{"id":10225,"date":"2018-05-19T09:20:06","date_gmt":"2018-05-19T16:20:06","guid":{"rendered":"https:\/\/www.keytlaw.com\/azllclaw\/?p=10225"},"modified":"2018-07-15T08:08:11","modified_gmt":"2018-07-15T15:08:11","slug":"records","status":"publish","type":"post","link":"https:\/\/www.keytlaw.com\/azllclaw\/2018\/05\/records\/","title":{"rendered":"Records? We Ain’t Got No Stinking Records: New Arizona LLC Law Says Disclose or Be Sued"},"content":{"rendered":"

Why LLCs Must Have an ALLCA Compliant Operating Agreement: Reason #9<\/strong><\/p>\n

The 1948 movie “The Treasure of the Sierra Madre<\/em>” starring Humphrey Bogart contained these famous words:<\/p>\n

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\u201cBadges? We ain\u2019t got no badges! We don\u2019t need no badges!\u00a0 I don\u2019t have to show you any stinking badges!\u201d<\/p>\n<\/blockquote>\n

When I read new Arizona Revised Statutes\u00a0 Section 29-3410<\/a> it makes me think:<\/p>\n

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“LLC records? We ain\u2019t got no LLC records! We don\u2019t need no LLC records!\u00a0 I don\u2019t have to show you any stinking LLC records!\u201d<\/p>\n<\/blockquote>\n

If you’ve been following my articles about the new Arizona Limited Liability Company Act<\/a> that is effective September 1, 2019, you know I call the law the Arizona liability act<\/strong><\/span> because it creates many new ways members, managers and the company can sue each other.\u00a0 Section 29-3410<\/a> i<\/a>s one of the new statues that is baffling and that creates new grounds for lawsuits.<\/p>\n

New Section 29-3410.A<\/a> requires all Arizona LLCs to maintain the following records:<\/p>\n

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1. a current list of the full name and last known address of each member and manager.<\/p>\n

2. a copy of the Articles of Organization and all amendments to the Articles of Organization.<\/p>\n

3. a copy of all current and prior written operating agreements and amendments to all current and prior written operating agreements.<\/p>\n

4. any record of a member\u2019s obligation to make a capital contribution to the company.<\/p>\n

5. a copy of the company\u2019s federal, state and local income tax returns and reports, if any, for the three most recent years.<\/p>\n

6. a copy of the company\u2019s financial statements, if any, for the three most recent years.<\/p>\n<\/blockquote>\n

The records all Arizona LLCs must maintain under new law Section 29-3410.A<\/a> are the same records all Arizona LLCs must maintain under current LLC law.\u00a0 See Arizona Revised Statutes Section 29-607<\/a>.<\/p>\n

The problem with\u00a0Section 29-3410<\/a> is that it contains a long list of new requirements that deal with whether or not the company must disclose any required records.\u00a0 Section 29-3410<\/a><\/a> states:<\/p>\n

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B. During regular business hours and at a reasonable location specified by the limited liability company, a member or manager may inspect and copy the records described in subsection A of this Section and any other company record regarding the activities, affairs, financial condition and other circumstances of the company as is just and reasonable if all of the following apply<\/strong>:<\/p>\n

1. the member or manager seeks the records for a purpose reasonably related to the rights and duties of the member or manager under the operating agreement or this Chapter.<\/p>\n

2. the member or manager makes a demand in a record received by the company describing with reasonable particularity the records sought and the purpose for seeking the records.<\/p>\n

3. the records sought are directly connected to the member\u2019s or manager\u2019s purpose.<\/p>\n

C. not later than ten days after receiving a demand pursuant to subsection B, paragraph 2 of this Section, the limited liability company shall inform in a record the member or manager that made the demand of:<\/p>\n

1. the records that the company will make available in response to the demand and when and where the company will make the records available.\u00a0 The time and location may not be unreasonable under the circumstances.<\/p>\n

2. the reasons for declining if the company declines to provide any demanded records.<\/p>\n

D. Whenever this Chapter or the operating agreement provides for a member or manager to vote on or give or withhold consent to a matter, before the vote is cast or consent is given or withheld, the limited liability company, without demand, shall provide the member or manager with all information that is known to the company and all records in the company\u2019s possession that are material to the member\u2019s or manager\u2019s decision except to the extent the company reasonably believes that the member or manager already knows the information or is in possession of the records.<\/p>\n

E. To the extent that some or all of a limited liability company\u2019s records are maintained by a member or manager, the member or manager shall make those records available to the company as necessary for the company to satisfy its obligations pursuant to this Section.<\/p>\n

K. In addition to any restriction or condition stated in its operating agreement, a limited liability company may impose reasonable restrictions and conditions on access to and use of information to be furnished and records to be made available under this Section, including designating information and records confidential and imposing nondisclosure and safeguarding obligations on the recipient. In a dispute concerning the reasonableness of a restriction under this subsection, the company has the burden of proving reasonableness.<\/p>\n

L. If a dispute arises regarding a member\u2019s or manager\u2019s right under this Section to obtain information or inspect or copy a record, or regarding whether any restriction imposed by the limited liability company on a member\u2019s or manager\u2019s right to obtain, inspect, copy or use any such information or record is unreasonable, the court may award the successful party reasonable expenses, including reasonable attorney fees and costs.<\/p>\n<\/blockquote>\n

Current vs. Future Arizona LLC Records Law<\/strong><\/p>\n

Under current law members are entitled to get copies of the records.\u00a0 There is no procedures that allow the LLC to refuse to give records to members.\u00a0 New Arizona LLC law creates an elaborate process that must be satisfied before a member can get required records.\u00a0 Here are some of the potential problems created by Section 29-3410<\/a>:<\/a><\/p>\n