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 Business Entity Formation

Considerations before forming an LLC in Arizona – continued Pages (3): 1 | [2] | 3

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Perpetual Duration
LLC Dissolution
Arizona LLC Operating Agreement

Continuity, Perpetual Duration and Dissolution

An Arizona LLC can have perpetual duration. Dissolution typically occurs by the majority agreement of all members, or the death, retirement or withdrawal of a member. Dissolution may result from a variety of causes.

Since an LLC is created by agreement of its members, it may also be dissolved by agreement. An agreement by the members may include predefined requirements. For example, it may state a specific date for termination of the LLC, or it may provide that the entity will dissolve on a contingent event. For example: an operating agreement can require an LLC to dissolve on October 14, 2015, or if it sustains losses for 12 consecutive months.

Whether or not the operating agreement contains terms for dissolution, all members may unanimously agree to dissolve the LLC at any time.

Dissolution may also occur by operation of the law. Under Arizona law, dissolution of an LLC occurs under circumstances similar to those under which a partnership is dissolved. ARS 29-3701 outlines when a company must dissolve.

Arizona Limited Liability Company Operating Agreement

A written operating agreement is not a legal requirement in Arizona but under some circumstances it is necessary. Arizona Statutes essentially provide that in absence of written operating agreements, or if an operating agreement is silent on a matter, then the Arizona Limited Liability Company Act will be the binding authority on the manager’s and member’s rights or duties.

To enforce an arrangement such as specific, percentage-based distribution of profits, or special management rights to a member, an operating agreement signed by all the members (and managers if appointed) can be kept in the company’s records.

Operating Agreements are binding on the members of the company, and are not filed with the ACC. The agreement should be prepared for internal management purposes. Typically, an operating agreement will include provisions for the regulation of management affairs, capital contributions and allocation of profits and losses.

The operating agreement for an LLC is similar to a partnership agreement for a partnership. Issues commonly addressed in a partnership agreement are included in an operating agreement.

While the LLC form itself is usually less complicated than a corporation is, operating agreements can be complex. Due to the great flexibility permitted in structuring an LLC by law, the operating agreement can become involved depending on the wishes of the members.

An operating agreement governs the conduct of the business, and the rights and powers of the members and managers.

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