Later next year, the newly enacted Arizona Limited Liability Company Act (the “Act”) will go into effect. The Arizona State Legislature passed a new set of laws regarding the operation of Arizona limited liability companies (individually an “LLC” and collectively, “LLCs”) earlier this year that was signed into law by the Governor. The new laws will affect any LLC that is formed on or after September 1, 2019 and will apply to all existing LLCs on or after September 1, 2020. This Act will completely replace the current Arizona statutes relating to LLCs.Some of the key provisions in the new Act that change the existing law in Arizona are summarized in this update.
The new Act will impact relationships between members and managers in LLCs. First, members and managers owe the company and other members certain fiduciary duties, including the duty of loyalty and the duty of care, but the operating agreement may limit or eliminate of any or all liabilities for a breach of these duties. Members and managers must discharge their duties with the contractual obligation of good faith and fair dealing; this obligation, and any liability arising from a breach of that obligation, may not be limited or eliminated.
Second, members and managers have rights to review and copy company records that reasonably relate to the rights and duties of such party. If a dispute arises in connection with a member’s or manager’s right to inspect records, a court may award the successful party reasonable expenses (including reasonable attorneys’ fees and costs).
Finally, a person’s contribution obligations are unenforceable unless in writing and signed, and will not be excused by such person’s death, disability, termination or other inability to perform personally. This paragraph highlights some, but not all, of the important provisions in the Act that are notable for members and managers of LLCs. With the comprehensive changes to the statutory regime for LLCs, a review of any existing LLC operating agreement is important to ensure compliance with the Act.
It is also important to point out that a provision in the new Act creates a cause of action for third parties arising out of reliance on inaccurate information submitted by an individual (including a member or manager of an LLC) to the Arizona Corporation Commission (“ACC”) if the party relying on such inaccurate information suffers a loss by virtue of such reliance. Members and managers of LLCs are encouraged to regularly check their records on file with the ACC to confirm the accuracy of the information to avoid any recovery of damages that may be permitted under this new statute.
At Stein Law, our practice includes drafting, negotiating and reviewing organizational documents for limited liability companies and other entities. For more information as to how we can be of service, please call (480) 889-8948, send an email to firstname.lastname@example.org or visit www.SteinLawPLC.com.