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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Question: Does Arizona limited liability company law require the members and managers of an Arizona LLC to hold an annual meeting?
Answer: No. However, some badly worded Operating Agreements do require that the members hold annual meetings.
Although no Arizona statute or case requires annual meetings or special meetings of the members or managers of an Arizona LLC as an Arizona LLC attorney who has formed 4,400+ Arizona LLCs I recommend that both types of meetings be held. There are two reasons why members and managers should hold meetings.
- To reduce the chance that a court will pierce the veil and hold the members of the LLC liable for the debts of the LLC. One of the factors courts consider when asked to pierce the veil is “did the LLC operate like a business or a hobby?” Prudent businesses hold meetings and document the actions approved or rejected by the members and managers. LLCs operated like a hobby do not hold meetings. Note: If your LLC’s Operating Agreement requires that the members or managers hold annual meetings then you must make sure that the meetings are actually held and document that fact. The failure of members to hold annual meetings required in an Operating Agreement is a factor that counts against the members when a court is asked to pierce the veil and hold the members liable for the debts of the LLC.
- To inform members and managers of important proposed company before it occurs and give them the opportunity to vote to approve or reject the proposed action. This is especially important when an LLC has multiple unrelated members. Consider two hypotheticals: (1) LLC is considering whether to enter into a contract that will require the company to pay a third party a lot of money. The member who owns more than 50% who is a manager signs the contract without prior notice to the other members who learn of the contract after it’s a done deal. (2) Same facts, but majority member holds a meeting of the members at which all of the members discuss the proposed contract and then vote on whether or not to sign the contract. The first method risks alienating the other members who will rightly feel left in the dark. The second method gives everybody a chance to be informed in advance and give their two cents on signing or rejecting the contract. Guess which method is less likely to result in disgruntled members who may want a company divorce.
Purchase My Do-It-Yourself Meeting Minutes & Resolutions
I’ve made it very easy for Arizona LLCs to document actions approved by members and managers. Just purchase my editable Word meeting minutes and resolutions that you can modify whenever needed to document special and annual meetings of your LLC’s members and managers. You can also purchase a document called “Action by Consent” by which the members and managers can adopt resolutions approving company actions in lieu of actually holding a meeting. Each document comes with 16 resolutions for the most common types of actions voted on by members and managers.
Go to my Arizona legal form store to purchase your do-it-yourself minutes and resolutions.
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Question: My group is considering forming a tax-exempt charitable organization. Can the organization be a limited liability company or must it be a nonprofit corporation?
Answer: It can be an LLC if the LLC is wholly owned by a single exempt organization and the LLC satisfies the 12 conditions described in an IRS paper called “Limited Liability Companies as Exempt Organization Update.” The LLC cannot have individuals or nonexempt organizations as members, and its organizing documents must state a purpose to further the charitable purpose. To learn more about nonprofit corporations see my website called “Nonprofit Corporations & Charitable Organizations.”
The 12 conditions are:
1. The organizational documents must include a specific statement limiting the LLC’s activities to one or more exempt purposes.
2. The organizational language must specify that the LLC is operated exclusively to further the charitable purposes of its members.
3. The organizational language must require that the LLC’s members be section 501(c)(3) organizations or governmental units or wholly owned instrumentalities of a state or political subdivision thereof (“governmental units or instrumentalities”).
4. The organizational language must prohibit any direct or indirect transfer of any membership interest in the LLC to a transferee other than a section 501(c)(3) organization or governmental unit or instrumentality.
5. The organizational language must state that the LLC, interests in the LLC (other than a membership interest), or its assets may only be availed of or transferred to (whether directly or indirectly) any nonmember other than a section 501(c)(3) organization or governmental unit or instrumentality in exchange for fair market value.
6. The organizational language must guarantee that upon dissolution of the LLC, the assets devoted to the LLC’s charitable purposes will continue to be devoted to charitable purposes.
7. The organizational language must require that any amendments to the LLC’s articles of organization and operating agreement be consistent with section 501(c)(3).
8. The organizational language must prohibit the LLC from merging with, or converting into, a for -profit entity.
9. The organizational language must require that the LLC not distribute any assets to members who cease to be organizations described in section 501(c)(3) or governmental units or instrumentalities.
10. The organizational language must contain an acceptable contingency plan in the event one or more members ceases at any time to be an organization described in section 501(c)(3) or a governmental unit or instrumentality.
11. The organizational language must state that the LLC’s exempt members will expeditiously and vigorously enforce all of their rights in the LLC and will pursue all legal and equitable remedies to protect their interests in the LLC.
12. The LLC must represent that all its organizing document provisions are consistent with state LLC laws, and are enforceable at law and in equity.
The post Can an LLC be a Tax-Exempt 501(c)(3) Charity? appeared first on Arizona Limited Liability Company Law.
Today we received in the mail about 30 envelopes from Arizona Business Filing Services. The envelopes contained an official looking document entitled “2014 Certificate of Good Standing Request Form.” The document suggests that the brand new Arizona LLC should pay ABFS $59.99 to obtain a Certificate of Good Standing for the new LLC. As soon as I saw the document I knew it was a scam. Here are some tell tale signs that the letter should be ignored:
- It starts with IMPORTANT!
- It states “Your Articles of Formation have been filed with the Secretary of State of Arizona.” Arizona LLC’s don’t file Articles of Formation with the Secretary of State. Arizona LLCs file Articles of Organization with the Arizona Corporation Commission.
- The cost for the Certificate of Good Standing is $59.99, but anybody can obtain a COGS from the Arizona Corporation Commission for $10.
FYI: We never get a Certificate of Good Standing for LLCs we form. Your LLC does not need a COGS unless some party like a bank or title insurance company asks for it. When somebody does demand a COGS the requestor wants a current document, not one obtained two years before the request for the COGS.
The following is the text of a June 9, 2014, press release from the Arizona Corporation Commission concerning the Arizona Business Filing Services COGS letter:
Corporation Commission Warns Business Owners of
False Service Claiming to Offer “Official” Documents
PHOENIX — The Arizona Corporation Commission is warning business owners that an individual or group calling itself “Arizona Business Filing Services” is sending out an official – looking document offering to provide an “Arizona Certificate of Good Standing” for a fee of $59.99. This entity is not affiliated with the Corporation Commission, and business owners do not need to go through any third party to obtain their Certificate. Further, the Commission cannot guarantee the authenticity of such a document.
Valid Certificates of Good Standing can only be obtained directly from the Corporation Commission. The entity status can be viewed online, or a hard – copy certificate of good standing can be obtained by corporations and limited liability companies immediately online for a fee of $45, or by mail, for a fee of $10 (regular processing time).
The Commission has referred this false advertisement to the Attorney General’s office for investigation. I f you have received it, please contact the Arizona Attorney General’s Office in Phoenix at (602) 542-5763, in Tucson at (520) 628-6504, or outside the Phoenix and Tucson metro areas at 1 (800) 352-8431. To file a complaint online, please visit the Attorney General’s web site at www.azag.gov. To file a complaint in person, the Attorney General’s Office has 37 satellite offices throughout Arizona with volunteers available to help. Locations and hours are posted on the Attorney General’s web site .
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