Starting an LLC may involve filing articles of organization with the state and establishing internal ground rules for how your business should operate. Establishing your credibility as a legal entity is a part of the plan.
Every Arizona LLC is encouraged, but not required, to have an operating agreement to safeguard the company’s operations, from organization to dissolution. It ensures that all LLC members understand their roles and responsibilities. This page guides you in making an Arizona operating agreement.
On this page, you’ll learn about the following:
Arizona LLC Operating Agreement Content
An operating agreement is a legal document detailing the LLC’s organizational structure and operational procedures. Topics not restricted to a single member or multi-member LLC will be covered. While these provisions might not influence day-to-day operations, they must be included for legal reasons.
- Ownership: The operating agreement details who the members are and how ownership is divided, be it a sole proprietorship or LLC. Sole proprietorship refers to a single person with total control over a business, also known as a single-member LLC. Multi-member LLC members can have either equal or varying ownership interests.
- Management: Your LLC could be member-managed or manager-managed. The former means members can decide regarding contracts with third parties; the latter means only designated managers can do so. Using “manager-managed” instead of “hands-on” can reduce administrative work. Management’s authority is also limited in the Operating Agreement.
- Voting: Define each owner’s voting rights and voting thresholds, such as a majority vote, supermajority vote, and unanimous consent. A variety of approvals are needed for each type of decision.
- Changes in Membership Structure: If someone leaves the company, how will roles and ownership be transferred? A member buyout and/or replacement procedure must be outlined in the LLC’s governing document.
- Contributions: All types of contributions are accepted. In order to fund their ownership interests, members will have to invest in the collective funds.
- Equity Splits: Determine equity for each member, taking into consideration things like their contributions, responsibilities, and fairness. Maintaining fairness in your equity split will help prevent future disagreements.
- Transfers: You may want to consider outlawing transfers of ownership interests without the consent of all owners. It’s always a good idea to include permitted transfers, such as first refusal, drag-along rights, tag-along rights, and estate planning transfers.
- Business Restrictions: To protect the privacy of the company, including confidentiality obligations. You may also ban the owners from owning competing businesses.
- Intellectual Property: Detail; the ownership of intellectual property created by members. Make sure all company-created intellectual property is owned by the company. You can find alternative ownership/license structures if necessary.
- Taxation: Determine how you will be taxed and plan accordingly. Remember, however, that you must file an LLC annual report and might be required a sales tax.
- Guaranteed Payments: Determine if any of the members should receive Guaranteed Payments, which are like a salary, particularly if your LLC is taxed as a partnership.
- Distribution & Dividends: Explain to all members how the funds will be allocated. A pass-through entity will impose tax distributions regardless of profit distributions.
- Dissolution: The LLC should be dissolved if all members elect to cease operations. It is important to identify how you will end your business in your operating agreement.
Note that the operating agreement, though not a legal requirement in most states, is vital in the operation of your LLC. Should your members have issues with the business, you can deal with it with guidance from the operating agreement.
Get Help from a Registered Agent
Developing an operating agreement could be tedious at times. Besides, since it deals with how your business operates, then it would be best to have professionals help you with it to make sure you get everything right. Getting help from registered agents would be your best bet. Here are three of our best LLC services that can provide you with registered agents to free you of worries:
Importance of an Arizona LLC Operating Agreement
In the state of Arizona If you own an LLC, it is not required to draft an operating agreement. Most states require that all business entities be registered in order for them to verify the business structure. You can bypass this step in Arizona and the LLC will not be penalized by law.
This is a must to ensure that your LLC to be protected from any misunderstandings or negotiations. Here are some reasons why LLC members need to be required to sign an LLC agreement.
- To protect the company Operating agreement: It sets out the rules for LLC. If the members fail to adhere to the rules, the operating agreement will regulate the operations of the LLC. The agreement could protect the rights of the LLC and provide additional benefits.
- The LLC appears trustworthy: Investors take a look at the credibility of the business when researching companies. Since the operating agreement demonstrates that the members are concerned about their business and are determined to ensure that it is upheld by the law and all regulations, the LLC looks professional. This provides the opportunity for more investors to invest in the company, which will result in growth.
- To confirm the status of an LLCs The LLCs, which are well-known for their restricted liability status cannot be misunderstood by the government if they’ve defined the term in their operating agreement. It is very simple for a sole proprietorship to misunderstand an LLC made up of a single member, however operating contracts can prove that they are different.
- To settle any conflict To resolve any conflicts: In the future, there can be conflicts arising from the distributions and decisions. The operating agreement outlines the procedure, rules, rules, and guidelines for all company members. The operating agreement permits members to review quickly the terms of the agreement before they start performing the task.
- Helps LLC to be more flexible: Limited Liability Companies are supposed to be flexible and that is the nature of their business. Operating agreements allows these LLCs to be of such a nature. Operating agreements provide validation that permits the LLC to be completely free of charge and that is the reason it is so important.
- to assist in opening business accounts: Often it is necessary for an official document of the operating agreement whenever the owner is looking to open bank accounts. It will be difficult for the company to open a banking account if it does not have an operating agreement.
How to Edit Operating Agreement of LLC in Arizona
Operating Agreement of LLC in Arizona can be edited when all the members agree to the amendment(s). You do not need to file it with the state.
If you are a member of an Arizona LLC, you can edit the operating agreement. You don’t have to file the document with the state, but you should notify the Arizona Corporation Commission that you intend to make changes to the LLC. The Arizona Corporation Commission is responsible for overseeing the registration and management of Arizona LLCs. This means you need to notify them when you want to change the name of the LLC or a new manager has been hired.
The Operating Agreement is a document that specifies who owns the company and how it will be managed. It is essential that you keep this document somewhere safe, so that you can refer to it whenever needed. You may also want to update it every few years if you have made significant changes to your company. A good operating agreement will help ensure that you retain control over your LLC and ensure that it is legal and compliant.
You may have a number of members who own shares of the LLC, and you will need to make sure you include each one’s percentage in the Operating Agreement. The amount of each member’s share of the LLC must be equal. For example, a two-member LLC with a 50/50 ownership split should deposit the same amount of money to the LLC’s bank account.
An operating agreement is not legally required in every state, but it does provide direction to members when problems arise. The Arizona Corporation Commission requires you to make an initial capital contribution if you are a single-member LLC. This initial capital contribution is listed in your Arizona LLC Operating Agreement. In Arizona, it is also a requirement to maintain a copy of your operating agreement in the company’s records book.
A successful LLC should have a fiduciary duty to its members. However, an LLC may not be required to pay its members contributions unless the members expressly require it. If you decide to change the membership, you will need to amend your Operating Agreement. If you have any questions, consult the State’s Division of Corporations.
To make the necessary changes to the Operating Agreement, you must first authorize the statutory agent. This authority is usually granted by the Arizona Corporation Commission. Once the corporation commission has approved the articles of organization, you will be sent a letter with instructions on how to publish the articles. The articles must include a Statutory Agent Acceptance form.
You should be aware that if you change an Operating Agreement, the Arizona Corporation Commission may disallow the company to receive its Certificate of Good Standing. This certificate is a public record that verifies the company’s legal status in the state. This certificate is important when you want to open company accounts, perform official business contracts, and raise capital.
In order to clearly state the purpose of a business as well as its ownership interests, a written operating agreement is strongly advised in Arizona.
You and other members of the LLC will be unable to reach any agreements if you do not have an operating agreement. Even worse, your LLC must follow the state’s default operating conditions.
It is required by law in California, New York, Maine, and Missouri, but it is not in Arizona. Although it is not legally required, creating a written agreement is strongly advised. You may self-notarize and distribute the documents.
The operating agreement is an important document for your Arizona LLC. However, it is not mandatory to file in many states. It is strongly recommended to file the operating agreement even if it is not required in your state. Get a professional LLC service to file your operating agreement properly.