Operating Agreements Under Arizona’s New LLC Act

Currently you are not required to have an operating agreement (the legal document that addresses how your company will function) for your limited liability company (“LLC”) – although having one is highly recommended. Arizona’s new Limited Liability Company Act (“ALLCA”) may change that fact.  If you are currently running your LLC without an operating agreement, it’s important for you to become knowledgeable about the provisions of and standards set forth in this new Act.  This is because, in the absence of an operating agreement, your company will automatically be subject to the ALLCA’s default provisions on the date the Act becomes applicable.  Therefore, at a bare minimum, you will want to familiarize yourself with the default provisions so that you can determine how they will affect your company.    

The Act contains two specific dates related to applicability: 

–September 1, 2019 – All Arizona LLCs formed on or after this date are subject to the ALLCA .

-September 1, 2020 – All LLCs formed in Arizona must be ALLCA-compliant. 

Compliance under the new Act requires either acceptance of the default provisions or execution of an operating agreement that addresses the same topics.  Many businesses may already have executed an operating agreement.  If you are not one of those businesses, when the ALLCA becomes effective for your business, certain provisions of the Act will effectively take the place of an operating agreement.  Even if you have an operating agreement, if it has gaps that don’t cover the areas encompassed by the new Act, then its default provisions will fill those gaps.  However, your operating agreement is not required to mirror all of the Act’s default provisions; it must only address the same topics.  In fact, in some instances, the provisions of your operating agreement can actually vary the Act’s default provisions.  Thus, if there are particular provisions that you would prefer not be applied to your business, you can use your operating agreement to make that happen.  Without an operating agreement, it’s simply not possible.    

Some of the default provisions of the Act include:

– Imposition of a fiduciary duty on members of the LLC. 
– Not requiring members to contribute to LLCs unless explicitly required in writing.
– Requiring the equal division of distributions regardless of ownership ratios prior to dissolution,   

The Act also contains provisions related to company records, liabilities, and more that should all be discussed with your business attorney so that you can ensure that, under its current operating agreement, the rules that apply to your existing LLC are acceptable to you.  If, on the other hand, you have no written  operating agreement, your LLC’s members should come together with an attorney’s guidance to craft one that is suitable to your business and compliant with the ALLCA.  To discuss this Act and how it may apply to your company, or to work on either of these tasks with my legal assistance, give me a call to schedule a sit-down.

The information presented here is for general educational purposes only. It does not constitute legal advice and does not create an attorney-client relationship.