Member-Managed or Manager-Managed LLCs In Arizona
You’re thinking of starting a business, and you want to do it right. You’ve heard about a Limited Liability Company, or LLC, and you’re considering this as an option for your startup company. For years, our staff at Phelps LaClair (with offices in Phoenix, Chandler, and Mesa) has been helping new businesses choose and set up the right LLC to meet their needs and protect their investment. In order to establish the most advantageous tax setup and correctly align your LLC with your estate plan, we strongly recommend that you work with a qualified attorney in setting up your LLC.
The person who sets up your LLC is called the organizer. The organizer is responsible for filing the Articles of Organization with the Arizona Corporation Commission. Those involved in the LLC are called members.
An LLC can consist of one person who is both the member and the manager, or there can be several persons listed in the LLC. Though there are a number of types of LLCs, we’d like to discuss two kinds of LLCs in Arizona, Member-Managed, or Manager-Managed.
A Member-managed LLC has at least one member (in that case, the business owner), and there are no managers. Generally speaking, each member of the LLC has the right to act for the LLC, and each member has one vote. A Member-Managed LLC can draft an operating agreement (see below) that can set up the rules for how daily operations will be carried out. If the Member-Managed LLC does not have an operating agreement, it’s similar to a partnership, where decisions for the company are made equally by the partners.
Manager-managed LLCs are similar to corporations, in that the managers make the decisions.
As the name suggests, a Manager-Managed LLC has at least one manager listed in the filing for LLC. According to the Arizona Corporation Commission, a Manager-Managed LLC must have “. . . at least one member who must be listed if the member owns 20% or more of the LLC.” If a Member-Managed LLC has no operating agreement, then the manager or managers make the day-to-day decisions for the LLC. Without an operating agreement, each listed manager gets one vote in the decision-making process. It’s important to understand that if there are two managers in this type of LLC, those managers will need to agree on all decisions made for the business, since each manager has equal voting power.
In both descriptions of the two different types of LLCs delineated above, an operating agreement was mentioned. Simply described, an operating agreement is an agreement (written or oral) between all members, about the business operations of the LLC. Though an operating agreement is not required by Arizona state law, without it, governance of your LLC is directed by the state statues. But with an operating agreement, variations can be established according to your members’ wishes. For example, an operating agreement can specify whether a member who has a greater invested interest should receive more voting power.
Understanding the ins and outs of setting up a Limited Liability Company structure for your Arizona business should involve the guidance of those who understand Arizona law. Phelps LaClair, serving the Phoenix Valley, has been helping businesses lay successful foundations for many years. We’re familiar with state law, and we’ve also got accounting and advanced tax degrees to help you navigate choices for your LLC that will give you the greatest tax advantage. If you’re planning to start a Limited Liability Company in Arizona, give us a call. We’ll sit down together and map out the right strategy for your new business.
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