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Arizona's LLC Law Undergoes Complete Overhaul

Stephen Aron Benson   Jim Samuelson  

Steve Benson

 

Jim Samuelson

 

LLCs should seek legal review of their documents to ensure compliance with the new law.

Arizona law governing limited liability companies is being replaced by the new Arizona Limited Liability Company Act, which is a complete overhaul of the current law.

The new Act, which was passed during the 2018 legislative session and signed into law by Governor Ducey in April:

  • is effective for all LLCs formed after August 31, 2019, and

  • will govern all Arizona LLCs after August 31, 2020, regardless of their formation date.

The new Act is modeled after the Revised Uniform Limited Liability Company Act (RULLCA), which Arizona has adopted with the purpose of harmonizing Arizona's LLC statute with LLC laws of other states. Arizona's current LLC statute, enacted in 1992, has not kept up with the advances in LLC legal theory, practice, and development.

The new Act will benefit Arizona LLCs by providing updated rules and procedures, along with nationwide legal precedent that will help guide Arizona judges and lawyers when issues arise. Many of the changes to the law concern provisions that will automatically apply in cases where the operating agreement - the contract among the entity's owners - is silent on a particular issue.

Following are some of the new Act's important provisions that are noteworthy for Arizona business owners. The new Act:

  • provides centralized statutory lists of what the operating agreement may and may not do;

  • provides substantial power to allow the operating agreement to reshape fiduciary duties, including the duty of loyalty and duty of care, which are clarified and can be expanded, limited or eliminated from the operating agreement (however, the contractual obligation of good faith and fair dealing cannot be modified or eliminated, and the lessening of the duty of care cannot fall below willful or intentional misconduct);

  • provides that a person's obligation to make a contribution to the LLC is not enforceable unless it is in writing;

  • permits a court to award reasonable attorneys' fees and costs concerning disputes over rights to obtain information, and on restrictions imposed by the LLC on access to or use of the information;

  • provides default rules for expulsion of members for wrongful conduct; and

  • expands dissolution procedures, including events that cause dissolution, and procedures for winding up.

For existing Arizona LLCs, the company documents may need to be reviewed and updated to comply with the new Act.

If you have any questions about your LLC documents, please call Steve Benson or Jim Samuelson at 480-425-2600. We can assist with operating agreement reviews and amendments, to prevent conflict or unforeseen consequences with the new Act, and of course draft new limited liability company agreements.