LLC Law Blog

Don’t Pay LegalZoom More than an Arizona LLC Attorney to Form an Arizona LLC

Question: People frequently ask me why they should hire me, Richard Keyt, an Arizona LLC attorney who has formed 8,900+ AZ LLCs, to form their Arizona limited liability company instead of LegalZoom?

Answer: People should hire me to form their AZ LLC instead of LegalZoom for the following reasons:

  • I’m $31 Cheaper than LegalZoom for Similar Services: As of 5/14/23 my $797 Silver LLC package is $34 cheaper than the $831 LegalZoom charges for its premium LLC package that provides services similar to our Silver LLC package.  LegalZoom’s statutory agent (aka Registered Agent) Service is $249/year.  Compare that to our statutory agent fee of $99/year.
  • I’ll Form Your LLC Long Before LegalZoom:  I form new LLCs and get them approved by the Arizona Corporation Commission the same day you approve your LLC formation questionnaire and pay our fee.  LegalZoom says “We’ll process your paperwork and then send it to the Secretary of State, who’ll form your business. LegalZoom processing time is based on business days and doesn’t include Secretary of State processing times, which can vary.”  This means within one business day of being hired LegalZoom mails the Articles of Organization to the ACC then waits the 3 – 5 business days for the ACC to review and approve the filing.  Translation:  Total time from hiring to approval is 1 business day to mail + 3 days for the package to be delivered by the USPS to the ACC + 3 – 5 business days for ACC to review = 7 – 9 days not counting week ends to get the AOO approved.
  • I email the approved Articles of Organization to you so you can open a bank account the same day.  Compare that to LegalZoom’s formation time of 7 – 9 or more days after being hired.  It forms its economy LLCs 20 business days after being hired and its standard LLCs 10 business days after being hired.
  • I’ve Got 349 Five Star Reviews: Read our 349 happy client five star reviews on Google, Facebook & Birdeye.  When I Google LegalZoom it doesn’t display any reviews.
  • I’m an Arizona LLC Attorney who has been forming LLCs since 1992: I formed the first LLC in Arizona the day Arizona’s LLC law became effective in October of 1992. I have formed 8,900+ Arizona LLCs since I started counting in 2002.


2023-05-20T09:57:40-07:00January 15th, 2022|FAQs, Forming LLCs|0 Comments

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

On January 1, 2021, a new federal law called the Corporate Transparency Act (CTA) became law.  The CTA requires almost all LLCs,  PLLCs, for profit corporations, limited partnerships and other entities created by filing a document with a state to file a report with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury that discloses information about the entity, its beneficial owners and the person who filed the entity’s formation document with its formation state.

Warning: If you are an owner of a U.S. company you need to read the article on our Corporate Transparency Act website to learn if your company must file a report with FinCen to avoid a $500/day non-filing penalty.  Companies created before January 1, 2024, must file their FinCEN beneficial owner report before January 1, 2025.  Companies created after January 1, 2024, will have 30 days after receiving notice of their creation to file their reports.

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.

How the CTA Affects Your Entity

Here is a brief summary of the CTA:

  • All reporting companies formed before January 1, 2024, must report the required information to FinCEN before January 1, 2025, but FinCEN has not created a system for filing the reports.
  • All reporting companies formed after December 31, 2023, must report the required information to FinCEN not later than thirty days after receiving notice of their creation.
  • 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 or business street 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 not more than $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.
  • If you have a reporting company you must read my article called “What to Do Now.”  This article explains the actions reporting companies need to take now to prepare for filing their FinCEN beneficial owner report before January 1, 2025.
  • To stay up to date on the CTA and its regulations get a free subscription to our CTA newsletter.

To learn more about the Corporate Transparency Act see my CTA website and subscribe to our free 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.

Did Your File My LLC as a Partnership?

Question:  Did you file my LLC as partnership? My tax accountant needs this information and a copy of that document.

Answer:  You need to get a new accountant who understands LLCs and federal income tax law. It is not possible in any state to file an entity (corp or LLC) as a partnership for federal income tax purposes. The IRS’ default tax method for a multi-member LLC like your two member LLC is partnership. No need to file any papers with the IRS other than the LLC’s IRS form 1065, which is its partnership tax return. If the LLC wants to be taxed as an S corp it has to file an IRS form 2553. If your LLC did not file IRS form 2553 then it is automatically taxed as a partnership.

2023-08-08T15:03:18-07:00August 8th, 2023|FAQs, Tax Issues|0 Comments

Another Wells Fargo Idiot Banker

President of an Arizona nonprofit corporation I formed recently called while at the bank trying to open a bank account for the corporation.  The corporation filed IRS form 1023EZ and was a 501(c)(3) tax-exempt charity.  The banker said her bank could not open a bank account until the corporation could prove its “tax classification.”  I asked her what she meant by “tax classification” and she said it means is the corporation a C corporation or an S corporation?  I said neither because it is a 501(c)(3) tax-exempt charity.  She insisted the corporation had to be a C or an S because she was ignorant of federal income tax law.

Bottom line:  I told my client to go to another bank and hopefully would not be helped by a person who is a business idiot.

I do not recommend that businesses use Wells Fargo, Chase or Bank of America.  They are not customer friendly.

2023-07-15T09:37:45-07:00July 15th, 2023|Bank Problems|0 Comments

Should I Get a DBA for My Arizona LLC?

Question:  If my Arizona LLC is called Widget World, LLC and I want to use Best Widgets in my LLC’s advertisements do i need to file a DBA with Arizona?

Answer:  DBAs in AZ are called trade names.  If you use text that is not the full name of the LLC you should register that text as a trade name with the Arizona Secretary of State.  Getting a trade name or dba from the Arizona Secretary of State is relatively easy to do. It’s a simple online application and the fee is $10. To learn how to get the trade name (aka dba) watch my Youtube video at:

Here’s the link to the Arizona Secretary of State’s trade name page:

2023-10-24T10:17:50-07:00June 3rd, 2023|FAQs, Questions People Ask|0 Comments

Well Fargo Bank Demands LLC Change its Principal Address

Question:  Client received a letter from Wells Fargo bank that said the client’s new LLC’s principal address on file with the Arizona Corporation Commission cannot be 24 W. Camelback Rd, #467, Phoenix, AZ 85013.  That address is also the mailing address of the LLC’s statutory agent.  Do I have to amend my LLC’s Articles of Organization to change the LLC’s principal address?

Answer: Arizona Revised Statues Section 29-2101.B states:  “The Articles of Organization [of an LLC] must state. . . the [LLC’s] principal address, which may be the same as the mailing address of the company’s statutory agent.”  Arizona Revised Statues Section 29-3102.20 defines Principal Address as “the mailing address of a limited liability company or foreign limited liability company, whether or not located in this state.”

24 W. Camelback Rd, #467, Phoenix, AZ 85013 is a UPS mail box. You are dealing with an idiot banker who is ignorant of Arizona LLC law.  The banker is telling you that your LLC’s principal address stated in its Articles of Organization filed with the Arizona Corporation Commission cannot be the LLC’s statutory agent’s mailing address even though that address is expressly authorized in Arizona Revised Statues Section 29-2101.B. Only an uniformed idiot would say that. In forming 8,700+ LLCs I can only remember one other person whose banker said the same thing. It is very common for businesses to have a PO box or a UPS mail box.

The bank has no legal basis to say that the LLC’s principal address cannot be 24 W. Camelback Rd, #467, Phoenix, AZ 85013, because that is KEYTLaw, LLC’s, mailing address and KEYTLaw, LLC is the LLC’s statutory agent.

Recommendation:  Go to another bank, but never use Wells Fargo, Bank of America or Chase Bank.

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 8,900+ 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.

I Want Investors to Invest in My LLC

Question:  I am interested in more information on Arizona Revised Statutes Section 44-1844.A.  I am want to open a new business and I’m looking for investors. I want information on how to do it without affecting the Arizona Securities Division.

Answer:  If you will offer interests in your LLC to investors in exchange for them paying money or value assets you are offering and selling a security and must comply with federal and state securities laws.  If you fail to comply with federal and state securities laws and an investor loses money federal and state securities laws say the promoter(s) – you in this case – are liable for the loss.

You need to hire an experienced securities law attorney to advise you and prepare the documents needed to comply with federal and state securities laws.  The cost of the legal advice is a cost of raising the capital. We do not provide securities law advice.

How Many LLCs Should I Form?

Question:  You have formed most, if not all, of my LLCs over the years and I am grateful for the efficiency, cost and professionalism.  I do have two quick questions.

  • Is it best to have rentals each in their own LLC or is okay to have them all under one?
  • What is best practice for banking? Is it best to have a separate account for each for the sake of liability?

Answer:  The reason you want multiple LLCs to operate multiple businesses or own multiple real estate properties is because you don’t want all of your eggs in one basket.  You know what happens if you drop the basket.  You get the same result if one business or property causes a lawsuit against the LLC and there is a big judgment that exceeds the insurance – you lose all your eggs, aka businesses or properties.

A fundamental rule of LLC asset protection is that each LLC must have its own bank account into which its income is deposited and from which its expenses are paid.  Each LLC also needs its own books.  If you break this fundamental rule and a lawsuit is filed, a court is going to rule that because you are treating the LLCs as if there is only one LLC the court will do the same and allow all of the assets of the LLCs to be reached by a creditor of one of the LLCs.

My 50th Wedding Anniversary

On January 29, 1972, 50 years ago I married the love of my life.  Finding and marrying Carol was the best thing that ever happened to me.  I first saw Carol at a Phi Gamma Delta fraternity party at Penn State in the winter of 1967.  I was a pledge and she had been invited to the frat party because her sister Ellen was pinned to one of my frat brothers.  It wasn’t love at first sight, but I do remember I thought she was the prettiest girl I had ever seen.

We were both freshmen that winter.  Carol dated a number of my fraternity brothers over the next two and a half years.  At the beginning of my junior year I asked Ellen if she would fix me up with Carol and she did.  Unfortunately for some reason I stood Carol up.  I was a no show.  Ellen was understandably mad and said she would never fix me up with Carol again.

The beginning of our senior year I got the courage to call Carol and ask for a date.  Getting dates at PSU in 1966 – 1970, the years we attended PSU, was very hard for guys because there were five guys for every woman.  My freshman year I called a girl for a date and she booked me six weeks later because that was her first opening.

Lucky for me Carol agreed to go out with me.  We hit it off immediately and dated exclusively our senior year.  After graduation I went to USAF Officer Training School at Lackland AFB, Texas, and Carol returned to her home town to take a job teaching in elementary school.  We tried long distance dating, but it was hard in the days before the smart phone, facetime, email and texting.

In the fall of 1971 I was just beginning the six month program in which I learned how to fly the F-4 Phantom supersonic fighter-bomber at Luke AFB, Arizona.

F-4Es returning to Korat Royal Thai Air Base, Thailand, from missions over North Vietnam

I called Carol and asked her to marry me.  She said yes.  We didn’t have time to plan a wedding.  On Friday, January 29, 1972, Carol and I were married in the Methodist Church at Central Avenue and Missouri Avenue in central Phoenix.  Six people attended – my parents and brother, two of my parents’ friends and my best friend from college who happened to be passing through Phoenix.  Unfortunately nobody from Carol’s side of the family was able to attend the wedding.

We drove to San Diego that afternoon for our short honeymoon.  I had to be back to work on Monday so we drove back to Phoenix Sunday afternoon.  We lived at Oakwood Garden apartments on 40th Street just north of Camelback Road, in Phoenix.  I drove to Luke AFB everyday to fly the F-4, attend academic classes and fly the F-4 simulator.  The traffic was much lighter back then, but it still took 45 minutes to drive one way.

In May of 1972, four months after we were married the Air Force sent me to the Vietnam war and Korea for 13 months.  Carol stayed behind in our apartment and worked at American Express at 32nd Street and Lincoln in Phoenix.  Carol lived with me in my one room barracks bedroom at Kunsan Air Base, Korea, for three weeks in 1973.   During the 13 months I was overseas we wrote a lot of letters to each other.  When I returned to the States we decided to destroy all our letters because we didn’t want our future children to read what we thought was too much “mushy” language.  I now regret destroying those letters.

Carol and I have three children and four grandchildren.  For the last 21 years Carol and I have worked closely in my law practice.  She is the office manager and the bookkeeper.  She is one of the reasons I’ve been able to have a very successful law practice.

I love my wife very much and thank God everyday for letting her be the love of my life.

2022-05-30T07:36:19-07:00January 29th, 2022|Miscellaneous|0 Comments

New Arizona Laws Effective 1/1/22

On January 1, 2022, the following new Arizona laws became effective:

  • The minimum wage is $12.80 per hour, which is an increase from $12.15 per hour.
  • Instead of having four state income tax brackets, Arizona income tax changed to two tax brackets.  The tax rates are 2.55 percent and 2.98 percent.  Single people and married people filing separately pay the lower rate if their taxable income is $27,272 or less or the higher rate if their taxable income exceeds $27,272.  Married people filing jointly pay the lower rate if their income is less than $54,544 or the higher rate if their taxable income exceeds that amount.
  • The Arizona Homestead exemption increased from $150,000 to $250,000, but this equity amount is no longer protected from liens that arise from a civil judgment.  In general this exemption protects the first $250,000 of equity a single person or a married couple have in the Arizona home in which they reside from the home owner(s) involuntary creditor(s).  Under the new law, however, if a creditor gets a judgment against the home owner issued by a court the homestead exemption no longer prevents the creditor from getting the homestead exemption amount.
2022-01-09T15:20:50-07:00January 9th, 2022|Miscellaneous|0 Comments

Businesses with an EIN Must Notify IRS of Changes with Respect to Responsible Parties

Calling it a key security issue, the Internal Revenue Service on July 31, 2021, urged entities with Employer Identification Numbers (EINs) to update their applications if there has been a change in the responsible party or contact information.

IRS regulations require EIN holders to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party – Business. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts.

The data around the “responsible parties” for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This means a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious filing.

As a result, the IRS intends to step up its awareness efforts aimed at businesses, partnerships, trusts and estates, charities and other entities that are EIN holders. Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated.

All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (Social Security number, Individual Taxpayer Identification Number or EIN) of the true principal officer, general partner, grantor, owner or trustor.

The IRS defines the responsible party as the individual or entity who “controls, manages, or directs the applicant entity and the disposition of its funds and assets.”

Unless the applicant is a government entity, the responsible party must be an individual, not an entity. If there is more than one responsible party, the entity may list whichever party the entity wants the IRS to recognize as the responsible party.

EINs are to be used strictly for tax administration purposes. Entities with EINs that are no longer in use should close their IRS tax accounts and follow steps outlined at Canceling an EIN – Closing Your Account.

Watch Five Things to Know about the Employer Identification Number

2021-08-18T16:35:27-07:00August 18th, 2021|Tax Issues|0 Comments

Arizona Corporation Commission Creates Authorized Filers

On June 29, 2021, the Arizona Corporation Commission added new features to its online service.  These new features are called “owners” and “authorized filers.”

  • Owner.  The owner of an account for an LLC, PLLC or corporation created on the ACC’s online website is the person whose user name and password was used to login to the ACC’s website and who then formed the LLC, PLLC or corporation.  Only companies created online after May 21, 2018, have owners.  Companies created by filing paper forms do not have owners.  ACC staff can add an owner to a company if the company does not have an owner.
  • Authorized Filer.  The owner of the account for an LLC, PLLC or corporation can add one or more people as “authorized filers” for the owner’s company.  Authorized filers can login to the ACC’s website then use the ACC’s online services to make changes to the company for which the person is one of its authorized filers.

For all companies created online after May 21, 2018, only the owner of the company’s ACC account and the company’s authorized filers can file changes to the company using the ACC’s website.  Companies created by filing paper documents do not have an owner.

Here’s the ACC’s info about authorized filers and owners:

We Got Another Nice Review

I don’t usually insert reviews I get into a blog post, but yesterday I got a very nice review I want to share with you.  Here is the review:

If you are ready to start your LLC, this is the office you need to call. The process is so streamlined, the people are so knowledgeable & kind, & they work INCREDIBLY fast. I was absolutely shocked at how quickly things were done & could not be more pleased. The reasonable fees up front are well worth the potential liability avoided in the future. The items completed for my business by this office would have taken days or weeks for me to research & execute myself, & even then I could not be sure they were done properly without an attorney reviewing them. The follow up support is also wonderful & the informational emails the office sends out on a regular basis have been very valuable. If you are on the fence, don’t think twice. Spend a little now for excellent service & LLC setup done properly, save a lot later by avoiding mistakes that can cost dearly in the future. Your business is important, do it right. Cannot recommend enough!

People love my LLC formation services, which is why I have 349 five star reviews on Google, Facebook and Birdeye.

2021-02-13T09:02:48-07:00February 13th, 2021|Miscellaneous|0 Comments

3 Ways Your Loved One Will Be Harmed If You Own an LLC & Do Not Prepare for Death

If a member of an Arizona LLC dies and the member did not take action to protect the member’s loved one(s) bad things will happen.  The failure to plan for death creates the following problems:

1. The membership interest of the deceased member may not be inherited by the person or people the deceased member would want to inherit the membership interest.

2. A person who inherits the membership interest of a deceased member of a multi-member LLC will not be a member of the LLC.  Instead, the heir will acquire only an economic interest in the LLC, which means the heir(s) will not be able to vote on any issue or receive records that all members have a right to receive.

3. The person who inherits the LLC interest may have to do an expensive and time consuming court probate to change ownership of the LLC.

Click on the blue text below or the + icon to open the text box to see the explanation of each problem.

If you do not have a will or a trust that states who inherits your interest in the LLC if you die the LLC will go to the person or people selected by the intestate succession law of your state of residence.  Your state’s plan for who inherits may be different from who you want to inherit the LLC.

If you are an Arizona resident see “Who Inherits Property of an Arizona Resident Who Dies without a Will or a Trust?

Example 1: Bob Jones owns his LLC as his separate property.  He is married to Linda and has two children from a prior marriage.  Bob wants Linda to inherit all of his valuable LLC.  Bob dies without a Will or trust that designates who inherits the LLC.  The law of intestate succession of Bob’s state of residence gives one half of the LLC to Linda and the other half to Bob’s children equally.

Solution:  Bob should have signed a will or a trust that named Linda as the sole heir of Bob’s interest in the LLC.

Example 2: Bob Jones invests $90,000 in J&F LLC and owns a 90% membership interest.  Linda is Bob’s significant other of 20 years. Ned Flanders invests $10,000 and owns 10%.  Bob dies without a Will or a trust.  Instead of the 90% interest in the LLC going to Linda the law of intestate succession of Bob’s state of residence gives the LLC interest to Bob’s son whom Bob hasn’t heard from in 25 years.  Linda gets none of the LLC.

Solution: Bob should have signed a will or a trust that named Linda as the sole heir of Bob’s interest in the LLC.

Example 3: Bob Jones is single and has three kids.  Bob wants his entire interest in his LLC to go to his daughter Maggie who works in the business with Bob. Bob dies without a Will or trust.  The law of intestate succession of Bob’s state of residence gives the LLC interest equally to Bob’s three kids.  Maggie gets one third of the LLC instead of all of it.

Solution: Bob should have signed a will or a trust that named Maggie as the sole heir of Bob’s interest in the LLC.

Example 4: Bob Jones is single.  He wants his brother James to inherit his LLC.  Bob dies without a Will or a trust.  The law of intestate succession of Bob’s state of residence gives the LLC interest to Bob’s parents.  James gets nothing.

Solution: Bob should have signed a will or a trust that named Linda as the sole heir of Bob’s interest in the LLC.

Arizona Revised Statutes Section 29-3502 states:

A. A transfer, in whole or in part, of a transferable interest does not entitle the transferee to either of the following:

(a) participate in the management or conduct of the company’s activities and affairs.

(b) . . . have access to records or other information concerning the company’s activities and affairs.

B. A transferee has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled.

This statute prevents an heir from voting on LLC matters and getting information about the LLC.

Example 5: Same facts as Example 2 above, but the good news is that Bob’s Will left Bob’s 90% interest in the LLC to Linda.  Because of Section 29-3502 Linda does not have any voting rights and can’t get any information about the LLC.  Linda inherited only an economic interest in the LLC, not a membership interest.  This means that Ned Flanders who owns 10% of the LLC is the only voting member and now has total control of the LLC that Linda has a right to receive 90% of the and distributions.

Solution:  The Operating Agreement of the LLC signed by Bob and Ned should have had a clause that stated that Bob’s heir Linda would automatically become a member of the LLC entitled to all rights of membership on Bob’s death.  Our Operating Agreements contain this language.

If you die and your LLC is not owned by your trust your heir(s) may be forced to open a probate with a court in your state of residence to transfer ownership of the LLC to your heir(s).  We are Arizona probate lawyers.  Our fee to do an uncontested Arizona probate is $2,500 – $3,500 and it takes five or six months.

If you are an Arizona resident and the value of ALL of your personal property including your LLC is less than $75,000 your heir(s) can avoid probate by preparing a small estate affidavit.

Example 6:  Bob dies without a Will or a trust.  The total value of his personal property exceeds $75,000.  Bob’s wife inherited his LLC interest under Arizona’s law of intestate succession, but she has to spend $3,500 to hire an attorney to do a probate.

Solution: If Bob had signed trust the LLC interest would have passed automatically to his wife on Bob’s death without the need for a probate.

2023-11-01T10:18:05-07:00November 26th, 2020|FAQs, How Do I, Members, Operating Agreements|0 Comments

IRS Employer ID Number (EIN) Warning for New LLCs & Corporations

The Internal Revenue Service has an online wizard that allows people to apply for and receive an employer identification number (EIN) for a company in a 5 – 10 minute data entry session. Companies need an EIN to open a bank account and file federal tax returns.  See our EIN online wizard video that shows how to complete the online application.

Usually the online EIN wizard works great and people can quickly get an EIN for a newly formed company.  Unfortunately the online wizard sometimes rejects an EIN application because of “Reference Number 101,” which usually means the company’s name is the same as or too similar to another company’s name.  The wizard displays this message:

“We are unable to provide you with an EIN.  We apologize for the inconvenience, but based on the information provided we are unable to provide you with an EIN through this online assistant.  Please call 1-800-829-4933 for assistance. When outside the US, call 267-941-1099. TTY/TDD: 1-800-829-4059.  Please have your information readily available, and mention reference number 101.”

If you get the above message then your company must apply for its EIN by faxing its SS-4 application to the IRS at 855-641-6935. After getting this rejection message we’ve called the IRS and been told that it will be 45 days before the IRS issues the EIN.

Note: A one member LLC or an LLC owned only by a married couple as community property can use the social security number of one of the members to open the LLC’s bank account.

If getting your new company’s EIN immediately instead of in 45 days you have two options: (1) go with your desired name and take a chance that the EIN application will not be rejected, or (2) make the name of your company unique and a name that no other company will have.

2021-08-18T10:38:31-07:00October 28th, 2020|Forming LLCs, How Do I, Tax Issues|0 Comments
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