I formed my first Arizona LLC the day the Arizona LLC law became effective in October of 1992. Since then I have formed 6,800+ Arizona LLCs. In practicing LLC law since 1992 I have seen the same LLC operational problems over and over. When I learn about an operational problem I add new language to my LLC Operating Agreement to “fix” or prevent the problem.
For example, one of the most common LLC operational problems occurs when members cannot agree and need a company divorce. When members have major disagreements over running the LLC it is very common for a member without any authority or basis to file an amendment to the LLC’s Articles of Organization that removes one or more members as members of the LLC. The culprit may also open a new bank account and misrepresent to the bank who the members of the LLC are.
People who file false documents with the Arizona Corporation Commission are usually unaware that they could be committing a felony. Arizona Revised Statutes Section 29-613.A states:
“A person who . . . signs any articles . . . or other document filed with the [Arizona Corporation] commission that is known to the person as false in any material respect is guilty of a class 4 felony.”
Unfortunately the Arizona Attorney General does not prosecute people who file false documents with the Arizona Corporation Commission.
The purpose of Arizona Revised Statutes Section 29-858 is to reduce false filings with the Arizona Corporation Commission and give aggrieved members a remedy. This statute states:
“any person that authorizes or signs a report, certificate, notice or other document with respect to a limited liability company that is delivered for filing with the commission pursuant to this chapter and that has knowledge at the time of delivery to the commission for filing that the information contained in that report, certificate, notice or other document is materially false or misleading is liable to the limited liability company and its creditors and members for all damages resulting.”
The problems with this statute are: (i) proving damages for a false filing is very difficult, and (ii) the cost to sue coupled with the risk of winning and collecting a judgment makes this remedy very risky. Few members will actually use this statute to sue another member.
After seeing the false amendment to the Articles of Organization too many times I added a clause to my Operating Agreements that provides that a member who files a false document with the Arizona Corporation Commission is liable to all other members for liquidated damages of $10,000 and if the damages are not paid in full within sixty days the member who filed the false document ceases to be a member.
Why Your Existing or New Arizona LLC Needs Richard Keyt’s State of the Art Operating Agreement
I have prepared 6,800+ LLC Operating Agreements. My Operating Agreement is unlike any Operating Agreement prepared by anybody else including attorneys because it contains provisions I created to prevent or solve common LLC operational problems I have seen representing thousands of LLCs. For a partial list of common LLC operational problems see my article called “Common LLC Disasters a Good Operating Agreement Prevents.”
To hire me to prepare an Operating Agreement for an LLC that does not have one or to amend an Operating Agreement for an LLC whose members signed an Operating Agreement complete my comprehensive Operating Agreement Questionnaire.
P.S. To see Operating Agreement provisions in my Operating Agreements that you will not get any where else scroll to the bottom of my Operating Agreement Questionnaire.