FAQs

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

What Does the Signature Block on a Contract Look Like When My Trust is the Manager of My LLC?

Question:  My Arizona LLC is owned and managed by the Confidential Trust you created.  When the LLC signs a contract, what should the signature block on the contract look like?

Answer:  If your LLC is World Wide Widgets, LLC, and its manager is the Laguna Beach Trust dated 1/1/14 and Homer Simpson is the trustee, the signature block at the end of a contract should be as follows:

World Wide Widgets, LLC, an Arizona limited liability company

By: ____________________________
Homer Simpson, as Trustee of the Laguna Beach Trust
under Agreement dated 1/1/14, Manager

2014-02-24T21:47:06-07:00January 24th, 2014|FAQs, How Do I|0 Comments

Watch Out for Ignorant Bank People

Question:  I went to the bank to open my LLC bank account and they need to know what kind of LLC I have.  The bank wanted to know if I have an S LLC, C LLC or partnership LLC.

Answer:   You need to go to another bank that knows how to deal with LLCs.  The State of Arizona only has two types of LLCs, i.e., an LLC and a professional LLC (PLLC).  You have an LLC.

There are no such terms as S LLC, C LLC or partnership LLC.  The person you are talking to is ignorant, which is troubling.  He or she may be asking for the LLC’s tax method under the internal revenue code, which could be:

  • Sole proprietorship
  • C corporation
  • S corporation or
  • Partnership

Those terms refer to the four possible federal income tax methods availabe to LLCs under the Internal Revenue Code.  The terms do not describe a type of LLC.

The bank does not need to know how the LLC is taxed.  The default tax method for your two member LLC is partnership.  The LLC will be taxed as a partnership unless it files a timely IRS form 8832 (election to be taxed as a C corporation) or an IRS form 2553 (election to be taxed as an S corporation).  The subject of the four possible LLC tax methods is discussed in great detail in your Operations Manual in your LLC portfolio.

2016-11-16T08:23:43-07:00October 30th, 2013|FAQs, Operating LLCs|0 Comments

Failure to Plan Causes Problem for Spouse of LLC Owner

Question:  My spouse owns an Arizona limited liability company as separate property and is the sole manager of the company.  He recently became mentally incompetent and can no longer run the company.  The LLC’s bank will not allow me to sign checks to pay employees and vendors.  How can I take over the management of the company?

Answer:  Because your husband failed to take action needed to protect you in the event of his incapacity you must now file a petition with an Arizona Superior Court and ask the Court to appoint you as the conservator of your husband’s financial affairs.  With that court order you will be able to elect yourself as a manager of the LLC, amend the Articles of Organization on file with the Arizona Corporation Commission to show that you are the new manager and give a copy of the filed amendment and Court order to the bank to take control of the LLC’s bank account.

Your husband’s failure to plan will cost you $3,000 – $5,0000 in legal fees that could have been avoided if he had signed a Financial Power of Attorney that named you as his agent with the power to manage his financial affairs in the even of his incapacity.  Contact us to prepare and file the petition to get you appointed as the conservator.

Warning:  This situation illustrates why people should take action to protect their most valuable asset – their family – before it is too late.  Don’t let this happen to your loved ones.  Adopt a comprehensive estate plan with a Trust, Will, Financial Power of Attorney, Healthcare Power of Attorney and Living Will now to prevent the stress, problems and high economic cost that results when people die or become incapacitated and have not taken the steps needed to protect their family.

To learn more about this topic and how to protect your family read my article called “Why You Need an Estate Plan to Protect Your Family and the High Cost of Procrastination and Neglect” and visit my Arizona Wills and Trusts website.

2013-10-17T07:10:24-07:00October 17th, 2013|FAQs, How Do I|0 Comments

Must I Sign the Operating Agreement

Question:  I am the sole member of my Arizona limited liability company.  Must I sign the LLC’s Operating Agreement?

Answer:  Although Arizona LLC does not require that the members of an Arizona LLC sign an Operating Agreement, as an Arizona LLC attorney I highly recommend that all members of an Arizona LLC, including single member LLCs, sign a “good” Operating Agreement.  A good Operating Agreement is a document that is drafted specifically to comply with Arizona’s LLC law and that contains provisions and language needed by most LLCs and their members.  The fact the members of an LLC sign an Operating Agreement could actually be detrimental to the members if the Operating Agreement is poorly written or not written specifically to comply with Arizona LLC law.

There are two reasons a the sole member of an LLC should sign an Operating Agreement:

  • When courts are asked to pierce the company veil and hold the sole member liable for the debts of the LLC one of the factors that counts against the member is the lack of an Operating Agreement.  If you treat your business like a hobby you don’t have a signed Operating Agreement.  If you treat your business like a business you must have a signed Operating Agreement.
  • To set the rules that govern the operation of the company if the sole owner were to die and his or her interest is inherited by loved one.

A good Operating Agreement is a complex document that should cover a lot of important ground.  It should be drafted by an experienced LLC attorney licensed to practice in the LLC’s state of formation.  As a business lawyer who has practiced law in Arizona since 1980 I’ve prepared [contentblock id=1 img=gcb.png] Operating Agreements and spent hundreds of hours researching and revising my Operating Agreement.

2017-05-29T11:05:02-07:00October 14th, 2013|FAQs, Operating Agreements|0 Comments

How Do I Get an Arizona Trade Name aka DBA?

Question:  How does my limited liability company get an trade name, aka a “dba” or “doing business as?”

Answer:  In Arizona the term “dba” or “doing business as” is what Arizona law calls a “trade name.”  Trade names are issued by the Arizona Secretary of State.  To get a trade name the applicant must complete a Trade Name Registration Application form and file it with the Arizona Secretary of State at the address at the top of the form.  The filing fee is $10.

2018-04-03T19:39:51-07:00September 27th, 2013|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

Consequences of S Corporation Tax Method Termination

Question:  My multimember LLC filed an election to be taxed under Subchapter S of the Internal Revenue Code, aka S corp method of federal income tax.  Recently one of the members transferred 10% of the LLC to his corporation, which caused the IRS to terminate the S corp tax method.  Our LLC is now taxed as a partnership.  Do the other members of the LLC have a claim for damages against the member who caused the termination of the S corp tax method?

Answer:  It depends.  If the loss of the S corp election causes economic harm to the other members they could sue for damages, but it would be a roll of the dice as to who would win.  The defendant member’s defense would be “I was free to transfer my membership interest and never promised to refrain from doing anything that would cause the loss of the S corp tax method.”

If your LLC was formed by me then the Company and the other members would have a claim against the transferring member for breach of contract because every Operating Agreement I prepare contains a clause that says no member will take any action that would cause the LLC to lose its S corporation tax method, but it a member did cause the loss that member would be liable to the other members for damages.

My Operating Agreements also contain language that prohibits a member from transferring all or a  portion of the member’s membership interest without the consent of a majority of the members.

Caution about S Corp Method of Tax

To be eligible to be taxed as an S corporation none of the LLC’s owners can be a corporation, LLC (unless it is a disregarded entity), limited partnership, limited liability limited partnership, limited liability partnership or a nonresident alien.  If a qualified party ever becomes a member of the LLC it causes an automatic termination of the S corporation tax method as of the date the disqualified party acquires the membership interest.  This is the reason all multimember LLCs taxed as S corporations must have language in their Operating Agreements that prohibit transfers of membership interests without the approval of the other members.

Moral of the story:  Every multimember LLC needs a good Operating Agreement prepared by an LLC attorney who knows the LLC law of the state in which the LLC is formed.

2013-09-13T08:45:17-07:00September 13th, 2013|FAQs, Operating LLCs, Tax Issues|0 Comments

Why Does My Spouse’s Name Appear in My Arizona LLC’s Articles of Organization?

Question:  You formed my Arizona limited liability company and the Articles of Organization list me and my spouse as members.  Why is my spouse named as a member in the AOO?

Answer:  You told us that you and your spouse are Arizona residents and you want to own your membership interest in the LLC as community property.  That means each spouse owns an undivided ½ of the 100% of membership interests in your LLC.  Arizona law requires that the names and addresses of all members who own 20% or more of an Arizona LLC be disclosed in the Articles of Organization.

A married person can also own his or her interest in the LLC as separate property, which means the owner spouse owns 100% of the membership interests in the LLC and the other spouse owns none of the LLC.  When a married Arizona resident owns his or her interest in the Arizona LLC as separate property then only the owner spouse is listed in the Articles of Organization.

For more on this topic see “How Do I Acquire an Ownership Interest in an Arizona LLC as Separate Property?

2016-11-16T08:23:44-07:00September 9th, 2013|FAQs, Members|0 Comments

How an LLC Owned by a NonUS Citizen / NonUS Resident Opens a US Bank Account

Question:  I am not a resident or citizen of the United States.  I want to form a limited liability company in the U.S. to own and operate a business or to own investment real estate.  How do I open a bank account in the name of the LLC?

Answer:  I form a lot of Arizona LLCs for people who are not residents or citizens of the United States, aka nonresident aliens.  Opening a US bank account for the US LLC can be a very big problem.  The US Patriot Act imposes substantial limits and restrictions on the ability of a US bank with respect to creating a US bank account for a people and entities.

The number one new account requirement is that the bank must positively identify the person who seeks to open the bank account.  Positive ID means two things:

  • Sufficient documentation such as a passport to prove the identity of the person who seeks to open the bank account, and
  • The presence of the person who seeks to open the bank account personally in front of the bank employee who is opening the account.

The banks seem to be getting tougher with respect to the personal ID requirement.  This week I met with a nonresident alien client from Australia who opened two LLC bank accounts with Wells Fargo for his two Arizona LLCs two years ago.  He did come to Phoenix to present himself to the bank personnel in order to open the accounts.

The client told me that he came to Phoenix this week because Wells Fargo notified him that it was closing ALL LLC BANK ACCOUNTS IN THE US IF THE LLC IS OWNED BY A NONRESIDENT ALIEN OR ALIENS.  Wells Fargo closed his LLC bank accounts, but did allow him to open a personal bank account while he was present at the bank.

If somebody tells you that they know of a bank that will open an LLC bank account for a nonresident alien without the need for the nonresident alien satisfying the two requirements described above, don’t buy it.  I personally know that MidFirst Bank and Commerica Bank had opened LLC bank accounts without requiring the nonresident alien owner of the LLC to satisfy the two requirements listed above.  When supervisors found out about the accounts, they closed the accounts and fired the bank officer.

One potential solution to the problem is for the LLC to have a member or manager that is a US citizen or legal resident.  That person could open a bank account in the US for the LLC.  However, this solution creates its own set of problems.  The person who opens the bank account is taking a risk that if the LLC is involved with anything that is illegal he or she could be in big trouble, perhaps criminal trouble.

2016-11-16T08:23:44-07:00September 5th, 2013|FAQs, Forming LLCs, How Do I|3 Comments

Can an Arizona Real Estate Broker Operate through an LLC vs. a PLLC?

Question:  I am a licensed Arizona real estate broker.  I know that Arizona licensed sales agents must operate through a professional corporation (PC) or professional limited liability company (PLLC).  Must I operate my brokerage business in a PLLC or can I do it through a vanilla LLC?  Also, if I can use an LLC can I use the LLC I formed that owns two investment rental properties?

Answer:  Arizona does allow a licensed real estate broker to operate the brokerage business through an LLC or a PLLC.  See Section 3 of the Entity / Employing Broker License Application LI-212.  You could use your existing LLC.  Keep one asset protection concept in mind:  If you put all your eggs in one basket and you drop your basket you lose all of your eggs.  If you have an operating brokerage LLC that owns other assets like stocks, bonds or investment real estate and a lawsuit arises out of the conduct of the business that turns into a large judgment for money, you lose the brokerage business and all the assets owned by the LLC.  If you had put the investment assets in one LLC and operated the brokerage in a different LLC a financial disaster with the brokerage LLC would not cause a loss of the assets in the other LLC.

2013-09-04T08:20:20-07:00September 4th, 2013|FAQs|0 Comments

If You Have a Confidential Trust Don’t Create a Separate Estate Planning Trust

Question:  You created a Confidential Trust for me to own my Arizona LLC and keep my name off the public records of the Arizona Corporation Commission.  Recently I signed a new trust that is for estate planning.  My new trust includes provisions for the administration of my assets after my death.  How does my new trust become the owner of the LLC currently owned by my Confidential Trust?

Answer:  You now have two trusts, each with their own names and creation dates.  The problem is that the Confidential Trust owns the LLC, but the Estate Planning Trust should own it.  Instead of creating an entirely new estate planning trust you should have kept the same trust name, trustees and trust creation date and just amended and restated the entire trust agreement to contain the language needed for your estate plan.  In other words, you should have converted the Confidential Trust to your estate planning trust with the end result that you would have one trust and it would be the owner of the LLC.

Going forward your choices are:

1.  Transfer ownership of the LLC from the Confidential Trust to the estate planning trust and allow the Confidential Trust to die.  However, if the new estate planning trust has your name in it and you want to continue to keep your name off of the Arizona Corporation Commission’s public records then retain ownership of the LLC in the Confidential Trust and follow the next option.  We charge $545 to do this.  It includes preparing an Assignment of Membership Interest Agreement, Amendment to the Articles of Organization, resolutions of the member and a new membership certificate.

2.  Modify the Confidential Trust to provide that the beneficiary is the trustee(s) of the new estate planning trust.

My recommendation is to do option 1 now because option 2 postpones the need to do option 1 until the creator(s) of the Confidential Trust is/are deceased.

To learn more about how a Confidential Trust can keep your name off the Arizona Corporation Commission’s public records read my article called “How to Form an Arizona LLC without Disclosing Its Ultimate Owner(s).”

2013-08-28T06:48:53-07:00August 28th, 2013|FAQs, How Do I, Miscellaneous, Operating LLCs|0 Comments

Who Inherits My LLC if I Die?

Question:  “I am an Arizona resident who owns an interest in an Arizona LLC.  Who will inherit my LLC if I die?

Answer:  It depends on whose inheritance plan is used.  If you have a Will or a Trust then you determine who inherits your LLC and other property.  However, if you do not have a Will or a Trust, the State of Arizona’s inheritance plan will govern.  If Arizona’s inheritance plan is the same as yours then the right people or charities will get your property in the proportions you have specified in your Will or Trust.  Unfortunately it is very common for a person’s desired heirs to be different than Arizona’s plan of inheritance.

Do not leave your loved ones unprotected and at the mercy of Arizona’s law of inheritance.  Sign a Will or a Trust and insure that your loved ones will inherit according to your plan, not Arizona’s plan.

For more on this topic see “Who Gets My Property If I Die Without A Will Or Trust?” and “Who Will Inherit Your LLC Membership Interest if You Die?

2016-11-16T08:23:44-07:00August 22nd, 2013|FAQs, Operating 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.

2013-08-22T20:04:48-07:00August 22nd, 2013|Articles of Organization, FAQs, Forming LLCs|0 Comments

Is Publication in a Newspaper Optional for a New Arizona LLC?

Question:  How important is it to publish a Notice of Publication for your Arizona LLC after it is formed?

Answer:  If newspaper publication is required the failure to publish timely could cause a court to deny the existence of the LLC, which could cause the members to become liable for its debts and liabilities.

Arizona LLC law requires that a notice of publication for the new Arizona LLC to be published in an Arizona Corporation Commission approved newspaper within 60 days after the ACC approves the filing if the company’s statutory agent is not located in Maricopa or Pima County.  Arizona Revised Statutes Section 29-3201.G states:

“Within sixty days after the Commission files the Articles of  Organization, either of the following must occur:

1. a notice of the filing of the Articles shall be published in a newspaper of general circulation in the county of the statutory agent’s street address for three consecutive publications containing the information required in subsection B of this Section. an affidavit evidencing the publication may be filed with the Commission.

2. the Commission shall input the information regarding the approval into the database as prescribed by Section 10-130 if the statutory agent’s street address is in a county with a population of more than eight hundred thousand persons.”

Because Section 29-3201.G.1 uses the word “shall” I interpret Arizona LLC law to say that publication within the required period is a requirement to the valid formation of the Arizona LLC whose statutory agent is not located in Maricopa or Pima county.  An LLC that fails to publish within the required period opens itself up to a challenge by a creditor in court that the LLC was not formed as required by Arizona LLC law and therefor does not exist.  If the court agreed with that argument then all of the members of the LLC would potentially be liable for the LLC’s debts and obligations.

Bottom Line:  Publication is not an option when the company’s statutory agent is not located in Maricopa or Pima county.  Every new Arizona LLC that does not have a statutory agent located in Maricopa or Pima county should always publish in an approved newspaper in the appropriate county within 60 days of the Arizona Corporation Commission approving the submitted Articles of Organization AND it should deliver an affidavit of publication to the ACC so it can put proof of publication online for the world to see.

 

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 29-3502.D states: ‘A person that signs a record, or causes another to sign it on the person’s behalf, knowing that the record contains inaccurate information at the time it is signed, is liable to the limited liability company and to each member of the company for damages resulting from the inaccurate information.

ARS Section 13-2702 states: “A person commits perjury by making either: 1. A false sworn statement in regard to a material issue, believing it to be false. 2. A false unsworn declaration, certificate, verification or statement in regard to a material issue that the person subscribes as true under penalty of perjury, believing it to be false.  Perjury is a class 4 felony.

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.

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.

No Written Contracts + Death of Single Member LLC Owner = Nightmare

Recently I met with two very troubled men who are at the beginning stages of a nightmare caused by the death of a member of an Arizona limited liability company and the LLC members’ failure to document their LLC and enter into a Buy Sell Agreement.  As I listened to their tale of woe, I was reminded of the time I heard Mike Gallagher, the founder of Gallagher & Kennedy, P.A. my former law firm, say to a young G & K lawyer in jest, “Jim, you aren’t completely worthless.  You can always be used as a bad example.”  What we have here is the perfect bad example caused by the failure to plan.

The two men (who I will call Bob and Jim) were involved with a single member LLC I will call World Wide Widgets, LLC (WWW) owned by Jack, a single man with no children.  Over a period of years Bob loaned several hundred thousand dollars to the LLC without any documentation.  Bob and Jim agreed orally that as part of the loan the WWW would pay Bob interest plus a share of the substantial profits of WWW.  Jim was the primary person who ran the company on a day to day basis.

The company was very successful and making big bucks because it had a very valuable contract with a nationally known company that had a fabulous online business.  Everybody was very happy with the company and the money and profits they received from the highly successful WWW.  Jack told Bob and Jim that he was going to give them part ownership of WWW.

Unfortunately Jack died without warning and all hell broke loose because the parties made the following fundamental mistakes:

  • No Loan Documents.  Bob did not document his loan to WWW with a promissory note.  Nor did he secure payment of the note with a lien on WWW’s assets.  Bob cannot enforce his loan without going to court or making a deal with Jack’s heir, both of which are expensive courses of action best to be avoided.
  • No Option to Acquire Membership Interests.  Bob and Jim did not get Jack to sign a contract that provided they had a right to become members of WWW.  Nor did they push Jack to actually transfer partial ownership of WWW to them.  If Bob and Jim had entered into an option to acquire membership interests in WWW they would have been able to become members without the need to sue (a difficult case to prove) or making a deal with Jack’s heir.  If Bob and Jim had been members of WWW they would have been wise to have entered into a Buy Sell Agreement with Jack that would have given WWW and themselves an option to buy Jack’s membership interest in WWW from Jack’s heir after death.  The purpose of a Buy Sell Agreement is to allow ownership of an LLC to be retained in the hands of the LLC members in the event a member dies.  To learn more about Buy Sell Agreements see my website on this important topic.
  • No Employment Agreement.  Jim did not have an employment agreement signed by WWW.  Without an employment agreement Jim’s job and compensation was at the mercy of Jack’s heir.
  • No Estate Plan.  Jack did not have a Will or a Trust that provided who inherited WWW after his death.  Jack’s only living relative was an estranged sister with whom he had not had any contact for years.  Bob and Jim believe that Jack would have wanted them to inherit WWW, not his estranged sister.  Because Jack died without an estate plan, the State of Arizona’s estate plan determined who inherited Jack’s assets.  Because Jack was single, had no children and his parents were deceased, his entire estate was inherited by the estranged sister who didn’t give a hoot about Bob and Jim and their failure to get signed documents.  To learn more about Arizona Wills, Trusts, estate planning and how to give your family asset protection see my website called Arizona Wills & Trusts.

The end result was not pretty, but it was a very expensive lesson from which I hope others can learn.

Lessons to Be Learned

1.  People die.

2.  People die.  I repeated this lesson because the reality of life is that few people believe this is a true statement.  This is the conclusion I have reached after 28 years as a business lawyer who has formed 8,600+ companies, the vast majority of which none of the members took action to make life easier on their loved ones and co-members while alive.

3.  Document with signed agreements all transactions involving your LLC.  These transactions include promissory notes (with a resolution of members authorizing the loan), employment agreements, independent contractor agreements, options to purchase membership interests in the LLC and a Buy Sell Agreement signed by all of the members.

4.  If you have an ownership interest in an LLC or a corporation, sign a Will or a Trust that provides who will inherit your interest in the companies when you die.

Hire Us

If you need to document a transaction or provide for the orderly transfer of your companies and other assets on your death, call me, Richard Keyt (480-664-7478) or my son Arizona LLC and estate planning attorney Richard C. Keyt (480-664-7472).  Do it now.  Don’t procrastinate until it’s too late and you become a bad example like Bob, Jim and Jack.  To learn more go to Arizona Wills & Trusts.

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2019-06-15T07:29:32-07:00August 11th, 2013|Buy Sell Agreements, FAQs, Members|1 Comment

How to Remove a Member from an Arizona LLC

Question:  My husband and I own an LLC together.  We each own 50% as our community property. What forms do I need to fill out to remove myself as a member and what costs are involved to have you do this?  I looked on your website but I was unsure which form to fill out. I know I also need to fill out the form that says I will not make any claims on the business once he ows it himself.

Answer: To learn about this topic read my article entitled “What to Do When Your LLC Adds or Deletes a Member or if a Member’s Interest in the Company Changes.”  To hire us to document the removal of one or more members of an Arizona LLC, complete our short online Transfer of LLC Interest Agreement.

When we prepare an Assignment of Membership Interest Agreement (this is the document that actually transfer the membership interest from the terminating member to the transferee) to be signed by a member who is transferring his or her entire interest in the LLC we include release language by which the transferring person releases the LLC and its members and managers from all claims the transferor may have against the released parties.

Watch our demonstration video that shows how to add or remove a member from an Arizona LLC.

2018-03-09T07:56:02-07:00July 23rd, 2013|FAQs|0 Comments

Is an LLC Formed to Get a Federal Firearms License Different from Other LLCs?

Question:  I want to form a limited liability company that will obtain a federal firearms license (FFL).  Are there significant differences between a “vanilla” LLC and one that will hold an FFL for the sale or manufacture of firearms?

Answer:  Yes.  Although Arizona LLC law is the same for all LLCs formed in Arizona regardless of an LLC’s intended purpose, LLCs that intend to obtain an FFL for the sale or manufacture of firearms require an Operating Agreement that contains provisions that relate to the LLC’s purpose and the need to comply with federal weapons laws.

I work with attorney David Goldman, the Guntrust Lawyer, to prepare a special type of trust called a gun trust for Arizona residents.  David is an expert on federal weapons laws and he has a wealth of information about gun trusts and firearms law on his website.  This what David says about LLCs that will obtain an FFL:

“One of the biggest problems with many FFL’s is that they use regular operating agreements or corporate bylaws. There are some specific issues why using a canned or shell company documents may not be appropriate and why you should consider using agreements that are specifically drafted for FFLs.

  • Your Operating Agreement or By-Laws needs to deal with specific FFL related issues as well as issues that are common to the firearms industry. Prohibited Person issues must deal with not only the owners or manages as mentioned above, but also employees. These documents should mandate policies that need to be in place for issues regarding federal and state requirements and recommendations.
  •  Part of the process included determining the proper licenses as we often see that FFLs are confused about what is manufacturing and what is gunsmithing and the requirements of each. Many FFLs sell parts and then assemble them for clients and are actually manufacturing firearms because of the way the transaction and work is structured. They often do not have the licenses nor collect the required excise taxes.
  • If the business entity is used correctly, the business entity can stop the liability from going to the owners and managers. Many corporate and LLC docs can prohibit some of the activities that FFL, their owners, managers, and employees engage in. If you are violating the terms of your agreement, your business entity may not shield you from the actions or liability

  • Properly drafted agreements allow for growth including taking on new members or shareholders which could provide additional resources to the business. Today a prohibited person may not know they are prohibited and traditional operating agreement do not shield them from prohibited transactions or activities. Your agreement should help a person determine if they are prohibited as well as guide them in which activities they may and may not participate and who needs to be updated upon such a change.

  • A properly drafted business agreement can help you sell the entire business with the licensing already in place. Most FFL’s when sold have to go through a new authorization process because they are not properly structured and/or do not allow for this type of transition.

  • Thinking about how the ownership of the business is structured and dealing with this in the business agreements can allow the business to pass down through the generations and keep it within the family.”

In addition to the industry specific business agreements, it is important to properly prepare your FFL and/or SOT applications so that they are not rejected and they should be designed and incorporated into an overall plan to provide insulation from problems down the road.

FFL’s are historically weak in business and the understanding of the complex rules and regulations regarding the firearms industry. Many have skated by in the past, but with the new 100% compliance audits, it is more important than ever to be setup correctly or modify your existing business rules and documents to comply with the industry.”

To learn more about this topic real Joshua Prince’s article called “Starting Your New Firearms Business – FFL/LLC Formation” in which he states:

“While some individuals may turn to online corporate formation providers or contact their family attorney, neither of these avenues can provide the proper legal advice on setting up either a Corporation or Limited Liability Company (LLC) for an FFL, unless the provider has experience with the firearms industry and pertinent issues. I have developed FFL-specific By-Laws (for a Corporation) and Operating Agreements (for an LLC) that deal with these issues and set the foundation for any firearms industry specific issue that may arise.”

Hire Arizona LLC Attorney Richard Keyt & Firearms Attorney Joshua Prince to Prepare an Operating Agreement for an FFL LLC

The Operating Agreement I prepare for people when I form an Arizona LLC does not contain language that should be in the Operating Agreement of an LLC that will be an FFL for the sale or manufacture of firearms.  If you have or intend to have an Arizona LLC that needs this special industry specific Operating Agreement I recommend that you hire Pennsylvania attorney Joshua Prince and me to prepare the unique industry appropriate Operating Agreement needed for this type of LLC.  See Josh’s blog topics on Firearms Law and Gun Trusts.

Joshua Prince’s primary area of law practice is federal firearms and weapons laws.  For more information about this special Operating Agreement or if you have questions about why your LLC needs it call Josh at 610-845-3803.  When Josh and I work together on an Operating Agreement, he is responsible for the federal firearms portions and I am responsible for the Arizona law portions.  If you hire Josh and I to prepare a firearms law specific Operating Agreement, the fee you pay us includes Josh’s services to prepare and file all of the paperwork required to get the type of FFL or licenses needed from the BATF for your LLC (the fee does not include filing / application fees or costs).  Josh does so much work in this area that he uses the services of a retired BATF agent who reviews applications and makes sure there are no problems before submitting them to BATF.

2017-08-25T14:39:39-07:00March 14th, 2012|FAQs, Operating Agreements|0 Comments

KEYTLaw vs. LegalZoom

Question:  I received an email message that asked “Can your law firm provide the services that our business needs or should we should use Legal Zoom?”

Answer:  We are a small business law firm, but unlike Legal Zoom, we are licensed attorneys.  We can provide all of the legal services typically needed by small businesses.  If you need legal advice you should hire an attorney.  LegalZoom is not a law firm and does not employ attorneys to provide legal services.  In fact, here is the disclaimer language I got from the bottom of LegalZoom’s home page on March 4, 2012:

LegalZoom is not a law firm and is not a substitute for an attorney or law firm. Communications between you and LegalZoom are not protected by the attorney-client privilege or work product doctrine. LegalZoom cannot provide legal advice

Anybody who is considering using LegalZoom should ask: “Why does LegalZoom warn that it IS NOT A SUBSTITUTE FOR AN ATTORNEY?”  I  found a page on LegalZoom’s website that inadvertently answered this question.  If you click on the link above and then scroll to page three you will see this legally incorrect and misleading statement LegalZoom makes about an LLC Operating Agreement:

“Personalized operating agreement, including provisions protecting officers and managers from liability

This statement illustrates perfectly why you do not want LegalZoom to be your lawyer or provider of your legal services.  No language or provisions in an Operating Agreement can or will protect a member or manager from liability.  People who sue the LLC and its members or managers NEVER SIGN and are NOT PARTIES TO the Operating Agreement so they are not bound by any provisions it may contain.

LLCs Must Comply with Applicable State LLC Laws

Members and managers of an LLC may be protected from liability by the LLC law of a state, but only if the LLC operates in compliance with applicable LLC laws.  If you do not know what your state’s LLC laws are then it is unlikely your LLC will comply with those laws and your LLCs and members and managers may become personally liable when a court pierces the company veil and holds the members and/or managers liable for the debts of the LLC.  For an example of this LLC nightmare read my article called “Colorado Court Pierces LLC Veil & Holds Single Member Liable for LLC’s Debt.”  The reason I wrote my book called the “Arizona LLC Operations Manual” is educate my LLC clients on Arizona’s LLC laws and what the LLC must do to comply with the laws to prevent a court from piercing the company veil and holding the members liable for the debts of the LLC.

KEYTLaw’s Legal Services

In addition to forming LLCs, KEYTLaw attorneys provide the following legal services:

1.  Contract law –  preparing and reviewing contracts of all types.

2.  Entity administration – preparing Buy Sell Agreements and documents to add or remove members of LLCs, shareholders of corporations and partners of partnerships.

3. Real estate law – preparing or reviewing contracts to buy, sell or lease Arizona real estate of all types, including commercial leases for businesses.

4.  Employment law – preparing employment agreements, independent contractor agreements, employee policies and procedures and employee manuals.

5.  Nonprofit law – forming Arizona nonprofit corporations, including preparing IRS Form 1023 and applying for an obtaining income tax exemptions from the IRS for charitable organizations.

6.  Commercial litigation representing plaintiffs and defendants in all types of typical business lawsuits.

7.  Landlord tenant law – preparing and reviewing residential leases and representing landlords, including evicting residential and commercial tenants.

If you have any questions about legal needs for your business, please call me, Richard Keyt, at 480-664-7478.

2017-02-26T08:40:13-07:00March 4th, 2012|FAQs|0 Comments
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