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 9,000+ 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.
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