Arizona Limited Liability Company Operating Agreement

By Lisa Magloff

The owners of a limited liability company (LLC) are called members and an operating agreement is a contract between the members that sets out the rights and responsibilities of each member. In Arizona, operating agreements may contain any provision that is not specifically against the law and that relates to operation of the LLC, its members or employees. While operating agreements are similar in all states, there are some provisions that may be particularly important in Arizona.

The owners of a limited liability company (LLC) are called members and an operating agreement is a contract between the members that sets out the rights and responsibilities of each member. In Arizona, operating agreements may contain any provision that is not specifically against the law and that relates to operation of the LLC, its members or employees. While operating agreements are similar in all states, there are some provisions that may be particularly important in Arizona.

Requirements

Arizona law does not require LLCs to have operating agreements, but does state that members may adopt operating agreements that contain any provisions the members feel are appropriate. Arizona law does not specify that the operating agreement needs to be in writing. According to Arizona business lawyer Richard Keyt, oral contracts can be enforced in Arizona. However, Keyt also suggests that it can be difficult to prove the terms and conditions of an oral contract, so it is always best to have the operating agreement in writing.

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Without an Operating Agreement

In the absence of an operating agreement, an Arizona LLC will be governed by the laws contained in the Arizona Limited Liability Company Act. The Act contains provisions governing such issues as the addition of members, what happens when members leave the LLC and the distributions of profit and losses. However, the rules in the Arizona LLC Act may not suit every LLC. For example, the Act requires LLCs to allocate profit and losses in proportion to each member's financial contributions to the LLC. Some LLCs may prefer to allocate profit and losses based on other criteria.

What to Include

The operating agreement can include any issues the members want to address. Some issues are particularly important as they will apply to all LLCs. For example, rules for adding new members can be written to make it easier or harder to admit new members and rules for allocating profit can be written so that the members who contribute more financially receive a greater share of the profit. Other issues that may be important to address include restricting members from being able to transfer their interest in the company, setting out the circumstances under which the company will buy out a member's interest, setting out how the company will be governed and which actions will require a majority or unanimous vote of the members.

Special Circumstances

The operating agreement can also be used to set out what will happen in certain circumstances that are particular to Arizona. For example, Arizona has community property laws. This means that in the event of a divorce, all property acquired during marriage is considered to belong to the couple jointly. If one spouse is a member of an LLC, part of his interest in the company could be transferred to his spouse in a divorce settlement. This may not be in the best interest of the LLC, so the operating agreement can include a clause requiring the divorcing partner to sell his interest to the other members.

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Illinois LLC Operating Agreement

References

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A limited liability company is a state-regulated business organization that is a hybrid between a corporation and a partnership. Like a corporation, the owners, otherwise known as members, are generally not held personally liable for the business’s liabilities. However, the business is taxed like a partnership; the LLC is not taxed but the business’s profits and losses are included on the members’ returns. An LLC does not have to have officers like a corporation does, but some businesses may find it useful as it helps establish a clear hierarchy and the roles of each member of management.

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