  You should pay the $85 fee if any of the following apply to your LLC:

  • You need to open a bank account and your bank requires a copy of the LLC’s approved Articles of Organization and you can’t wait 30 – 35 business days.
  • You want the LLC to be able to take title to real estate and you can’t wait 30 – 35 business days.  Escrow companies will not close a real estate purchase escrow if title insurance is to be issued to the new LLC until the ACC approves the Articles of Organization.
  • The LLC is to sign an important contract and the other party won’t sign the contract until the ACC approves the Articles of Organization.

To see the exact number of days for the ACC to review regular filings and expedited filings go to its document processing times webpage.

When Will the Arizona Corporation Commission Review My LLC’s Articles?

Question:  When will the Arizona Corporation Commission review the Articles of Organization of my new Arizona limited liability company?

Answer: The amount of time the ACC takes to review Articles of Organization filed to create a new Arizona LLC depends on the whether the filing fee paid to the ACC was the $50 standard fee or the $85 epedited filing fee.  In general the ACC will review new Articles of Organization as follows:

  • If the filing fee is $50: ACC review is normally 4-6 business days after filing.
  • If the filing fee is $85: ACC review is normally 25- 30 business days after filing.

Go to the ACC’s document processing time web page to see exactly the filing date of documents that the ACC is currently reviewing.  Compare the Expedited ($85 filing fee) or the Nonexpedited Filing ($50 filing fee) processing times in business days for new LLCs with the received date stamped on the first page of the Articles of Organization that we emailed to you.

One of the advantages of purchasing our Silver or Gold LLC formation packages is that both of these packages include our payment of the $85 expedited filing fee.  Our Bronze LLC formation package Articles of Organization are filed using the standard $50 filing fee, which results in the much longer ACC review and approval.

2019-07-04T07:58:36-07:00February 27th, 2014|Articles of Organization, FAQs|0 Comments

What is the Difference between the Silver & Gold LLCs Formation Packages?

Question:  Why would I purchase your Gold LLC formation package for $997 instead of paying $597 for the Silver Package?

Answer:  The primary reason people purchase the Gold LLC formation package is because the ultimate owner of the LLC does not want his/her/its name to appear on the public records of the Arizona Corporation Commission.   Arizona LLC law requires that the Articles of Organization filed with the ACC to create the LLC must list the name and address of all members if the LLC is member managed or all members who own 20% or more of the membership interests.

If you do not want your name as the owner of your LLC and your address to appear the ACC’s public searchable internet database then you need to purchase my Gold LLC formation package.  The Gold package includes a Confidential Trust that will be the legal owner of the LLC.  A Confidential Trust is a simple revocable living trust in which the ultimate owner of the LLC is the trustmaker, trustee and beneficiary.

For example, if the name of your Confidential Trust is the Laguna Beach Trust then then owner/member shown in the Articles of Organization filed with the ACC is the Laguana Beach Trust, c/o KEYTLaw, LLC, 7373 E. Doubletree Ranch Road, Suite 165, Scottsdale, AZ 85258.

Note: The Gold LLC formation package includes our address service for one year.

Learn about the contents of our three LLC formation packages.

2019-06-15T06:50:59-07:00February 15th, 2014|Articles of Organization, FAQs, Forming LLCs|0 Comments

How Do I Change the Purpose of My Arizona LLC?

Question:  I’ve used my Arizona LLC to sell widgets.  I now want to use it to provide marketing services.  How do I make the change?

Answer:  An Arizona LLC can engage in any lawful activity unless its activities are limited by language in the Articles of Organization.  Unless your AOO prohibits the LLC from engaging in marketing services the LLC is free to begin providing those services at any time, subject to any state, county or city licensing requirements.

When I form an Arizona LLC is do not normally include any language in the Articles of Organization that limits the LLC’s activities unless the LLC is a professional LLC (PLLC).  PLLCs by definition must limit their activity to practicing the applicable profession.

2014-02-23T11:56:38-07:00February 2nd, 2014|Articles of Organization, FAQs, How Do I|0 Comments

Why is My Spouse Named as a Member in the Articles of Organization?

Question:  Why did you list my spouse as a member of my Arizona LLC in its Articles of Organization?

Answer:  Arizona is a community property state.  Arizona law provides that all property acquired while married by either spouse who is an Arizona resident is community property unless it is acquired by gift or inheritance.  This means that if one spouse of a married couple who reside in Arizona acquires a membership interest in an Arizona by then both spouses automatically own the interest as community property unless the non-owner spouse signs a disclaimer in which the non-owner spouse disclaims all ownership of the membership interest.

Because you told me that you wanted to own your membership interest in the LLC as community property I named both spouses as members of the LLC in its Articles of Organization.  Arizona law provides that it is a felony to file Articles of Organization with the Arizona Corporation Commission if contains known factual misrepresentations.  If one spouse owns his or her membership interest as separate property then the non-owner spouse should not be named as a member in the Articles of Organization.

2013-09-20T07:17:39-07:00September 20th, 2013|Articles of Organization, FAQs, Forming LLCs|0 Comments

Can an Arizona LLC’s Address be a Post Office Box?

Question:  I know that all LLCs formed in Arizona must file Articles of Organization with the Arizona Corporation Commission in which the LLC notifies the ACC of its known place of business in Arizona.  Can the LLC’s address be a U.S. post office box?

Answer:  No.  The ACC used to allow LLCs to use a PO box for the LLC’s address, but it burped last year and decided to outlaw U.S. post office boxes for the LLC’s Arizona address.  US post office boxes are fine for members and managers, but if you try to file Articles of Organization that state that the LLC’s address is a US P.O. box the ACC will reject the Articles.

Don’t File a False Document with the Arizona Corporation Commission

A client called and said his banker refused to open a bank account because the Articles of Organization filed with the Arizona Corporation Commission does not list the name of a person who owns 10% of the LLC.  The banker insisted that my client file an amendment to the Articles of Organization that names the 10% owner as a member.  Here is the text of an email message I sent to my client about the bank’s unreasonable and ignorant request:

I understand that your bank wants you to commit a felony and file a false document with the Arizona Corporation Commission that misrepresents the ownership of your LLC. Specifically your bank wants the Articles of Organization of <name omitted>, LLC, to show that Homer and Marge Simpson are members of the LLC despite the fact they together own only 10% of the company.

Arizona Revised Statutes Section 29-632.A states: “The articles of organization shall state: If management of the limited liability company is vested in a manager or managers, each person who is a manager of the limited liability company and each member who owns a twenty per cent or greater interest in the capital or profits of the limited liability company.”

Your LLC is manager managed therefore Arizona LLC law prohibits naming anybody as a member of the LLC unless the member owns 20% or more of the LLC. I understand that your banker wants you to file a false document with the Arizona Corporation Commission that names Homer and Marge Simpson as members of the LLC. You should not do that because it is a felony to file a document with the Arizona Corporation Commission that you know contains a misrepresentation of the facts.

Arizona Revised Statutes Section 29-613.A states: “A person who . . . signs any articles, statement, report, application or other document filed with the commission that is known to the person as false in any material respect is guilty of a class 4 felony.”

Because of this law knowledgeable bankers and others always ask to see the Operating Agreement of a manager managed Arizona LLC because an Operating Agreement signed by all of the members is the only way to verify all of the owners of a manager managed Arizona LLC and their percentage ownership of the LLC.

Bottom Line:  Do not file documents with the Arizona Corporation Commission that contain false statements.

Can I See Your LLC Documents before You Form My LLC?

This week a man inquired about my LLC formation services.  He asked if he would see the Articles of Organization and Operating Agreement before I formed the LLC.  I said normally I prepared and filed the Articles of Organization and prepared the Operating Agreement without first sending the documents to my client.

The man said “I am appalled.” He added that he was offended that I would have the gall to prepare LLC documents without his prior input.

I said that in forming 6,700+ Arizona LLCs not once had I ever sent both of these documents to the owner of the LLC before forming the company.  Nor had anybody ever asked me to see either document before I filed the Articles of Organization with the Arizona Corporation Commission.  When I send the Operating Agreement to an LLC member I ask the member to review the document and to let me know if he or she wants to modify the Operating Agreement.

I also said that I would be happy to send the man both documents before I formed the company to get his input and make changes if necessary.  Despite my offer, the man was too offended by my long-time practice and he declined to hire me to form his LLC.

The whole discussion was surreal.  I could not imagine why a person who had never seen Articles of Organization or an Operating Agreement and had never owned an LLC would think that he or she needed to review the documents before I filed the Articles of Organization.  I cannot remember anybody ever asking me to modify my three page custom drafted Articles of Organization (before or after I filed the document).

From time to time people do want to make minor modifications to my Operating Agreement. Sometimes people even want to make major changes to my Operating Agreement.  In fact, the day after the angry would-be LLC expert declined to hire me to form his LLC another person hired me to form an LLC and gave me six pages of text that the members of her new LLC wanted included in my Operating Agreement.  I was happy to include the client supplied provisions, subject to charging for attorney time to revise the document.

Bottom line:  As you can imagine, after forming 6,700+ Arizona LLCs my documents are excellent, but if you want to modify my Articles of Organization or Operating Agreement, I am happy to do so unless I believe a change would be inappropriate.

Arizona LLCs No Longer Can Use a PO Box as a Place of Business

The Arizona Corporation Commission will no longer allow a new Arizona limited liability company to use a Post Office box for the LLC’s known place of business in Arizona.  Arizona Revised Statute Section 29-604.A states:

“A limited liability company shall appoint and continuously maintain in this state . . . A known place of business that may be the address of its statutory agent.”

Arizona Revised Statutes Section 29-632.A states:

“The articles of organization shall state . . . . The address of the company’s known place of business in this state, if different from the street address of the company’s statutory agent.”

Despite the fact neither statute contains any reference to, much less a prohibition against the LLC from using a P.O box as the LLC’s known place of business, the ACC will no longer accept Articles of Organization that shown that the company’s only place of business address is a PO box.

Can an Arizona LLC Become a PLLC & an Arizona PLLC Become an LLC?

Question:  I have an Arizona LLC, but I want to change it to a professional LLC (a PLLC).  Is it possible and how do I make the change?

Answer:  Yes.  An Arizona LLC can be converted to a PLLC and an Arizona PLLC can be converted to an LLC.  You convert one type of LLC to the other type by filing an amendment to the Articles of Organization with the Arizona Corporation Commission and then publishing the name change in an ACC approved newspaper after the ACC approves the amendment.  The Amendment to the Articles of Organization must be signed by a member of a member managed company or a manager of a manager managed company.  The amendment to the Articles of Organization must satisfy the following requirements:

Converting from an LLC to a PLLC:

The Amendment to the Articles of Organization must contain the following provisions:

1.  A statement of the new name of the company with the correct ending.  Arizona Revised Statutes Section 29-845 states:

“A. A professional limited liability company may adopt a name consisting of the full or last name of one or more of its members or, if not otherwise prohibited by law or the canons of ethics of the profession concerned, may adopt a fictitious name.

B. The name of a professional limited liability company authorized to transact business in this state shall satisfy the requirements of section 29-602, except that the name shall contain the words “professional limited liability company” or the abbreviations “P.L.L.C.”, “P.L.C.”, “PLLC” or “PLC”, in uppercase or lowercase letters.”

2. A statement that the company is a professional limited liability company.

3. A description of the professional service or services that the company is organized to provide.

Converting from a PLLC to an LLC:

The Amendment to the Articles of Organization must satisfy each of the following requirements:

1.  It must contain a statement of the new name of the company with the correct ending.  Arizona Revised Statutes Section 29-602.A states

“The name of a limited liability company as set forth in its articles of organization shall: 1. Contain the words “limited liability company” or “limited company” or the abbreviations “L.L.C.”, “L.C.”, “LLC” or “LC”, in uppercase or lowercase letters.”

2.  It must remove the statement in the Articles of Organization that the company is a professional limited liability company.

3. It must remove the statement in the Articles of Organization that describes the professional service or services that the PLLC was organized to provide.

Read “What are the Differences Between an Arizona PLLC vs LLC?

Lessons to be Learned from Sheriff Joe’s Bad Example

Maricopa County Sheriff Joe Arpaio and his wife formed an Arizona limited liability company in December of 2010 called “Ava Investments, LLC.”  In June of 2011 they transferred eight parcels of land into Ava Investments, LLC.

Apparently Joe and Ava were not concerned about confidentiality because their home address is listed in the Articles of Organization and on the Arizona Corporation Commission’s website as well as their names.  I can’t fault Sheriff Joe, however because he didn’t have a chance to read my article called “The Confidential LLC – How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s)” because the article was written after the Arpaios formed Ava Investments, LLC.

Lesson 1:  If you want to keep your ownership of an Arizona limited liability company confidential and not on public display, do not be a member or manager of an Arizona LLC or use your home address for any purpose in the LLC’s Articles of Organization.

Apparently the purpose of Ava Investments, LLC, is to hold the Arpaio’s investment real estate.  I searched the Maricopa County Recorder’s website for Ava Investments, LLC, and found the following deeds:

  • June 6, 2011, Special Warranty Deed recorded on June 14, 2011, was signed by Joe and Ava as grantors conveying two parcels of land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Ava Investments Corporation, not Joe and Ava, (ii) the sales price was $75,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is for commercial or industrial use.”  The signature on the Affidavit appears to be that of Ava Arpaio who acknowledged that she was “duly sworn on oath . . . that the foregoing statement is a true and correct of the facts pertaining to the transfer of the above described property.”  These two parcels are located at 10635 & 10637 North 71st Place, Scottsdale, Arizona.  Problems:  The price listed is $75,00, but the deed transferred two parcels.  What is the price of each parcel?  Is $75,000 the total price?  Who was the seller?  The deed was signed by the Arpaios, not Ava Investment Corporation.  The Affidavit of Value states that the seller was the corporation.  If the property is/was owned by the corporation then the deed signed by the Arpaios did not transfer the title to the LLC.
  • June 6, 2011, Special Warranty Deed recorded on June 15, 2011, was signed by Joe and Ava as grantors conveying land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Joe and Ava, (ii) the sales price was $60,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is for commercial or industrial use.”  The signature on the Affidavit appears to be that of Ava Arpaio.  This property is located at 10614 North 71st Place, Scottsdale, Arizona.
  • June 6, 2011, Special Warranty Deed recorded on June 15, 2011, was signed by Ava Investment Corporation as grantor conveying land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Ava Investment Corporation, (ii) the sales price was $75,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is for commercial or industrial use.”  The signature on the Affidavit appears to be that of Ava Arpaio.  This property is located at 10610 North 71st Place, Scottsdale, Arizona.
  • June 6, 2011, Special Warranty Deed recorded on June 15, 2011, was signed by Ava Investment Corporation as grantor conveying land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Ava Investment Corporation, (ii) the sales price was $325,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is for commercial or industrial use.”  The signature on the Affidavit appears to be that of Ava Arpaio.  This property is located at 16733 East Palisades Blvd., Fountain Hills, Arizona.
  • June 6, 2011, Special Warranty Deed recorded on June 15, 2011, was signed by Joe and Ava as grantors conveying land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Joe and Ava, (ii) the sales price was $75,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is for commercial or industrial use.”  The signature on the Affidavit appears to be that of Ava Arpaio.  This property is located at 10632 North 71st Place, Scottsdale, Arizona.
  • June 6, 2011, Special Warranty Deed recorded on June 15, 2011, was signed by Ava Investment Corporation as grantor conveying land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Ava Investment Corporation, (ii) the sales price was $325,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is a single family residence and used for commercial or industrial use.”  Note:  The Affidavit says to check only one box to indicate the type of property, but two boxes were checked.  The signature on the Affidavit appears to be that of Ava Arpaio.  This property is located at 16743 East Palisades Blvd., Fountain Hills, Arizona.
  • June 6, 2011, Special Warranty Deed recorded on June 15, 2011, was signed by Joe and Ava as grantors conveying land to Ava Investments, LLC.  The Affidavit of Value recorded with this deed says that: (i) the seller was Joe and Ava, (ii) the sales price was $60,000, (iii) the method of financing was “exchange or trade,” and (iv) the property is for commercial or industrial use.”  The signature on the Affidavit appears to be that of Ava Arpaio.  This property is located at 10630 North 71st Place, Scottsdale, Arizona.

Lesson 2Diversity – do not put all of your eggs or assets in one basket.  We all know what happens when you drop your basket, you lose all of your eggs or real estate if you have all of your real estate eggs in one basket.  The Arpaios have 8 parcels of real property in one LLC.  If somebody gets killed or injured on one property and there is a large lawsuit against the LLC, all the properties could be lost.  For maximum asset protection, put each parcel of real estate in a separate LLC so in the worst case scenario, you only lose the equity you have in that one LLC.  Do not put multiple parcels of valuable real estate in the same limited liability company because you could lose everything if something goes wrong with one of the properties.  For more on this topic see my article called “How Many LLCs Should I Form for My Properties?

The paper trail raises some interesting issues that everybody who transfers land into an LLC should consider before making the transfer.

Lesson 3Always Consider Income Tax Consequences When Transferring Property.  The total purchase price of all the properties stated on the Affidavits of Value is $995,000.  The Affidavits of Value indicate that all the transfers involved an exchange or trade to satisfy the purchase price.  Therefore the newly formed Ava Investments, LLC, must have been funded with property valued at $995,000 that was used to exchange or trade with the sellers of the properties.  Did the Arpaios fund their LLC with a loan of property or make capital contributions of property valued at $995,000.  If the latter, the LLC’s basis in the property would be a carry over basis.  Would the exchange / trade be a taxable transaction?  Income tax law (Internal Revenue Code Section 1031) does provide for tax-free exchanges of real estate for real estate, but not real estate for personal property or money.  It is possible that one or more of the transactions could have created taxable events for buyer and seller.  Hopefully the Arpaio’s consulted with an experienced tax advisor before they consummated the transfers and taken steps to eliminate or mimimize any adverse income tax consequences.

Lesson 4Document & Track the Tax Basis of the Property Going into the LLC.  The LLC should document the income tax basis of property it acquires so it can deduct the basis from any amount realized on a later sale of the property.  If the LLC buys the property from the seller for its fair market value then the tax basis of the purchased property is the amount paid to acquire the property.  If the property is contributed to the LLC by a member, the LLC takes the same tax basis in the property that the member had in the property.

Lesson 5Document the Affect the Contribution of the Property to an LLC Has with respect to the Contributing Member’s Capital Account.  This is especially important when the LLC is a multi-member LLC other than a two member husband and wife LLC.  If a member contributes money or property to a multi-member LLC, the member’s capital account should be increased by the amount of money contributed or the value of the property contributed.  This is an important concept for multi-member LLCs.  Documenting or failing to document the value of members’ contributions added or not added to a their capital account has real economic consequences to the all the members.  All of the members should sign a document in which they agree to the value of contributed property and the amount that will be added to the contributing member’s capital account.  Think of a member’s capital account as similar to a bank account.  If you contribute real estate to a multi-member LLC that has $50,000 of equity, you want your capital account to increase by $50,000 because for every dollar that does not get credited to your capital account you will lose $1 or real money at some time in the future.

Lesson 6How Do You Determine Property Values?  It is unusual for two parcels of real estate to have the same value.  The purchase price of two of the parcels was $60,000, three parcels were priced at $75,000 and two were $325,000.  What a co-inky-dink!  How did the Arpaios determine the values of the properties?

See “Sheriff Joe Arpaio and His Fiesta Bowl Freebie.”