My First Impression of the Proposed New Arizona LLC Law and more...


My First Impression of the Proposed New Arizona LLC Law

This article is the second of what will become many articles I write about the proposed Arizona Revised Limited Liability Company Act (RULLCA) that some Arizona lawyers intend to ask the Arizona legislature to adopt.  If the Arizona RULLCA were to become law it would replace Arizona’s 25 year old LLC law in its entirety. See After 7 Years of Drafting a Small Group of Lawyers Wants to Replace Arizona’s LLC Law for the complete text of the proposed LLC law.

On July 11, 2017, I sent the following email to 39 lawyers on an Arizona State Bar business law section email list:

“I am writing an article about the RULLCA as revised by the committee. I would like to include the names and backgrounds of the people who are willing to admit they are responsible for the proposed law. If you are one of the authors of the law please send me an email with the following information:

1. Your name
2. Name of your law firm
3. Your primary area(s) of practice
4. Your experience forming and administering Arizona LLCs.
5. How many LLCs did you form in the last year?
6. How many LLCs have you formed since 1992?
7. Why you think Arizona should replace its current LLC law with RULLCA as revised by you.
8. Whether or not you authorize me to include your email address in the article.

I sent the people on the email list the message above because I knew that all of the people who were responsible for drafting the proposed Arizona RULLCA were on the email list.  The purpose of my email message was to identify the people who were involved in drafting the Arizona RULLCA and learn about their experience with LLCs.  I also invited the drafters to tell me why Arizona should adopt the drafter’s Arizona RULLCA.  The public should know this information about the drafters of the proposed law. Sadly only one person admitted to me that he worked on the committee. I hope that the people who drafted the proposed Arizona RULLCA are not afraid to tell the public their names.  If a drafter of the proposed Arizona RULLCA sends me information or text for an article about the proposed law I will be happy to publish it on this website.

I have not decided if I will support or oppose the Arizona RULLCA. I’m still reading and studying the proposed law and making notes. When I am done I will publish my analysis and whether I support or oppose the proposed Arizona RULLCA.  If adopted the proposed law would replace Arizona’s existing LLC law in its entirety.  To get updates of the blog posts I will be making over the next year or so enter your email address in the right column of this page under the text “Subscribe to LLC Law Blog.”

My initial impression of the Arizona RULLCA is that the proposed law needs to be tweaked.  Here are some problems I found just in the Section 102, Definitions, which is the second section of the new law:

Section 102(12)

This subsection states “’Majority in interest of the members’ means, at any particular time, one or more members that hold in the aggregate a majority of the interests in the limited liability company’s profits held at that time by all members, disregarding any profit interests held by persons who are not members. The members’ respective interests in the company’s profits shall be in proportion to their rights to share in distributions that exceed the repayment of their contributions.”

Problem 1: The term “profits” is not defined in the new law.

Problem 2: What does the last sentence mean?

Problem 3: If the members want to define Majority in interest to be a majority of the members (2 of 3 members or 3 of 4 members) regardless of their share of the profits, can they do it?

Section 102(13)

This subsection states “’Manager’ means a person that under the operating agreement of a manager-managed limited liability company is responsible, alone or in concert with others, for performing the management functions stated in Section 407(c).”

Problem 4: This means that despite the Articles of Organization stating the LLC is manager managed and naming all the managers, nobody is actually a manager unless the LLC has an Operating Agreement that names the manager(s). Requiring all manager managed LLC to have an Operating Agreement would be a major change to existing LLC law.

Section 102(19)

This subsection defines Person as “an individual, business corporation, nonprofit corporation, partnership, limited partnership, limited liability company, general cooperative association, limited cooperative association, unincorporated nonprofit association, statutory trust, business trust, common-law business trust, estate, trust, association, joint venture, public corporation, government or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.”

Problem 5: How does the group of business lawyers who worked on the proposed law for seven years fail to include in the definition of Person the following types of entities recognized by Arizona law: benefit corporations, general partnerships, real estate investment trusts, limited liability partnerships and limited liability limited partnerships?  The drafters might say that they didn’t need to mention GPs, LLPs and LLLPs because the definition includes the word partnership.  If that is the answer then why doesn’t the definition mention corporation and eliminate the words business corporation, nonprofit corporation and public corporation and why does it list limited partnership if that type of entity is included in partnership?

How to Stay Informed of the Status of the Proposed Arizona RULLCA

To get updates of the blog posts I will be making over the next year or so enter your email address in the right column of this page under the text “Subscribe to LLC Law Blog.”

The post My First Impression of the Proposed New Arizona LLC Law appeared first on Arizona LLC Law.

    


Changes to Arizona LLC Law Effective August 9, 2017

The Arizona legislature passed SB1272, which was signed into law by the Governor or Arizona.  This new law makes minor changes to Arizona’s LLC and corporate laws.  These new laws are effective on August 9, 2017.  A summary of the changes is below.

NEW LEGISLATION SUMMARY

SB1272 was passed this last session. It was a corporation omnibus bill, and it affects several filing requirements for both corporations and LLCs. The changes are summarized below in the order in which they appear in the bill. To read the entire bill, click on the bill number.

MOD accounts:

The bill grants the Commission the discretion to allow the use of MOD (money-on-deposit) accounts. Previously, the statute did not give the Commission any discretion. (See changes to A.R.S. § 10-122(K).) For the foreseeable future, the ACC will continue current procedure with MOD accounts.

Approval of documents:

The Commission is no longer obligated to return a copy of an approved document to the customer; the obligation now is to provide notice of the approval. (See changes to A.R.S. § 10-125.) Effective August 9, 2017, the Commission will no longer send out a copy of the document with the approval letter; only the approval letter will be returned to the submitter. Approved documents are available on our website.

Rejection of documents:

The Commission will continue to return a copy of a rejected document along with the letter explaining the rejection. (See changes to A.R.S. § 10-125.)

Electronic transmission and Notice:

Definitional changes were made, and other references throughout the corporation and LLC statutes have been modified to refer to “electronic transmission” where appropriate, and that definition links back to the definition of “electronic record” found in the electronic transactions statutes, A.R.S. § 44-7001, et seq. This is an attempt to codify the use of email as an allowable means of communication and for giving Notice between the Commission and entities. (See, e.g., A.R.S. §§ 10-140(21), 10-141, and 10-504.) The Commission now can send official notices, such as a Notice of Pending Administrative Dissolution, via email. Please note that this will NOT be implemented until the new computer system is up and running. When the new system is in use, the Commission will ask for the entity to consent to receive such notices by email. If the entity does not consent, notices will be sent via the U.S. Post Office.

Change documents:

The requirements for Statements of Change have been simplified. Only the new information for address and agent will be required. We are revising our forms to reflect the minimal requirements and will have those available as of August 9.

Annual Reports:

The dissolution and withdrawal statutes have been revised to allow for a six-month suspension of the annual report requirement for corporations that file for a voluntary dissolution/withdrawal. (See, e.g., changes to A.R.S. § 10-1403.) Corporations have six months after submission in which to complete a dissolution or withdrawal. Often, corporations will try to complete the dissolution/withdrawal but find that they now owe their annual report and/or owe penalties for not filing it on time. This bill provides that the annual report requirement is suspended for six months from the date the dissolution/withdrawal is submitted. Note: once the six months passes, the annual report is due and so are penalties, if enough time has passed since the due date. TIP – obtain the tax clearance certificate before submitting the dissolution. That way, you will never run into a penalty situation with the annual report. This change is being programmed into the current system and should be implemented by August 9. The new law applies only to dissolutions or withdrawals delivered to the ACC on or after August 9, 2017.

Foreign nonprofit corporations:

The gap left by last year’s SB1356 is now closed – foreign nonprofit corporations no longer have to file applications for new authority when they amend their articles. A foreign nonprofit corporation that amends its name, duration, or state of jurisdiction will now file Articles of Amendment to Application for Authority (along with a certified copy of the amendment) – a significant cost savings ($25 fee instead of $175). This change is already in effect for foreign for-profit corporations, from last year’s SB1356. The ACC’s form will apply to both for-profit and nonprofit corporations as of August 9, 2017.

Nonprofit corporations:

Another gap was closed – nonprofit corporations can sue for false filings. For-profit corporations and LLCs were granted this right of action in last year’s SB1356. Note – this is a private right of action and is not something the ACC will do for the corporation.

LLC administrative dissolution:

LLCs whose latest date to dissolve has passed will now be administratively dissolved. (See changes to A.R.S. § 29-786.) The LLC does have an option of amending its articles, or, if it is administratively dissolved, of reinstating and then amending its articles. There are several thousand LLCs that will be administratively dissolved pursuant to this provision, beginning on or after August 9, 2017.

The post Changes to Arizona LLC Law Effective August 9, 2017 appeared first on Arizona LLC Law.

    


After 7 Years of Drafting a Small Group of Lawyers Wants to Replace Arizona’s LLC Law

by Richard Keyt, an Arizona LLC attorney who has formed 5,500+ Arizona LLCs

Most of us know that if it is not broken we don’t need to fix it.  Unfortunately a few Arizona lawyers want to “fix” Arizona’s LLC law even though it is not broken.  These lawyers have spent seven years writing and rewriting a uniform law called the Revised Uniform Limited Liability Company Act (RULLCA).  They intend to ask the Arizona legislature to adopt their revised version of RULLCA during the next legislative session.

I was a member of this Arizona State Bar subcommittee for three years, but quit after the subcommittee voted 11 – 3 to eliminate the charging order as the sole remedy of a creditor who gets a judgment against a member of an Arizona LLC.  The charging order sole remedy is one of the reasons Arizona’s current LLC law causes Arizona to be included in the small list of states that have what I call “good” LLC law.  I told the group that instead of replacing Arizona’s good LLC law we should seek to modify it to make it better.  They disagreed.

The Uniform Law Commission adopted a 2013 version of RULLCA, but the subcommittee based its rewrite on the out of date 2011 version of RULLCA instead of the latest version.  The American Bar Association also has a model LLC law, but the subcommittee ignored it.

Since RULLCA was first proposed in 2006, eighteen states have adopted it.  These states are Alabama, California, Connecticut, District of Columbia, Florida, Idaho, Illinois, Iowa, Minnesota, Nebraska, New Jersey, North Dakota, Pennsylvania, South Dakota, Utah, Vermont, Washington, Wyoming.  Note:  The fact California adopted RULLCA tells me Arizona should not make that mistake.

If you are a member of an Arizona LLC I urge you to read my article called “The Threat” in which I explain why RULLCA is bad law and must be rejected.  For scholarly articles that explain in detail why RULLCA sucks read “An Analysis of the Revised Uniform Limited Liability Company Act” and “40 Year Idaho Business Law Attorney Rips Idaho’s RULLCA.”  Law Professor Larry Ribstein said the following about RULLCA in his article called “An Analysis of the Revised Uniform Limited Liability Company Act:”

“In general, these provisions raise significant questions and threaten to impose substantial risks and costs on limited liability companies. The article concludes that there is little reason for states to adopt the Act, and that practitioners should be wary about advising clients to form under it”

I have not yet studied the subcommittee’s revised version of the 2011 RULLCA.  I intend to do so in the next few weeks and write my analysis.  If you want to stay up to date on this total rewrite of Arizona’s LLC law then enter your email address in the right column under the text “Subscribe to LLC Law Blog.”  If you know other people that are members of an Arizona LLC send them a link to this article. If I conclude that the proposed LLC law should be trashed then I will be organizing a campaign to notify our legislators that they should not adopt it and I will need your help.

Below are two versions of the subcommittee’s seven year masterpiece.  The first document is the clean version of the new law proposed by the subcommittee.  The second document is a redlined version of the same law that shows the additions and deletions the subcommittee made to the 2011 version of RULLCA.

Clean Version of the Subcommittee’s Revised 2011 RULLCA

llc-law

Redlined Version of the Subcommittee’s Revised 2011 RULLCA

llc-law-redline

 

 

The post After 7 Years of Drafting a Small Group of Lawyers Wants to Replace Arizona’s LLC Law appeared first on Arizona LLC Law.

    


What Arizona Employers Need to Know about New Employee Sick Pay Time Law Effective July 1, 2017

Proposition 206, the Fair Wages and Healthy Families Act (the “Act”), was a ballot initiative approved by Arizona voters on November 8, 2016. The Act established a new Arizona state minimum wage effective January 1, 2017, and entitles employees to accrue earned paid sick time.  Effective July 1, 2017, employers of Arizona employees must accrue and provide paid sick leave for all employees except exempt employees.  Earned paid sick time is sick time accrued by an employee that is compensated at the same hourly rate and with the same benefits, including health care benefits, as the employee normally earns during hours worked.

Employees can begin accruing earned paid sick time at the commencement of employment or July 1, 2017, whichever is later. Employees may use earned paid sick time for themselves or for family members (see Arizona Revised Statutes § 23-373 to see who qualifies as a family member) in the following circumstances:

  • Medical care or mental or physical illness, injury, or health condition;
  • A public health emergency; (see Arizona Revised Statutes § 23-373 for more information about what qualifies as a public health emergency) ; and
  • Absence due to domestic violence, sexual violence, abuse, or stalking.

For employers with 15 or more employees: Employees must accrue a minimum of one hour of earned paid sick time for every 30 hours worked, but employees are not entitled to accrue or use more than 40 hours of earned paid sick time per year, unless the employer selects a higher limit.

For employers with fewer than 15 employees: Employees must accrue a minimum of one hour of earned paid sick time for every 30 hours worked, but they are not entitled to accrue or use more than 24 hours of earned paid sick time per year, unless the employer sets a higher limit.

An employee who earns sick time is every person who performs work for compensation, whether full-time, part-time, or on a temporary basis, as an employee. For purposes of determining the number of employees, an employer has 15 or more employees if it maintained 15 or more employees on the payroll for some portion of a day in each of 20 different calendar weeks (the weeks do not have to be consecutive) in the current or preceding year.

Earned paid sick time shall be carried over to the following year, subject to usage limitations based on employer size. Alternatively, in lieu of carry over, an employer may pay an employee for unused earned paid sick time pursuant to Arizona Revised Statutes Section § 23-372(D)(4).  An employee of an employer with 15 or more employees may carry over to the following year a maximum of 40 hours of unused earned paid sick time. An employee of an employer with fewer than 15 employees may carry over to the following year a maximum of 24 hours of unused earned paid sick time.

Employers Must Give Employees Notices of Accrued Sick Time

Employers must give employees written notice of the following at the commencement of employment or by July 1, 2017, whichever is later:

  • Employees are entitled to earned paid sick time;
  • The amount of earned paid sick time that employees are entitled to accrue;
  • The terms of use guaranteed by Arizona’s earned paid sick time laws;
  • That retaliation against employees who request or use earned paid sick time is prohibited;
  • That each employee has the right to file a complaint if earned paid sick time is denied by the employer or the employee is subjected to retaliation for requesting or taking earned paid sick time; and
  • Contact information for the Industrial Commission.

See the Industrial Commission’s 2017 model earned paid sick time employee notice.

Employer’s Record-keeping Requirements

Unless otherwise exempted from the record-keeping requirements, employers subject to Arizona’s earned paid sick time laws are required to comply with notice, posting, and record-keeping requirements pertaining to earned paid sick time. The requirements include:

(1) posting earned paid sick time notices in the workplace;

(2) providing employees with the employer’s business name, address, and telephone number in writing upon hire;

(3) providing employees with a notice that informs them of their rights and responsibilities under the Fair Wages and Healthy Families Act; and

(4) maintaining payroll records in accordance with Arizona’s statutes and rules.

For more information about which employers are subject to Arizona’s earned paid sick leave laws, see Which employers are subject to earned paid sick time laws?

Download and print the Industrial Commission’s 2017 model earned paid sick time notice.

Note:  The Industrial Commission is currently proposing rules that would exempt small employers (defined as a corporation, proprietorship, partnership, joint venture, limited liability company, trust, or association that has less than $500,000 in gross annual revenue) from the Act’s posting requirements.

Paycheck Notice Requirement

An employer must also provide employees either in or on an attachment to the employee’s paycheck:

  • The amount of earned paid sick time available to the employee;
  • The amount of earned paid sick time taken by the employee to date in the year; and
  • The amount of pay time the employee has received as earned paid sick time.

An employee may use earned paid sick time as soon as it is accrued. However, an employer may require an employee hired after July 1, 2017, to wait 90 calendar days after the start of employment before using accrued earned paid sick time.

Employers’ Recommended Reading Assignment

If you or your company is an employer that employees people who are covered by the Act then the employer must comply with the Act.  All employers should read one of the following:

Posters Employers Must Post for Employees

Arizona law requires employers to post SIX notices, or “posters,” and each notice must be posted in a conspicuous place where employees will see it.  Go to the Industrial Commission’s required notices page to see the list of required notices and download each notice.

The post What Arizona Employers Need to Know about New Employee Sick Pay Time Law Effective July 1, 2017 appeared first on Arizona LLC Law.

    

Richard C. Keyt Spoke on 4 Topics at an Estate Planning Seminar

I am very proud of my son Richard C. Keyt for speaking on four topics at a two day seminar called “Estate Planning and Administration: the Complete Guide” offered by the National Business Institute (NBI).  Ricky, who is licensed to practice law in Arizona and California and who was a CPA in a national accounting firm before he went to ASU’s law school, spoke on the following subjects on June 26 & 27, 2017:

  • Common trust structures and when they are used
  • Tax consequences of trusts
  • Post-mortem tax planning options
  • Marshaling assets and dealing with creditors

Ricky and I work together to prepare wills, trusts and estate plans for people.  We are co-authors of a book called “Family Asset Protection.”  The purpose of our book is to answer common questions people have about estate planning and explain what you need to do to protect your most valuable assets, your loved ones.  Get free access to Family Asset Protection.

The post Richard C. Keyt Spoke on 4 Topics at an Estate Planning Seminar appeared first on Arizona LLC Law.

    

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