Operating LLCs

Your Company Must File a Report with FinCen or Be Fined $500/Day

A federal law called the Corporate Transparency Act effective January 1, 2024, requires almost all U.S. companies to file a FinCEN Beneficial Owner Information report with the Financial Crimes Enforcement Network of the U.S. Treasury (“FinCEN“) or the company can be fined $500 a day for a late report.  Companies formed before 2024 must file no later than December 31, 2024.  Companies formed in 2024 must file within 90 days of their formation date.

My son and I own a company called FinCEN Filer, LLC, that files FinCEN BOI reports.  To learn more about the Corporate Transparency Act read How to Avoid the $500/Day Fine and articles and blog posts on FinCEN Filer’s website. Watch these FinCEN Filer videos: 1. What Info Must be Reported, 2. Definition of Beneficial Owner, 3. What Beneficial Owner Information is in a FinCEN BOI Report, 4. Alert: Legal Consequences of Filing a False FinCEN Report, and 5. Our FinCEN BOI Report Services.

How to Hire FinCEN Filer to File a FinCEN BOI Report

Go to https://fincenfiler.com/services

Warning: If you are an owner of a U.S. company you need to be aware of the due date of your company’s FinCEN BOI report.  Reports are due:

  • December 31, 2024, for companies created before 2024.
  • 90 days after the company was formed if it is formed in 2024.
  • 30 days after the company was formed if it was formed after 2024.

How the CTA Affects Your Entity

Here is a brief summary of the CTA:

  • Almost ALL existing companies and companies formed in the future are or will be reporting companies that must report the required information to FinCEN.  See the definition of required information.
  • A beneficial owner is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.  See the definition of beneficial owner.
  • The following is the required information about each beneficial owner and applicant that the reporting company must report to FinCEN: (i) full legal name, (ii) date of birth, (iii) current, as of the date on which the report is delivered to FinCEN, residential address, and (iv) the unique identifying number from the beneficial owner’s or applicant’s acceptable identification document or the beneficial owner’s or applicant’s FinCEN identifier number.  See the definition of required information.
  • A reporting company that violates the CTA shall be liable to the United States for a civil penalty of up to $500 for each day that the violation continues or has not been remedied; and may be fined not more than $10,000, imprisoned for not more than 2 years, or both.

Subscribe to Our Free CTA Newsletter

To stay up to date on the CTA, its regulations, and how to file a CTA FinCEN report get a free subscription to our CTA newsletter.

Loan Can’t be Called if Land Is Transferred to an LLC

Question:  Can my lender call my loan that encumbers my land if I transfer the land to an LLC I own?

Answer:  Probably not.  The Federal National Mortgage Association, aka Fannie Mae, has something called Servicing Freddie Mac Mortgages Series 8000.  Section 8406.4(b) Additional permitted Transfers of Ownership Effective 10/20/2021 states:

“Permitted Transfers of Ownership subject to conditions.  In situations where all of the following conditions are met, Freddie Mac will permit a Transfer of Ownership of the Mortgaged Premises:

  • At least 12 months have passed since the Origination Date and
  • The transfer is to a limited liability company (LLC) or limited partnership (LP), provided that:

The managing member/general partner of the LLC/LP is the original Borrower. If there are multiple Borrowers, all of them must be members/partners of the LLC/LP, and at least one of them must be a managing member/general partner. If the transfer results in a permitted change of occupancy type to an investment property, such change must not violate the Security Instrument (e.g., the 12-month occupancy requirement for a Primary Residence), and

The Servicer notifies the original owner or natural person that the Mortgaged Premises transferred to an LLC/LP must be transferred back to the original owner or natural person prior to any subsequent refinance or modification application to meet Freddie Mac’s underwriting requirements

Fannie Mae ruling D1-4.1-02: Allowable Exemptions Due to the Type of Transfer (04/13/2022) says due on sale clauses cannot be enforced if the borrower transfers the encumbered land to a limited liability company.  The rule states:

“the servicer must process the following exempt transactions without reviewing or approving the terms of the transfer: . . . A transfer of the property (or, if the borrower is an inter vivos revocable trust, a transfer of a beneficial interest in the trust) to a limited liability company (LLC), provided that

  • the mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, and
  • the LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).”

Bottom line is Fannie Mae approves transfers of encumbered land without the lender being able to enforce a due on sale clause.

Will My Lender Call My Loan If I Convey Land to My LLC?

Question:  I own a rental home that I want to put into an LLC for asset protection, but it is subject to a deed of trust that has a due on sale clause in it.  If I form an LLC and convey the home to the LLC will the lender exercise the due on sale clause and demand I pay off the loan?

Answer:  A due on sale clause is text in the deed of trust that says that the lender can demand payment of the balance owed on the loan if the borrower transfers ownership of the land.  This is a common clause in residential loan documents.

I’ve formed 4,000+ AZ LLCs into which people transferred land that was subject to a mortgage or deed of trust. I’ve never had an LLC client’s lender call the loan because of the transfer. If your lender were to call your loan Arizona law says that if you cure the default by transferring the land back to you the lender must stop the foreclosure.

The purpose of a due on sale clause is to give the lender an option to call the loan when the borrower ceases to own or have any involvement with the land. When the borrower transfers the land to the borrower’s LLC the borrower continues to be involved with the land and will make the future payments. That’s why lenders don’t call the loan when the borrower transfers the land to the borrower’s LLC.

Advice:  Don’t contact the lender and ask for permission.  The standard response is you cannot do it and you may get yourself on the lender’s radar.

Chase Bank Refused to Open LLC Account Because It Could Not Verify LLC’s Phone Number

Question:  What is a verified LLC phone number?  I tried to open a bank account for my LLC at Chase Bank.  The bank clerk said that he could not open a bank account for the LLC unless he could “verify” the LLC’s phone number.  My client who is the sole member and manager of the LLC gave the banker all of his phone numbers.  The banker was unable to verify any of the phone numbers and declined to open a bank account for the LLC.

Answer:  I don’t have a clue what a verified phone number is.  In forming 9,200+ Arizona LLCs since 1992 I’ve never had anybody call or email me and say their bank required a phone number (verified or unverified) to open a bank account.  My advice was go to another bank, preferably not Chase, Wells Fargo or Bank of America.

Idiot Banker Won’t Open a Bank Account for an LLC Owned by a Trust

Question:  You setup an LLC for me that is owned by a revocable living trust you created.  I gave the bank a copy of the Articles of Organization, the Operating Agreement, the Trust Agreement and the Certification of Trust, but the bank won’t open an account for the LLC unless you send the bank a letter that says that I am the trustee of the trust that is the member of the LLC?

Answer:  You are dealing with an idiot banker because he/she wants somebody who is not an owner of the LLC or affiliated with the LLC, i.e., me, to sign a letter that states who owns the trust.  Ask the idiot banker if another bank employee can sign the letter because that person has the same connections to the LLC and the trust as I have.

Your Certification of Trust and your Trust Agreement show that you are the trustee, aka the “owner” of the trust.  Why doesn’t the banker know that?  It’s because he or she is an idiot.

I’ve formed 8,700+ LLCs and only one other time has a bank idiot asked me to sign a letter before opening an account.  The other time the idiot banker wanted me to sign a letter as the LLC’s statutory agent stating that the LLC’s address was the address displayed on the Arizona Corporation Commission website.  Why wouldn’t the idiot ask the owner of the LLC to sign that letter?

Go to another bank or a different branch.  I don’t recommend that LLC owners open accounts with Chase, Wells Fargo or Bank of America.

September 1, 2020, All Arizona LLCs are Governed by Arizona’s New LLC Law that Took Effect September 1, 2019

A year ago Arizona’s new LLC law became effective as to all LLC and PLLCs formed in Arizona after August 31, 2019.  Today Arizona’s new LLC law applies to all Arizona LLCs and PLLCs formed before September 1, 2019.  Bottom line is ALL Arizona LLCs and PLLCs regardless of when they were formed need an Operating Agreement that is written for Arizona’s current LLC law, not the LLC law that was repealed on September 1, 2020.

Warning for ALL Arizona LLC Owners: Members of all Arizona LLCs should read Arizona LLC attorney Richard Keyt’s article called 13 Ways Arizona’s New LLC Law Harms LLC Members: Why All Arizona LLCs Need an Operating Agreement that Eliminates the Harmful Provisions of Arizona’s New LLC Laws and learn how Richard Keyt’s Operating Agreement eliminates the harm.  Ignorance will not be bliss. Our fees for a new LLC law compliant Operating Agreement are $$297 for a one member LLC or an LLC owned by a married couple and $$797 for for a multi-member LLC.   To hire Richard to prepare a custom Operating Agreement for an Arizona LLC or PLLCs submit his online LLC formation questionnaire.

2020-10-17T10:38:19-07:00September 1st, 2020|Operating Agreements, Operating LLCs|0 Comments

Arizona’s Minimum Wage is $12/hour as of January 1, 2020

Arizona voters passed  Proposition 206 known as as the Fair Wages and Healthy Families Act (the “Act”) on November 8, 2016.  The Act raised Arizona’s minimum wage to $12/hour as of January 1, 2020.  The Act also authorizes Arizona cities, towns and counties to pass ordinances that require a higher minimum wage within their boundaries. Flagstaff’s minimum as of January 1, 2020, is $13.00 per hour.

Employers need determine if they are subject to Arizona’s minimum wage law because if they are then they must pay employees a minimum of $12/hour or $13/hour if the employer is subject to Flagstaff’s ordinance.

The following text is from a poster that all employers of Arizona employees must post in a conspicuous place where employees will see it:


The Fair Wages and Healthy Families Act (the “Act”) does not apply to any person who is employed by a parent or a sibling; any person who is employed performing babysitting services in the employer’s home on a casual basis; any person employed by the State of Arizona or the United States government; or any person employed in a small business that grosses less than $500,000 in annual revenue, if that small business is exempt from having to pay a minimum wage under section 206(a) of title 29 of the United States Code.

Tips and Gratuities

For any employee who customarily and regularly receives tips or gratuities, an employer may pay tipped employees a maximum of $3.00 per hour less than the minimum wage if the employer can establish by its records that for each week, when adding tips received to wages paid, the employee received not less than the minimum wage for all hours worked. Certain other conditions must be met.

Retaliation & Discrimination Prohibited

Employers are prohibited from discriminating against or subjecting any person to retaliation for: (1) asserting any claim or right under the Act; (2) assisting any person in doing so; or (3) informing any person of their rights under the Act.


Any person or organization may file a complaint with the Industrial Commission’s Labor Department alleging that an employer has violated the Act. Certain time limits apply. A civil action may also be filed as provided in the Act. Violations of the Act may result in penalties.


For additional information regarding the Act, you may refer to the Industrial Commission’s website at www.azica.gov or contact the Industrial Commission’s Labor Department: 800 W. Washington, Phoenix, Arizona 85007-2022; (602) 542-4515.


Employers subject to the Act are required to pay each employee wages not less than the applicable minimum wage for each hour worked. Note: Employers are permitted to pay employees receiving tips up to $3.00 per hour less than the minimum wage, provided that the employees earn at least minimum wage for all hours worked each week (when tips are included).

2020-01-04T08:36:36-07:00January 4th, 2020|Operating LLCs|0 Comments

People Love Our 170 Page LLC Operations Manual eBook

When people purchase my Silver or Gold LLC package one of the features they get is access to the 170+ page ebook I wrote called the “Arizona LLC Operations Manual.”  In forming 9,200+ Arizona LLCs I learned a long time ago that people have the same post formation questions.  I realized I could save myself a lot of time on the phone and answering emails if I wrote a book that answers all of people’s post LLC formation questions.  See the Table of Contents to see the many LLC topics that are explained in the Operations Manual.

Here are four recent emails I got from happy LLC clients who wrote about the Operations Manual:

“The operations manual well written and easy to follow. A great tool to have as a guide and reference. I would recommend an LLC keep this guide for its existence.  On a separate note thanks for the regular communication … wish all law firms were as easy to work with.”

“The LLC Operations Manual has been a great resource.  Its is well organized and provides clear instructions on what tod (and what not to do).”

“The online book is very helpful, as well as the email alerts.  I appreciate having the information that, for most the part, is easy to understand.”

“So, far I have not ended up with questions not covered by the book.”

2018-11-12T13:59:31-07:00November 13th, 2018|Forming LLCs, Operating LLCs|0 Comments

The Importance of a Well Drafted Buy Sell Agreement

Last month I attended a four  hour seminar on Buy Sell Agreements.  I’ve been drafting Buy Sell Agreements for LLCs since 1992, but the seminar gave me a lot of new information.  I especially enjoyed the presentations by two very experienced business appraisers.  The seminar caused me to review and revise my Buy Sell Agreement and to write several new articles about Buy Sell Agreements to help people learn about and understand why all multi-member LLCs (other than a married couple LLC) should have a comprehensive Buy Sell Agreement.

I also revised my online Buy Sell Agreement questionnaire to give my clients a lot of new options to select for their very custom drafted agreement.  Scroll through my Buy Sell Agreement questionnaire and you will be amazed at the number of options and their depth.  I doubt you could find anybody else that will give you as many options with respect to provisions to include or exclude from your Buy Sell Agreement.

Here is the list my articles about Buy Sell Agreements and why your multi-member LLC needs one drafted by somebody that knows what he or she is doing.

To learn more about Buy Sell Agreements and why your LLC needs one or needs to update its existing agreement sign up for my article called “Why Members of a Multi-Member LLC are Crazy if They Don’t Sign a Buy Sell Agreement.”  To get this free article click on the link then give us your contact info and opt in.  You will get the article and several follow up email messages that have more information about Buy Sell Agreements and how it can save you money and stress if the members of your LLC ever need to go their separate ways.

If you have any questions about Buy Sell Agreements call me at 480-664-7478 or my son Arizona LLC attorney and former CPA Richard C. Keyt at 480-664-7472.  We don’t charge to answer questions over the phone.




2018-11-12T08:38:40-07:00November 12th, 2018|Buy Sell Agreements, Operating LLCs|0 Comments

We Updated Our Buy Sell Agreement Triggering Events that Can Cause a Buy Out

Most multi-member LLCs other than a two member LLC owned by a married couple should have an exit strategy because like marriages, more than fifty percent of multi-member LLCs have one or more members who want a company divorce.  If members of a multi-member company do not sign a contract that provides for the buy out of one or more members on the happening of an event described in the contract they are stuck together forever unless a member convinces a court in an expensive lawsuit to judicially dissolve the company.  See my article on this important topic called “A Multi-Member LLC’s Most Important Document” aka a “Buy Sell Agreement.”

My Buy Sell Agreement is very comprehensive because it is the product of my 38 years of being a business lawyer who has seen far too many LLC divorces.  I updated my Buy Sell Agreement to add more “triggering events.”  A triggering event is an event that gives the company an option to buy the entire membership interest of the member who is involved in the event.  Members can also provide in their Buy Sell Agreement that certain triggering events such as the death of a member require the company to buy the entire membership interest from the estate of a deceased member.

To hire me to prepare a Buy Sell Agreement one of the members must complete and submit my online Buy Sell Agreement questionnaire.  The questionnaire asks the LLC member who completes the questionnaire to pick and chose the provisions and triggering events that will be included in their company’s Buy Sell Agreement.  Look at the Buy Sell Agreement questionnaire to see the many triggering events that you can select or deselect for your company’s custom drafted Buy Sell Agreement.  FYI:  We can also arrange for all members to digitally sign their Buy Sell Agreement using DocuSign.

Here is a list of the triggering events from which my clients can select for their Buy Sell Agreement.

Triggering Event
1. Any event the members desireA Buy Sell Agreement can include any triggering events that are important to the members. For example, the members could agree that if the New York Yankees win the World Series, member 1 must sell to member 2 for $100.
2. Operating Agreement defaultIf a member defaults under the Operating Agreement signed by all of the members the LLC has an option to buy out the defaulting member.
3. Member fails to contribute money or propertyThis provision encourages a member to satisfy the member's obligation in a written document to pay money or assign property to the company because if the member fails to satisfy that obligation the LLC will have an option to buy out the defaulting member.
4. Death of a memberThe LLC or surviving members have an option to purchase the interest of a deceased member. The Buy Sell Agreement can also require the LLC to buy-out a deceased member. These types of buy outs can be funded with life insure on the lives of members.
5. Member is convicted of a felonyMany LLC members do not want to have another member who has been convicted of a felony.
6. Divorce of a memberPrevents the wrong spouse from acquiring an interest in the LLC if two members own their interest as community property and they get divorced and the wrong spouse becomes the sole owner of all or a portion of the membership interest.
7. Member files for bankruptcyIf a member loses the member's interest in the LLC because of filing for bankruptcy, the company and other members should be able to buy the interest from the creditor who acquires it out of the bankruptcy.
8. Member transfers all or part of the member's membership interest without the approval of the other membersThe Buy Sell Agreement provides that a member may not transfer or encumber all or any interest in the member's interest in the company without the approval of the members and compliance with the terms and conditions of the Operating Agreement and/or the Buy Sell Agreement. If a member violates the no transfer/encumbrance provisions, the LLC should have an option to acquire the interest of the defaulting member, perhaps at an amount less than the fair market value of the interest.
9. Termination of employment of a memberApplies only to a member who is employed full time by the LLC. Especially important when the employee is a minority member and should only own an interest while employed.
10. Member loses his or her professional licenseCommonly used for LLC's that are owned by members who must be licensed in a particular area. For example, the Buy Sell Agreement of an LLC owned by physicians might give the LLC and other members an option to acquire the interest of a physician/member who loses his or her license to practice medicine.
11. Majority member sells membership interest"Drag Along" provision: Majority member has the option to require minority members to sell their interests in the LLC if the majority member sells. The sale of the minority members' interests are on the same terms and conditions as the sale of the majority member's interest.
12. Majority member sells membership interest"Tag Along" provision: Minority members have the option to require the majority member to include the sale of the minority members' interests in the LLC if the majority member intends to sell. The sale of the minority members' interests must be on the same terms and conditions as the sale of the majority member's interest.
13. Member is disabledUsed to acquire the interest of a member who become permanently disabled and unable to provide needed services for the LLC.
14. Member retiresMembers sometimes want to retire, but without a Buy Sell Agreement that provides for a retirement purchase, it probably will not happen.
15. Member is incompetentApplies if a member loses his or her mental capacity and a court appoints a conservator to manage the members financial affair.
16. Member files a false document with the ACCIf a member causes a false document to be filed with the Arizona Corporation Commission it is a triggering event that can cause a buy out,
17. Member causes somebody to be added or removed from the LLC's bank accountIf a member causes a signer to be added or removed on the company's bank account without the approval of the members per the operating agreement it is a triggering event that can cause a buy out.

Other Important Provisions in My Buy Sell Agreement

My Buy Sell Agreement also contains the following provisions:

  • Restrictions on Transferring Membership Interests:  Members may not transfer all or any part of their membership interest without the consent of the members.  Transfers to family members or trusts are allowed unless your Buy Sell Agreement also prohibits these transfers.
  • Right of First Refusal:  If a member desires to sell or transfer the member’s membership interest the company first and then the other members have the option to match to proposed sale and acquire the membership interest.
  • Life Insurance:  Members may purchase life insurance on the life of other members and use the life insurance proceeds to pay the purchase price to buy the membership interest of a deceased member.
  • Non-Compete:  This provision prohibits a member and/or ex-member from competing with the company’s business and hiring the company’s employees.
  • Dispute Resolution:  This provision obligates the members to settle disputes without resorting to litigation.


If you have any questions about Buy Sell Agreements, call me, Richard Keyt, at 480-884-7478 or send an email message to me at [email protected].  I don’t charge to answer questions about Buy Sell Agreements.

How to Purchase an LLC Buy Sell Agreement

To hire me to prepare your Buy Sell Agreement complete and submit my Buy Sell Agreement questionnaire.

2018-09-02T11:54:53-07:00September 2nd, 2018|Buy Sell Agreements, Operating LLCs|0 Comments

Arizona Adopts an Entirely New LLC Law Effective 9/1/19

On April 10, 2018, Arizona Governor Ducey signed Senate Bill 1353, a law that will entirely replace existing Arizona limited liability company law with a new LLC law.  Arizona’s new LLC law called the “Arizona Limited Liability Company Act” (ALLCA) is effective September 1, 2019, for Arizona LLCs created after August 31, 2019.  All Arizona LLCs created before September 1, 2020, will become subject to the ALLCA from and after August 31, 2020.

In the coming months I will be adding a lot of articles, blog posts and videos on our Youtube channel about the new law and its affect on members and managers of Arizona LLCs.  Here are some important facts about Arizona’s new LLC law:

  • The new ALLCA will govern all 800,000+ Arizona LLCs that exist after August 31, 2020.
  • Beginning September 1, 2020, all Arizona court cases that deal with Arizona’s current LLC law will be effectively eliminated.
  • Beginning September 1, 2020, Operating Agreements drafted for current LLC law will become obsolete and all Arizona LLCs will need an Operating Agreement drafted pursuant to the new ALLCA.
  • All Arizona LLCs created after August 31, 2019, will need an ALLCA compliant Operating Agreement.
  • All of the LLCs we form after May 31, 2018, will have an ALLCA compliant Operating Agreement.
  • Starting June 1, 2018, we will sell ALLCA compliant Operating Agreements to existing Arizona LLCs.  If you have an existing Arizona LLC you should join the free ALLCA newsletter email list offered below to get information about when and how to purchase a new ALLCA compliant Operating Agreement for your Arizona LLC.
  • An ALLCA compliant Operating Agreement will be critically important for all multi-member LLCs because a good Operating Agreement will eliminate many of the bad liability creating provisions in the new Arizona LLC law.  Join my ALLCA newsletter list to learn about the liability creating provisions contained in the new ALLCA.

Join Our Free ALLCA Newsletter Email List

We will be sending informational emails about Arizona’s new LLC law to people who subscribe to our free ALLCA email list.  If you want to learn more about Arizona’s new LLC law join our ALLCA email list by completing and submitting the sign up form below.  After submitting the form below you will get an email asking you to opt in unless you previously opted in.

Text of Senate Bill 1353

The complete text of Arizona Senate Bill 1353, aka the Arizona Limited Liability Company Act, that applies to new Arizona LLCs after August 31, 2019, and all Arizona LLCs after August 31, 2020, is contained in the pdf below.

2018-07-30T07:53:31-07:00April 27th, 2018|New Arizona LLC Act, Operating LLCs|0 Comments

LLC Formation – 9 Post Formation Tasks Your LLC Must Do

Yesterday we uploaded the video shown below to the KEYTLaw Youtube channel. Of the 38 videos now on our channel this video had more views (468) in its first 24 hours than any of our 37 other videos.  The video also got 78 likes and 60 comments.  Check out our channel and click on the subscribe icon and the bell to get notices of new videos we upload in the future.

2018-03-22T10:51:12-07:00February 20th, 2018|Operating LLCs, Our Videos|0 Comments

Arizona Secretary of State’s Trade Name Application is Now Online

The Arizona Secretary of State supplemented its old fashioned hard copy trade name application pdf form and with an online electronic trade name application.  The fee remains $10.  The Arizona Secretary of State says the following about Arizona trade names:

“Filing a trade name registers a business name for public record. A trade name is similar to a ‘doing business as’ (‘DBA’) name, and is not legally required but is an acceptable business practice. A trade name does not grant exclusive rights to a business name, nor is a trade name similar to a corporation or limited liability company (‘LLC’).”

If your Arizona business is using a DBA that is different from the legal name under which the entity was formed, the business should register the DBA, aka trade name, with the Arizona Secretary of State.

2023-10-24T10:25:59-07:00May 17th, 2017|Operating LLCs|0 Comments

How Does My LLC become an S Corporation?

Question:  My accountant says that I need to turn my LLC into an S corporation.  How do I do that?

Answer:  First you need to understand that the term “S corporation” refers to a method of income tax under the Internal Revenue Code of 1986.  S corporation is one of four federal income tax methods that can apply to a limited liability company.

You do not have to convert your LLC into a corporation.  Instead, the LLC simply makes an election with the IRS to have the LLC taxed as an S corporation by having all members of the LLC sign an IRS Form 2553 and then file the signed Form 2553 with the IRS.  See the Instructions to IRS Form 2553.  If you want your LLC to be taxed as an S corporation for the tax year beginning January 1, 2022, the members must sign and file IRS Form 2553 with the IRS not later than March 15, 2022.

Caution:  There are certain requirements that must be satisfied for an LLC to eligible to elect to be taxed as an S corporation. An LLC may to elect to be an S corporation only if it meets all the following tests.

  • It is (a) a domestic corporation, or (b) a domestic entity such as an LLC eligible to elect to be treated as a corporation, that timely files Form 2553. If Form 2553 is not timely filed, see Relief for Late Elections, later.
  • It has no more than 100 shareholders. You can treat an individual and his or her spouse (and their estates) as one shareholder for this test. You can also treat all members of a family (as defined in section 1361(c)(1)(B)) and their estates as one shareholder for this test.
  • Its only shareholders are individuals, estates, exempt organizations described in section 401(a) or 501(c)(3), or certain trusts described in section 1361(c)(2)(A).
  • It has no nonresident alien shareholders or members.
  • It has only one class of stock (disregarding differences in voting rights). Generally, a corporation or LLC is treated as having only one class of stock if all outstanding shares of the corporation’s stock or LLC’s membership interests confer identical rights to distribution and liquidation proceeds.

There are other requirements, but the major requirements are listed above.  For more about S corporations and LLCs read my blog post called “S Corporation Ignorance.”

P.S.  Besides the S corporation federal income tax method, an LLC can also be called taxed as a sole proprietorship (if it has one member or two members who are married and own their membership interests as community property) partnership (if it has two or more members), a C corporation.

2022-01-31T07:50:17-07:00January 10th, 2017|FAQs, How Do I, Operating LLCs, Tax Issues|0 Comments

Why Your Arizona LLC Needs Richard Keyt’s Custom Operating Agreement

I formed my first Arizona LLC the day the Arizona LLC law became effective in October of 1992.  Since then I have formed 9,200+ Arizona LLCs.  In practicing LLC law for 28 years I have seen the same LLC operational problems over and over.  When I learn about an operational problem I add new language to my LLC Operating Agreement to “fix” or prevent the problem.

For example, one of the most common LLC operational problems occurs when members cannot agree and need a company divorce.  When members have major disagreements over running the LLC it is very common for a member without any authority or basis to file an amendment to the LLC’s Articles of Organization that removes one or more members as members of the LLC.  The culprit may also open a new bank account and misrepresent to the bank who the members of the LLC are.

People who file false documents with the ACC are usually unaware that they could be committing a felony.  Arizona Revised Statutes Section 29-3205.C states:

“An individual who signs a record authorized or required to be filed under this Chapter affirms under penalty of perjury that, to that individual’s knowledge, the information stated in the record is accurate.”

Arizona Revised Statutes Section 13-2702 states:

A. 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.

B. Perjury is a class 4 felony.

I am not aware of that the Arizona Attorney General has prosecuted anybody who filed a false document with the Arizona Corporation Commission.

The purpose of Arizona Revised Statutes Section 29-3205.D is to reduce false filings with the Arizona Corporation Commission and give aggrieved members a remedy.  This statute 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.”

The problems with this statute are: (i) proving damages for a false filing is very difficult, and (ii) the cost to sue coupled with the risk of winning and collecting a judgment makes this remedy very risky.  Few members will actually use this statute to sue another member.

After seeing the false amendment to the Articles of Organization too many times I added a clause to my Operating Agreements that provides that a member who files a false document with the Arizona Corporation Commission is liable to all other members for liquidated damages of $10,000 and if the damages are not paid in full within sixty days the member who filed the false document ceases to be a member.

Why Your Existing or New Arizona LLC Needs Richard Keyt’s State of the Art Operating Agreement

I have prepared 9,200+ Arizona LLC Operating Agreements.  My Operating Agreement is unlike any Operating Agreement prepared by anybody else including attorneys because it contains provisions I created to prevent or solve common LLC operational problems I have seen representing thousands of LLCs.  For a partial list of common LLC operational problems see my article called “Common LLC Disasters a Good Operating Agreement Prevents.”

To hire me to prepare an Operating Agreement for an LLC that does not have one or to amend an Operating Agreement for an LLC whose members signed an Operating Agreement complete my comprehensive Operating Agreement Questionnaire.

2021-01-02T15:05:52-07:00December 4th, 2016|Operating Agreements, Operating LLCs|0 Comments

Arizona LLC Alert System Includes 50 Email Messages

A lot of lawyers and document preparers form Arizona limited liability companies including yours truly.  My LLC formation services, however, include many features nobody else offers.  One of my unique services is the Arizona LLC Alert System, which is a series of email messages I send to people who purchase my Silver and Gold LLC packages.

In forming 9,200+ Arizona LLCs I learned a long time ago that people need help learning about and accomplishing the many post LLC formation tasks that arise when people form a new LLC.  Here is a short list of common LLC post formation tasks:

  • Get federal employer ID number.
  • Open bank account in name of the LLC.
  • Arrange for all members to sign the Operating Agreement.
  • Set up a bookkeeping system.
  • Consult with tax accountant about which of the four ways an LLC can be taxed is best for the owner(s) of the LLC.
  • File IRS Form 8832 or 2553 if recommended by the LLC’s tax advisor.
  • Transfer land to the LLC by recording a deed (for LLCs that are to own real estate).
  • Purchase insurance.
  • Get a dba or trade name from the Arizona Secretary of State.
  • Register a federal trademark.

Another unique service I give purchasers of Silver and Gold LLCs is access to my 170 page ebook called the “Arizona LLC Operations Manual.”  Chapter 3 of the Operations Manual is a checklist of 34 tasks the LLC should accomplish in its first 75 days after being formed.  To help members of new LLCs I form accomplish these 34 tasks I created the Arizona LLC Alert System.  It is a series of email messages I send to the members of Silver and Gold LLCs I form.  These messages remind people to accomplish important LLC post formation tasks.

The Arizona LLC Alert System consists of 50 email message alerts.  See the entire list of the 50 Alert emails now included in the Alert System.  The Alert System sends members a mobile friendly email message that links to a mobile friendly web page where the actual content of the alert is displayed.  Our LLC members love getting these informative alerts.

The following is a list of other unique LLC formation services I provide for all purchasers of my Silver and Gold LLC formation packages.

  • Two different Operating Agreements – a 30 page Operating Agreement for single member LLCs and husband and wife owned LLCs and a 55 page Operating Agreement for multi-member LLCs.
  • Provisions in the Operating Agreement needed as a result of the Bipartisan Budget Act of 2015, that modified the partnership audit rules applicable to LLCs.
  • Addition of Partnership Representative provisions in our multi-member LLC Operating Agreement.  These provisions replace the tax matters partner provisions required under prior law called TEFRA.
  • Corporate Transparency Act filing information that explains what your LLC must do to avoid being fined $500/day by the Financial Crimes Enforcement Network for not filing its required FinCEN report about the beneficial owners of your LLC.
  • Optional Service:  Members digitally sign the Operating Agreement and are sent pdf copies of the digitally signed documents.

Hire Me to Form Your Arizona LLC

See the contents of our Bronze, Silver and Gold LLC packages.  To hire us to form an Arizona LLC follow one of the two options on our LLC formation page.

2023-03-15T08:30:42-07:00August 29th, 2016|Forming LLCs, Operating LLCs|0 Comments

What are Arizona LLC Members Voting Rights?

Question:  The members of my multi-member Arizona limited liability company never signed an Operating Agreement.  The members now disagree on how to run the company.  What are the members’ voting rights?

Answer:  One of the primary reasons the members of a multi-member LLC should sign an Operating Agreement is to set rules on members’ voting rights and to set what major actions require the prior approval of a majority or super majority of the members or the unanimous approval of all members.  If the members fail to adopt a good Operating Agreement then the default voting rules of Arizona’s LLC law apply and its a matter of time before the members disagree on action and big problems arise.

When the members of an Arizona LLC fail to adopt an Operating Agreement that provides for members’ voting rights or if the members adopt an Operating Agreement that is voting rights deficient, Arizona Revised Statutes Section 29-681 applies and provides the default members’ voting rules and rights.

The voting rules that apply to an Arizona LLC that does not have an Operating Agreement with voting rules signed by all of the members are listed below.  There are only nine actions that require the approval of members – four of which of which require the approval of all members and five of which require the approval of a majority of the members.

  • All Members Get One Vote:  Every member has one vote regardless of how much money the member invested or how much of the LLC the member owns.  For example, if Homer and Marge Simpson invested $1,000 in World Wide Widgets, LLC and acquired a 1% membership interest as community property and Ned Flanders invested $99,000 for 99% of the company then each of the three members has one vote with respect to the nine major actions listed in Section 29-751Warning:  If you are the major investor and/or the owner of a majority of the percentage interests in an Arizona LLC Section 29-751 is the reason you must have a good Operating Agreement that sets forth voting rules and rights.
  • When Unanimous Approval is Required:  Only four actions require that all members approve the action.  “The affirmative vote, approval or consent of all members is required to:

1. Adopt, amend, amend and restate or revoke an operating agreement or authorize a transaction, agreement or action on behalf of the limited liability company that is unrelated to its purpose or business as stated in an operating agreement or that otherwise violates an operating agreement.

2. Issue an interest in the limited liability company to any person.

3. Approve a plan of merger or consolidation of the limited liability company with or into one or more business entities as defined in Section 29-751.

4. Authorize an amendment to the articles of organization that changes the status of the limited liability company from or to one in which management is vested in a manager or managers to or from one in which management is reserved to the members.”

  • When Approval of a Majority of the Members is Required: Only five actions require the approval of a majority of the members.  “The affirmative vote, approval or consent of a majority of the members, or if management of the limited liability company is vested in one or more managers, the affirmative vote, approval or consent of the sole manager or a majority of the managers, is required to:

1. Resolve any difference concerning matters connected with the business of the limited liability company.

2. Authorize the distribution of limited liability company cash or property to the members.

3. Authorize the limited liability company to repurchase all or part of any member’s interest in the limited liability company from that member.

4. Authorize the filing of articles of termination concerning the limited liability company.

5. Subject to subsection C, paragraph 4 of this section, authorize an amendment to the articles of organization, except that an amendment that merely corrects a false or inaccurate statement in the articles of organization may be filed at any time by a manager if management of the limited liability company is vested in one or more managers or by a member if management of the limited liability company is reserved to the members.

When there is no Operating Agreement Section 29-751.E.1 & 2 give the majority of members a lot of power to out vote the minority members and run the company.

The members failure to to adopt an Operating Agreement more often than not will eventually lead to a dispute among members as to how to run the company.  One of the most common reasons people call me is to learn their options when their Arizona LLC does not have an Operating Agreement and the members need a company divorce.

2016-11-16T08:23:42-07:00February 1st, 2015|FAQs, Member Disputes, Members, Operating LLCs|0 Comments

Annual Meetings of Members of an Arizona LLC

Question:  Does Arizona limited liability company law require the members and managers of an Arizona LLC to hold an annual meeting?

Answer:  No.  However, some badly worded Operating Agreements do require that the members hold annual meetings.

Although no Arizona statute or case requires annual meetings or special meetings of the members or managers of an Arizona LLC as an Arizona LLC attorney who has formed 9,200+ Arizona LLCs I recommend that both types of meetings be held. There are two reasons why members and managers should hold meetings.

  • To reduce the chance that a court will pierce the veil and hold the members of the LLC liable for the debts of the LLC.  One of the factors courts consider when asked to pierce the veil is “did the LLC operate like a business or a hobby?”  Prudent businesses hold meetings and document the actions approved or rejected by the members and managers.  LLCs operated like a hobby do not hold meetings.  Note:  If your LLC’s Operating Agreement requires that the members or managers hold annual meetings then you must make sure that the meetings are actually held and document that fact.  The failure of members to hold annual meetings required in an Operating Agreement is a factor that counts against the members when a court is asked to pierce the veil and hold the members liable for the debts of the LLC.
  • To inform members and managers of important proposed company before it occurs and give them the opportunity to vote to approve or reject the proposed action.  This is especially important when an LLC has multiple unrelated members.  Consider two hypotheticals:  (1) LLC is considering whether to enter into a contract that will require the company to pay a third party a lot of money.  The member who owns more than 50% who is a manager signs the contract without prior notice to the other members who learn of the contract after it’s a done deal.  (2) Same facts, but majority member holds a meeting of the members at which all of the members discuss the proposed contract and then vote on whether or not to sign the contract.  The first method risks alienating the other members who will rightly feel left in the dark.  The second method gives everybody a chance to be informed in advance and give their two cents on signing or rejecting the contract.  Guess which method is less likely to result in disgruntled members who may want a company divorce.

Purchase My Do-It-Yourself Meeting Minutes & Resolutions

I’ve made it very easy for Arizona LLCs to document actions approved by members and managers. Just purchase my editable Word meeting minutes and resolutions that you can modify whenever needed to document special and annual meetings of your LLC’s members and managers.  You can also purchase a document called “Action by Consent” by which the members and managers can adopt resolutions approving company actions in lieu of actually holding a meeting. Each document comes with 16 resolutions for the most common types of actions voted on by members and managers.

Go to my Arizona legal form store to purchase your do-it-yourself minutes and resolutions.

2019-06-15T07:41:39-07:00December 6th, 2014|FAQs, Operating LLCs, Veil Piercing|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 .

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