ARIZONA
HOUSE OF REPRESENTATIVES
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SB 1353: limited liability company act; revisions |
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PRIME SPONSOR: Senator Worsley, LD 25 BILL STATUS: Commerce
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Relating to LLCs.
Provisions
Arizona Limited Liability Company Act (Sec. 4)
1. Adopts the Uniform Limited Liability Company Act (2013).
2. Establishes the laws of this state govern the internal affairs and the liabilities of an LLC.
3. Provides for the nature, purpose, duration, and powers of an LLC.
a. Prohibits an LLC from engaging in the business of banking and an insurer, with exception.
4. Applies the requirements of the act to LLCs or registered foreign LLCs formed, converted, or domesticated after September 1, 2019, unless the business elects to be subjected to the requirements.
a. Applies the requirements of the act to all LLCs and foreign LLCs after September 1, 2020.
b. Adds the act does not affect the validity or enforceability of a current and valid operating agreement.
5. Prescribes the requirements for permitted, reservation and registration of, names for an LLC.
6. Asserts an LLC or foreign LLC may be served with any process, notice, or demand required or permitted by law by serving its statutory agent.
a. Provides procedures for serving an LLC without a statutory agent, or cannot with reasonable diligence be served.
7. Includes delivery by hand, mail, conventional commercial practice, and electronic transmission as permissible means of delivery of a record.
8. Enables the ACC to ascertain whether the company or series complied with the act.
a. Allows the ACC to interrogate an LLC.
b. LCC's answers must be full and complete and in writing subject to penalty of perjury (Class 4 felony).
c. The answer by the LCC are not open to public inspection, with exception.
9. Establishes certain nonrefundable fees.
a. Excludes the $25 fee for service of process under current law.
10. Prescribes the agency powers of a member-managed and a manager-managed LLC.
11. Asserts a debt, obligation or other liability of an LLC is solely of the company.
12. Asserts a member or manager is not personally liable for a debt, obligation or other liability solely for being the member or manager.
13. Specifies the failure of an LLC to observe formalities does not justify imposing liability on a member or manager.
Relations of Members (Sec. 4)
14. Requires an LLC to have at least one member.
15. Stipulates for an LLC that has more than one member, those persons become members as agreed by the persons before the formation of the company.
16. Outlines the criteria for a person to become a member.
17. Maintains current law provisions regarding ownership of interest in an LLC, which includes transferable interest, joint tenancy, community property, co-owners of a transferable interest.
18. Defines what is allowable as a contribution.
19. Specifies a person's obligation to make a contribution is not enforceable unless the obligation is signed in record.
20. Authorizes a creditor of an LLC to enforce the obligation if certain conditions are met.
21. Prescribes the requirements for the sharing of or right to distributions before dissolution.
22. Provides for the limitations of distributions.
a. Delineates the effect of a distribution.
23. Determines what qualifies as an LLC's indebtedness issued as a distribution.
24. Declares a person who receives an improper distribution is personally liable for the exceeded amount.
a. Action against an improper distribution must commence within three years from the date of distribution.
Management (Sec. 4)
25. Stipulates management of an LLC is reserved to its members, unless the articles of organization specify that the LLC is managed by one or more managers.
26. Applies the following to member-managed LLC:
a. Management is vested in the members.
b. Each member has the right to conduct the company's affairs.
c. Allows a majority of the interest of the members to decide matters that relate to the company's purpose or members.
d. Certain actions that require an affirmative vote or consent of all members.
27. Applies the following to manager-managed LLC:
a. Management is vested in the manager or managers.
b. Each manager has the right to conduct the company's affairs.
c. Allows the majority of the managers to decide matters that relate to the company's purpose or managers.
d. Certain actions that require an affirmative vote or consent of all members.
e. A manager may be chosen, or removed, at any time by an affirmative vote or consent of a majority in interest of members.
f. A manager is not required to be a member, and dissociation does not remove the person as a manager.
g. A person's ceasing to be a manager does not discharge debt obligation or other liability to the LLC or members.
28. Provides a condition to which an action can be taken without a meeting.
29. Prohibits a person that wrongfully causes a dissolution from participation in management.
30. Requires the LLC to reimburse a member beyond the amount of capital the member agreed to contribute.
31. Specifies a member is not entitled to remuneration for services performed for a member-managed LLC, with exception.
Filings (Sec. 4)
32. Specifies persons who are required to sign a record to ACC for filing.
33. Authorizes a court of competent jurisdiction by a petitioner to order a person to sign a record or deliver a record to the ACC.
34. Outlines the liability for filing an inaccurate record.
35. Requires a record to be received by the ACC and comply with this act under specified criteria.
a. Requires any fee or penalty to be paid to the ACC.
36. Permits the ACC to redact any prohibited information contained in a record for filing.
37. Provides that records be filed as required by the ACC.
38. Specifies the criteria for a record to become effective.
39. Specifies the requirements for a record to be withdrawn.
40. Allows a person to correct the record provided certain requirements are met.
a. Outlines the contents for a statement of correction.
41. Directs the ACC to file a record that is delivered for filing and that satisfies the requirements under this act.
a. The ACC must acknowledge the date and time of filing to the person who submitted the record.
42. Specifies the requirements for refusing to file a record by the ACC.
a. Allows a person to compel the filing of record by petitioning a court.
43. States that the filing of or refusal to file a record does not affect the validity or create a presumption that the information is correct or incorrect.
44. Outlines delivery methods of a record by the ACC.
45. Directs the ACC to issue a certificate of good standing provided certain criteria are met.
Articles of Organization (Sec. 4)
46. Allows one or more persons to file with the ACC articles of organization to form an LLC.
a. Outlines the contents that must be included in the articles of organization.
b. Specifies the LLC is formed when the articles become effective.
47. Directs the ACC, within 60 days of filing the articles of organization, to do either:
a. Publish the notice of filing in a newspaper in the county of the statutory agent's address; or
b. Enter the LLC's information into the database as prescribed by statute.
48. Prescribes procedures and requirements for amending or reinstating articles of organization.
49. Directs the ACC, within 60 days of filing an amendment or reinstated articles, to do either:
a. Publish the notice of filing in a newspaper in the county of the statutory agent's address; or
b. Enter the LLC's information into the database as prescribed by statute.
Statutory Agent (Sec. 4)
50. Requires an LLC and foreign LLC to designate and maintain a statutory agent in the state.
a. The statutory agent must have a place of business or residence in the state.
51. Provides the only duties for a statutory agent.
52. Allows the LLC and foreign LLC to change its statutory agent by filing a statement of change with the ACC.
53. Allows a statutory agent to resign and provides procedures and requirements for resignation.
54. Stipulates a statutory agent that changes its name or address must file specified information with the ACC.
Operating Agreements (Sec. 4)
55. Prescribes the scope, function, and limitations of an operating agreement:
a. Authorizes an operating agreement to contain any provision that is not contrary to law.
56. Asserts an operating agreement may:
a. Expand, limit, or eliminate the duties of members, managers, or other persons bound by the operating agreement.
b. Limit or eliminate liabilities for breach of the agreement or duties.
c. Specify a method by which an act, omission, or transaction violates a duty may be authorized or ratified.
d. Specify a method by which a person is reimbursed, indemnified, or held harmless for an act, omission, or transaction that would otherwise violate a duty.
e. Define some or all of the fiduciary duties of a member or manager to be the same as the fiduciary duties of a director, officer, or shareholder of a corporation.
f. Specify an amendment must be approved or satisfy a condition in order to become effective.
57. Authorizes an LLC to enforce the operating agreement.
a. A person that becomes a member is deemed to assent to the agreement.
58. Provides that on the formation of an LLC, the agreement will become the operating agreement.
59. Specifies an operating agreement governs the obligations of an LLC.
60. Defines the circumstance in which a provision is deemed ineffective in the record.
Notice (Sec. 4)
61. Specifies a person knows a fact if the person has actual knowledge of the fact or is deemed to know the fact under statute.
62. Asserts a person has notice of a fact if the person has reason to know the fact from all the facts known to the person at the time in question.
63. Outlines when a nonmember is deemed to have notice of an LLC's dissolution, termination, merger, interest exchange, conversion, domestication, or division.
Reimbursement (Sec. 4)
64. Requires an LLC to reimburse a member or manager for any payment made during the course of activities on behalf of the company.
65. Requires an LLC to indemnify a person with respect to a claim based on the person's capacity as a member or manager as long as it does not breach the operating agreement.
66. Allows an indemnified person to receive reasonable expenses incurred by the person in connection with a claim or demand.
67. Allows an LLC to indemnify and reimburse a member or manager for any payment of a liability.
68. Allows an LLC to purchase and maintain insurance on behalf of a member or manager against liability asserted against or incurred by a member or manager.
Standards of conduct (Sec. 4)
69. Established the duties of loyalty and care owed to a member-managed and a manager-managed LLC.
a. Outlines the fiduciary duties of loyalty and care.
70. Asserts a member or manager must exercise any right consistently with the contractual obligation of good faith and fair dealing.
71. Prohibits a member or manager from violating a duty solely because of conduct that furthers the person's own interest.
72. Authorizes all members of a member-managed and a manager-managed LLC to ratify a specific act or omission that otherwise would violate the duty of loyalty, after disclosing all material facts.
73. Deems a transaction or decision was fair to the LLC as a defense to a claim.
74. Asserts that a member's or manager's rights and obligation arising from the transaction are indistinguishable as those of a person that is not a member as permitted by the operating agreement.
75. Specifies that fiduciary duties of a manager-managed LLC depend on the extent to which the member controls or participates in the affairs of the company.
76. Defines a condition to which a conflict of interest is material.
Records (Sec. 4)
77. Maintains current statutory requirements for record keeping.
78. Outlines requirements for inspecting records by a member or manager.
79. Specifies the restrictions and conditions on access to and use of information or a record.
Transferable Interest (Sec. 4)
80. Declares transferable interest is personal property.
81. Outlines applicable transfers of a transferable interest.
82. Prescribes the requirements for, entitlements and rights to, evidence of, and restrictions on transfers of a transferable interest.
Charging Orders
83. Allows a judgment creditor of a member or transferee to enter a charging order against the transferable interest of a judgment debtor.
a. Charging orders require the LLC to pay over any distribution that would be paid to the judgment debtor.
b. A judgment debtor may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction.
c. An LLC's members may pay the judgment creditor the full amount due.
d. States the charging order is the exclusive remedy for a judgment creditor.
Dissociation (Sec. 4)
84. Allows a person to dissociate as a member at any time.
85. Outlines the conditions that determine a person is dissociated wrongfully.
a. A person that wrongfully dissociates is liable to the LLC.
86. Delineates certain circumstances causing a dissociation and the effects of dissociation.
Dissolution and Winding Up (Sec. 4)
87. Prescribes events causing dissolution, which include:
a. The operating agreement or articles of organization cause the dissolution.
b. Consent of majority of members.
c. 180 days pass with no members.
d. Court order.
e. An administrative dissolution order by the ACC.
88. Requires a dissolved LLC to wind up its activities and affairs.
89. Outlines requirements and procedures for winding up.
90. Considers an LLC's last member as its liquidating agent.
a. Allows the transferees to appoint a liquidating agent.
91. Allows a court to order judicial supervision of the winding up of a dissolved LLC.
92. Outlines the duties of the liquidating agent.
93. Requires the articles of termination to be filed with the ACC.
a. An LLC may continue existence for specified purposes.
94. Allows and outlines the requirements for an LLC to rescind its dissolution.
95. Allows a dissolved LLC to give notice of a known claim to claimants.
96. Asserts a claim is barred if certain notification requirements are met.
a. The barring of a claim does not apply to a claim based on an event occurring after the date of dissolution.
97. Allows a dissolved LLC that has filed a notice of winding up to require a person having a claim to present the claim in accordance with a notice to claimants.
a. Prescribes the requirements of a notice to claimants.
98. Specifies the requirements for notifying a known claimant or notice to claimants does not affect or prevent the enforcement of any mortgage, pledge or other lien on an LLC's property.
99. Prescribes the proceedings for a court to determine the amount and form of security to be provided for the payment of claims.
100. Specifies the distribution of assets in winding up its affairs.
101. Maintains the ACC's ability to administratively dissolve an LLC.
102. Provides the requirements and procedures for reinstatement.
103. Stipulates if the ACC denies an application for reinstatement, the ACC must provide a notice that explains the reason for denial.
104. Allows an LLC that has been denied reinstatement to bring an action in superior court to review the refusal.
Action By Members (Sec. 4)
105. Asserts a member may maintain a direct action against another member, manager, or the LLC to enforce the member's rights and protect the member's interests.
106. Specifies a member or a person may maintain a derivative action to enforce a right of the LLC.
107. Requires the complaint, in a derivative action, to state with particularity either:
a. The date and content of the demand; or
b. Why the demand should be excused as futile.
108. Allows an LLC involved in a derivative proceeding to appoint a special litigation committee to investigate the claims and determine that the proceeding:
a. Continue under the control of the plaintiff;
b. Continue under the committee's control;
c. Be settled on terms approved by the committee; or
d. Be dismissed.
109. Directs the special litigation committee to file with the courts a statement of determination and to enforce its determination.
110. Specifies any proceeds or other benefits of a derivative action belong to the LLC.
a. States conditions to which a plaintiff is either awarded reasonable expenses or must pay reasonable expenses.
111. Provides court authority to treat a direct or derivative action.
Foreign LLCs (Sec. 4)
112. Establishes the law of the jurisdiction of formation governs the internal affairs and the liability of the foreign LLC.
a. The laws do not preclude a foreign LLC from registering in this state.
113. Asserts a foreign LLC does not have any rights or privileges greater than that of an LLC domesticated in the state.
114. Prohibits a foreign LLC from doing business in the state or maintaining an action unless the LLC is registered.
a. Specifies the liability of an unregistered foreign LLC is not waived.
115. Requires a foreign LLC to file a foreign registration statement with the ACC.
a. Outlines the contents of the statement.
b. A statement must include a certified copy of its organizational documents.
116. Specifies requirements for filing an amendment to the registration statement.
117. Delineates activities that do not constitute as business.
118. Requires a foreign LLC to comply with the requirements for permitted names.
119. Directs a foreign LLC to file a statement of withdrawal with the ACC if it has dissolved and completed winding up.
a. Outlines the contents of the statement of withdrawal.
120. Allows the ACC to terminate the registration of a foreign LLC.
a. Provides the requirements and procedures for termination.
121. Allows a foreign LLC to withdrawal its registration with the ACC.
a. Outlines procedures for withdrawal of a registration.
122. Authorizes the Attorney General to maintain an action to enjoin a foreign LLC from doing business in this state.
Restructuring Transactions (Sec. 4)
123. Maintains current requirements for mergers, interest exchanges, conversions, domestications, and divisions.
124. Entitles an interest holder of an LLC to contractual appraisal rights.
Miscellaneous
125. Adds that documentation for an LLC whose statutory agent's street address is in a county with a population of more than 800,000 must be entered into ACC's database. (Sec. 2)
126. Maintains certain statutory provisions regarding professional LLCs. (Sec. 4)
127. Requires consideration be given to the need to promote consistency of the law with respect to its subject matter among states that enact similar legislation. (Sec. 4)
128. Declares the Arizona Limited Liability Company Act modifies, limits, and supersedes the Electronic Signatures in Global and National Commerce Act, but does not modify, limit, or supersede federal law concerning general rule of validity or authorize electronic delivery of any notices. (Sec. 4)
129. Contains a saving clause. (Sec. 6)
130. Defines pertinent terms. (Sec. 4)
131. Applies a delayed effective date of the repeal of Title 29, Chapter 4 to September 1, 2020. (Sec. 3)
132. Applies a delayed effective date of September 1, 2019. (Sec. 5)
133. Directs Legislative Council to prepare conforming legislation. (Sec. 7)
134. Makes technical and conforming changes. (Sec. 1, 2)
Current Law
Article 15 of the Arizona Constitution establishes the ACC. The ACC staff is organized into nine divisions: Administration, Communications, Corporations, Hearings, Information Technology, Legal, Safety, Securities, and Utilities. The Corporations Division of the ACC approves the filing of articles of incorporation for Arizona businesses and articles of organization for LLCs; grants authority to foreign corporations to transact business in this state; investigates the lawful purpose of a company; and revokes the organizational documents of corporations that do not comply with state statute. The Division authorizes any changes to the articles of incorporation or articles of corporation.
Title 29, Chapter 4, A.R.S., governs partnerships including LLCs, regarding formation, transactions, and dissolution.
Additional Information
The Uniform Law Commission (ULC) studies and reviews state laws across the nation to determine which areas of law should be uniform. The ULC promulgated a Revised Uniform Limited Liability Company Act (RULLCA) in 2006, which was later amended in 2011 and 2013.
According to the ULC, 17 states and the District of Columbia have adopted some form of legislation based on the RULLCA.
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Fifty-third Legislature SB 1353
Second Regular Session Version 1: Commerce
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