Arizona's LLC Law Undergoes Complete Overhaul
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
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.