On May 17, 2016, Arizona Governor Doug Ducey signed Arizona Legislature House Bill 2447. This new law is a tremendous victory for the people and a huge defeat for Arizona newspapers. HB 2447 eliminates the long standing rip off known as the publication of legal notices when corporations or limited liability companies are formed in Arizona. Unfortunately, publication was eliminated only for entities with known places of business in Maricopa or Pima counties.
Beginning December 31, 2016, new Arizona LLCs and corporations with a known place of business in Maricopa and Pima Counties will not have to publish Articles of Incorporation (corporations) or Notices of Publication (LLCs) in a newspaper. Instead, the Arizona Corporation Commission will enter information about the newly formed entities into a database it is obligated to create.
HB 2447 states that publication is eliminated only for entities that have a known place of business in a county that has a population greater than 800,000. Currently only Maricopa County and Pima County have populations that exceed 800,000.
Entities that have known places of business in counties other than Maricopa and Pima must continue to donate money to the few Arizona Corporation Commission approved newspapers in the eleven counties with less than 800,000 people. Publication is a total rip off. For example, a few years ago we published Articles of Incorporation for a nonprofit corporation in a newspaper in a less populated county and it cost my client $600 after a 10% discount for the nonprofit corporation. Outrageous!
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Question: I am not a citizen or resident of the United States who wants to form a U.S. limited liability company. Can I get a federal employer identification number (EIN) for my LLC and if so, how?
Answer: The instructions to IRS Form SS-4, explain how a non-U.S. citizen who is a non-resident of the U.S. can get an EIN for his or her LLC. The instructions say the following:
“Apply by telephone—option available to international applicants only. If you have NO legal residence, principal place of business, or principal office or agency in the U.S. or U.S. possessions, you may call 267-941-1099 (not a toll-free number), 6:00 a.m. to 11:00 p.m. (Eastern time), Monday through Friday, to obtain an EIN. The person making the call must be authorized to receive the EIN and answer questions concerning Form SS-4.
Note. It will be helpful to complete Form SS-4 before contacting the IRS. An IRS representative will use the information from Form SS-4 to establish your account and assign you an EIN. Write the number you’re given on the upper right corner of the form and sign and date it. Keep this copy for your records.
Apply by fax. Under the Fax-TIN program, you can receive your EIN by fax generally within 4 business days. Complete and fax Form SS-4 to the IRS using the appropriate fax number listed in Where To File or Fax, later. A long-distance charge to callers outside of the local calling area will apply. Fax-TIN numbers can only be used to apply for an EIN. The numbers may change without notice. Fax-TIN is available 24 hours a day, 7 days a week. Be sure to provide your fax number so the IRS can fax the EIN back to you.”
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Arizona House Bill 2303 signed into law by Governor Doug Ducey contains a significant change to Arizona’s securities laws. The new law allows the issuance of LLC membership interests to as many as ten LLC “organizers” to be exempt from Arizona securities laws.
Arizona Revised Statutes Section 44-1844.A was amended to read (new language is in bold red text):
“sections 44‑1841 and 44‑1842, section 44‑1843.02, subsections B and C and sections 44‑3321 and 44‑3325 do not apply to any of the following classes of transactions: . . .
10. The issuance and delivery of securities of a corporation, limited liability company or limited partnership to the original incorporators, organizers or general partners, not exceeding ten in number, where the securities are not acquired by the incorporators, organizers or general partners for the purpose of sale to others and are not directly or indirectly sold to a third party within twenty-four months unless an incorporator, organizer or general partner experiences a bona fide change of financial circumstances within such time period, providing original incorporators, organizers or general partners are notified of their right pursuant to title 10 or 29 to review the financial books and records of the corporation, limited liability company or limited partnership at reasonable times.”
The term “organizer” is not defined in any Arizona statutes. The Arizona Corporation Commission’s hard copy form Articles of Organization contains the following statements in Section 9 of the document:
“ORGANIZERS and SIGNATURE – the individual or pre-existing entity submitting this document is the Organizer – list the name of the Organizer below. If the Organizer is an individual, that individual must sign below. If the Organizer is a pre-existing entity, provide the signature of the individual acting for that entity, then print the individual’s name.”
Without any statutory reference that supports the statements, the first paragraph of the ACC’s instructions for its hard copy Articles of Organization states:
“One or more persons can form an Arizona LLC by signing and filing Articles of Organization with the Arizona Corporation Commission. . . . These persons are called “organizers.” “Person” includes individuals and entities.”
Significance of the New Law
This change in Arizona law is very important for every Arizona LLC that will issue membership interests that the securities regulators would designate as a security. If you think an LLC must issue stock to investors before it is considered issuing a security you are wrong.
If the promoters of the LLC say to an investor give me your money for an X% membership interest in our LLC and the LLC will make a profit for you the LLC is issuing a security to the investor. This is an example of an “investment contract,” which is a type of security under federal and state securities laws.
When securities laws apply to the issuance of membership interests in an LLC the LLC must comply with federal and applicable state securities laws or the promoters and the LLC become guarantors of the investors’ investments. Promoters who cause an LLC to issue membership interests that are securities the issuance of which does not comply with applicable securities laws will have substantial liability to the investors and to the securities regulators.
To learn more about securities laws and how they can affect LLCs read the article my son and I wrote called “California LLCs & Securities Laws.” Although the article is about California LLCs, many of the concepts apply to Arizona LLCs.
If your to be formed Arizona LLC will be issuing membership interests to people or entities that are investing substantial amounts of money to purchase their membership interests, you must have EVERY INVESTOR (without exception, but no more than ten) sign the Articles of Organization as an organizer so the LLC can claim the exemptions provided from Arizona securities laws by Section 44-1844.A.10.
If you need your LLC to be able to use the ten exemptions provided in Arizona Revised Statutes Section 44-1844.A.10 hire us to form your LLC. Our Articles of Organization for LLCs that want to take advantage of Section 44-1844.A.10 contain special 44-1844.A.10 language.
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Arizona, like Nevada, provides that the sole remedy of a creditor that gets a judgment against a member of an LLC formed in the state is to serve a charging order on the LLC. The charging order is a court order that if money or property is to be distributed or paid to the debtor/member the money or property must be paid to the creditor instead.
The Kaplan vs. Miller case below illustrates how a creditor can win a judgment in state A against a member of an LLC formed in state B and get a court in state B to issue the charging order against the LLC. The creditor domesticates the judgment in the state where the LLC was formed and then asks a court in state B to issue the charging order.
STEPHEN KAPLAN, P.C., Plaintiff(s),
CAMERON L. MILLER, Defendant(s).
Case No. 2:15-CV-1395 JCM (PAL).
United States District Court, D. Nevada.
March 24, 2016.
JAMES C. MAHAN, District Judge.
Presently before the court is plaintiff Stephen Kaplan, P.C.’s (“Kaplan”) motion for charging order. (Doc. # 6). Defendant Cameron L. Miller, who has not made an appearance in this matter, has not responded. The time for doing so has passed.
On March 6, 2015, plaintiff recovered a judgment against defendant in the U.S. District Court for the Northern District of Texas. (Doc. # 6-1). Plaintiff initiated the present matter by domesticating that judgment in this district. It filed a motion for a writ of execution with this court (doc. # 4), which the court granted. (Doc. # 5).
Plaintiff, as a judgment creditor, now moves the court for an order charging defendant’s ownership interests in two Nevada limited liability companies (“LLCs”) with the domesticated judgment. (Doc. # 6). Plaintiff represents that after conducting discovery of various public records, it has determined that Mr. Miller, as judgment debtor, has ownership interests in RW AND ASSOCIATES, LLC and CLM DEVELOPMENT SERVICES, LLC. Plaintiff attached search results from the Nevada Secretary of State’s website that indicate defendant holds one or more officer positions in each entity. (Doc. ## 6-2, 6-3).
Under Nevada Revised Statute (“NRS”) 86.401, a judgment creditor of a member of an LLC formed under Nevada law may apply to a court of competent jurisdiction for an order charging “the member’s interest [in the LLC] with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest. See NRS 86.401(1) (emphasis added).
The statute provides the exclusive remedy by which a judgment creditor of a member of such an LLC may satisfy a judgment out of the debtor’s interest in the LLC. See NRS 86.401(2)(a). A charging order issued under NRS 86.401 does not give the judgment creditor any rights in the assets, management, or control of the LLC. See Weddell v. H20, Inc., 271 P.3d 743, 750 (Nev. 2012).
The judgment creditor-defendant in this matter appears to possess ownership interests in both of the above-referenced LLCs. He has not appeared in the case, despite apparently being properly served, and has therefore not presented any evidence to the contrary. Accordingly, the court will charge any ownership interests the judgment debtor-defendant owns in either LLC with satisfaction of the March 6, 2015, Texas judgment under NRS 86.401. See Weddell, 271 P.3d at 750.
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff Stephen Kaplan, P.C.’s motion for charging order (doc. # 6) be, and the same hereby is, GRANTED.
IT IS FURTHER ORDERED that defendant Cameron L. Miller’s ownership interests in RW AND ASSOCIATES, LLC be, and the same hereby are, CHARGED with satisfaction of the March 6, 2015, judgment (doc. # 6-1) against him pursuant to NRS § 86.401(1).
IT IS FURTHER ORDERED that defendant Cameron L. Miller’s ownership interest, if any, in CLM DEVELOPMENT SERVICES, LLC be, and the same hereby are, CHARGED with satisfaction of the March 6, 2015, judgment (doc. # 6-1) against him pursuant to NRS § 86.401(1).
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