The following is the text of a September 30, 2015, press release issued by the Arizona Corporation Commission:
Creating an LLC in Arizona just got a lot easier. The Arizona Corporation Commission is accepting online filings for the first time. Before the online efiling became available earlier this month, someone wishing to create a limited liability company had to either come to a Commission office or mail in the paperwork.
LLC formation is one of the commission’s most important missions, Commission Chairman Susan Bitter Smith said. Shortening the amount of time it takes to file the paperwork and making sure all necessary information is submitted up front allows a business to start functioning sooner.
‘I’m proud the commission now allows for a secure and easy way to create an LLC,’ Bitter Smith said. ‘This innovation makes it faster for people to start the businesses of their dreams.’
Last year, more than 52,000 Arizona businesses were formed as LLCs, many of those coming from people who drove to a commission office to submit paperwork. Filing for an LLC online can be done here http://ecorp.azcc.gov/Entity or by going to the commission’s home page www.azcc.gov
The ability to create an LLC through online filings won praise from the business community.
‘Electronic filing of LLC documents has been long awaited by the business community and I applaud the Commission for taking this bold step. Innovation such as this will make starting businesses in Arizona easier, more efficient, and timely,’ Greater Phoenix Chamber of Commerce President and CEO Todd Sanders said. ‘We look forward to the Commission expanding electronic services even further in the future.’
Commissioner Doug Little said the Commission is sending an important message to the business community.
‘I believe this innovation by the Commission will dramatically improve and streamline the process of establishing an LLC in Arizona,’ Little said. ‘This is exactly what we need to be doing to support Governor Ducey’s initiative to let people know that Arizona is ‘open for business.’”
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The following is the text of a February 3, 2015, Arizona Corporation Commission press release:
The Arizona Corporation Commission today ordered Tucson residents Michael and Betsy Feinberg and their affiliated company, Catharon Software Corporation, to pay $4,926,559 in restitution and a $250,000 administrative penalty for defrauding investors with an unregistered investment program. The Commission found that the Feinbergs, formerly of Sedona, represented that they had created and owned a patented computer language technology named “V∆Delta”that would enable Catharon to compete with Microsoft and other computer language systems manufacturers.
While not registered to offer or sell securities in Arizona, the Feinbergs induced investors to purchase Catharon stock by repeatedly representing that Catharon would launch its technology within months of the investors’ investment, Catharon would generate $2 billion in revenue within three years and investors would receive returns of between 400 and 1,572percent. The Commission found, however, that the Feinberg never launchedCatharon’s technology.
The Commission found, and the Feinbergs admitted, they did not have any reasonable factual basis for the projected launch dates, the projected $2 billion revenue figure and investment returns, or their representations that Catharon would compete with Microsoft and similar companies. Further, the Commission found that the Feinbergs failed to disclose their use of investor monies to pay for personal living expenses, including a bird-watching trip to Mexico, as well as the transfer of more than $891,000 to their personal bank account. In settling this matter, the Feinberg admitted to the Commission’s findings for the purposes of its administrative proceeding and any other proceeding in which the Commission is a party and consented to theentryof the consent order.
For more details about this case, view the full text of the Commission’s order S-20905A-14-0061. The Commission’s final order against the named respondents will be posted online as soon as it is signed by all of the Commissioners.
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Question: The members of my multi-member Arizona limited liability company never signed an Operating Agreement. The members now disagree on how to run the company. What are the members’ voting rights?
Answer: One of the primary reasons the members of a multi-member LLC should sign an Operating Agreement is to set rules on members’ voting rights and to set what major actions require the prior approval of a majority or super majority of the members or the unanimous approval of all members. If the members fail to adopt a good Operating Agreement then the default voting rules of Arizona’s LLC law apply and its a matter of time before the members disagree on action and big problems arise.
When the members of an Arizona LLC fail to adopt an Operating Agreement that provides for members’ voting rights or if the members adopt an Operating Agreement that is voting rights deficient, Arizona Revised Statutes Section 29-681 applies and provides the default members’ voting rules and rights.
The voting rules that apply to an Arizona LLC that does not have an Operating Agreement with voting rules signed by all of the members are listed below. There are only nine actions that require the approval of members – four of which of which require the approval of all members and five of which require the approval of a majority of the members.
- All Members Get One Vote: Every member has one vote regardless of how much money the member invested or how much of the LLC the member owns. For example, if Homer and Marge Simpson invested $1,000 in World Wide Widgets, LLC and acquired a 1% membership interest as community property and Ned Flanders invested $99,000 for 99% of the company then each of the three members has one vote with respect to the nine major actions listed in Section 29-751. Warning: If you are the major investor and/or the owner of a majority of the percentage interests in an Arizona LLC Section 29-751 is the reason you must have a good Operating Agreement that sets forth voting rules and rights.
- When Unanimous Approval is Required: Only four actions require that all members approve the action. “The affirmative vote, approval or consent of all members is required to:
1. Adopt, amend, amend and restate or revoke an operating agreement or authorize a transaction, agreement or action on behalf of the limited liability company that is unrelated to its purpose or business as stated in an operating agreement or that otherwise violates an operating agreement.
2. Issue an interest in the limited liability company to any person.
3. Approve a plan of merger or consolidation of the limited liability company with or into one or more business entities as defined in Section 29-751.
4. Authorize an amendment to the articles of organization that changes the status of the limited liability company from or to one in which management is vested in a manager or managers to or from one in which management is reserved to the members.”
- When Approval of a Majority of the Members is Required: Only five actions require the approval of a majority of the members. “The affirmative vote, approval or consent of a majority of the members, or if management of the limited liability company is vested in one or more managers, the affirmative vote, approval or consent of the sole manager or a majority of the managers, is required to:
1. Resolve any difference concerning matters connected with the business of the limited liability company.
2. Authorize the distribution of limited liability company cash or property to the members.
3. Authorize the limited liability company to repurchase all or part of any member’s interest in the limited liability company from that member.
4. Authorize the filing of articles of termination concerning the limited liability company.
5. Subject to subsection C, paragraph 4 of this section, authorize an amendment to the articles of organization, except that an amendment that merely corrects a false or inaccurate statement in the articles of organization may be filed at any time by a manager if management of the limited liability company is vested in one or more managers or by a member if management of the limited liability company is reserved to the members.
When there is no Operating Agreement Section 29-751.E.1 & 2 give the majority of members a lot of power to out vote the minority members and run the company.
The members failure to to adopt an Operating Agreement more often than not will eventually lead to a dispute among members as to how to run the company. One of the most common reasons people call me is to learn their options when their Arizona LLC does not have an Operating Agreement and the members need a company divorce.
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The Arizona legislature passed Senate Bill 1238, in April of 2013. Governor Brewer signed the bill on April 30, 2013. SB 1238 provides for the creation of a new type of Arizona corporation called the “benefit corporation” beginning January 1, 2015. As of the date of this post, 27 states have adopted benefit corporation statutes.
The benefit corporation is not a type of nonprofit corporation. An Arizona benefit corporation is a type of for profit corporation that seeks higher standards of corporate purpose, accountability, and transparency. The Articles of Incorporation on an Arizona benefit corporation must state that the corporation is formed for a general public benefit.
An Arizona benefit corporation may also promote one or more “specific public benefits.” Arizona Revised Statutes Section 10-2402.5 provides that “specific public benefits” include:
(a) Providing low-income or underserved individuals or communities with beneficial products or services.
(b) Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business.
(c) Protecting or restoring the environment.
(d) Improving human health.
(e) Promoting the arts, sciences or advancement of knowledge.
(f) Increasing the flow of capital to entities with a purpose to benefit society or the environment.
(g) Conferring any other particular benefit on society or the environment as specified in the benefit corporation’s articles of incorporation.
To learn more about Arizona’s newest type of entity, go to Arizona Benefit Corporation Law. See also “How to Form an Arizona Benefit Corporation.”
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