Arizona’s New Limited Liability Company Act

Arizona has long had laws defining and regulating limited liability companies (LLCs) organized within the state. The first law was codified in the Arizona Revised Statutes in 1992, and it remained substantially unchanged until 2018. In 2018, the Arizona legislature enacted the new Arizona Limited Liability Company Act (ALLCA). The ALLCA will affect all Arizona LLCs, including single-member LLCs. For new LLCs formed after September 1, 2019, the ALLCA became effective September 1, 2019. Limited liability companies already existing on September 1, 2019, are required to become compliant with the law by September 1, 2020. The new law governs both the internal affairs of limited liability companies and the liability of members or managers with respect to their interactions with outside parties.

The ALLCA is a product of more than seven years of work by Arizona lawyers and is based largely on the Revised Uniform Limited Liability Act adopted by the Uniform Laws Commission in 2013. The ALLCA does preserve some of the policies and procedures from the original law, but it also integrates many concepts from the Revised Uniform Limited Liability Act on which the original Arizona law was silent.

Although Arizona LLCs have been able to operate without written agreements in the past, the ALLCA has a number of provisions related to the operating agreement that effectively impose a default operating agreement on LLC members. The new law provides great flexibility in the way operating agreements are written, but if the existing agreement does not provide for a matter, the new law does. The new law states that, in the event of a conflict between a provision of the operating agreement and the new law, the provision of the operating agreement governs. If an agreement does not address an issue, however, the new law governs.

Members of existing LLCs should consider updating their operating agreements, both to comply with the required provisions of the ALLCA and to draft around the provisions that would otherwise impose unwanted requirements or restrictions on members and the operations of their businesses.

The new law clarifies the fiduciary duties owed by members and managers to each other and to the LLC. These duties include the duty of loyalty, the duty of care, and the duty of disclosure. Definitions and existence of these duties was previously left to the courts. Now the operating agreement must address the duties and how to handle breaches of these duties.

The new ALLCA will affect your LLC. We encourage you to consult with your attorney to update your LLC’s operating agreement. If you have questions about LLC taxation or other provisions of the new law, please come in and visit with one of our tax professionals. We would welcome the opportunity to help you succeed as you integrate the new law into your business.

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