[co-author: Mary Colleen Fowler*]
Arizona Governor Doug Ducey signed SB 1353 into law on April 10, 2018, repealing Arizona’s previous LLC laws and replacing them with the new Arizona Limited Liability Company Act—colloquially known as ALLCA. ALLCA becomes effective September 1, 2019 for Arizona LLCs created on or after September 1, 2019 and it will govern existing LLCs laws that affirmatively opt in under ALLCA. Arizona’s previous LLC provisions will govern LLCs created before September 1, 2019 until September 1, 2020. After September 1, 2020, ALLCA will govern all LLCs.
In creating ALLCA, the drafting committee closely followed the language of the Revised Uniform Limited Liability Company Act (RULLCA)—which many states have adopted, including Arizona—but also determined that many of the previous LLC laws and procedures should be kept and minimally changed. Through ALLCA, the drafting committee, which was composed of members of the Business Law Section of the State Bar of Arizona, sought to create uniformity and fill in gaps left by the previous LLC laws regarding the relationships between and among members, managers and limited liability companies.
ALLCA’s primary takeaways include:
Although ALLCA creates new default LLC rules, an LLC can affirmatively alter some of the default rules in its operating agreement. For example, the operating agreement may:
As ALLCA begins to take effect, lawyers and business owners should pay close attention to the LLC’s operating agreement (or lack thereof) specifically looking at how the operating agreement addresses fiduciary duties, indemnification and reimbursement, voting rights, information rights, dissociation and dissolution. Most of the time, the operating agreement will govern the company, its members and managers, and ALLCA’s default rules will not interfere with the operating agreement, even if the operating agreement is contrary to ALLCA’s provisions. However, where the operating agreement is silent, ALLCA will govern, even if it is contrary to the desires of the LLC’s members or managers.
Business owners and lawyers may consider the short action list below when evaluating the impact of ALLCA on an LLC.
ACTION ITEM CHECKLIST FOR LAWYERS & BUSINESS OWNERS
* Mary Colleen Fowler is a summer associate in Snell & Wilmer’s Phoenix office, working under the supervision of Tony Caldwell. She is anticipated to graduate from The University of Kansas School of Law in May 2020.