What the Revised Arizona Limited Liability Act Holds For People.

The Arizona Limited Liability Act will soon experience a major overhaul after the Governor signed the law. This act for limited liability companies will be effective immediately after August 31, 2019. However, this is for new companies. The law for existing limited liability companies will become effective from after August 31, 2020. With wholesale changes on the cards, many people want to know what they should expect after August 31st.

Contribution liability

1. Liability Contribution to LLC

According to A.R.S. §29-3403, it is not mandatory for a person to contribute to the LLC unless he/she has it in writing. The person’s contribution is not excusable by disability, termination, death, or any other liability, that he/she should perform personally.

Distribution liability

2. Liability for improper distributions

According to A.R.S. §29-3406, if a person receives a wrongful distribution, he/she is liable to the LLC. However, his/her liability is limited only to the extent of improper distribution.

Management

3. Managing LLC

According to A.R.S. §29-3407, if any members get disassociated from LLC, they may never serve as a manager. Anyone who doesn’t aspire or become a manager will not discharge pending debts to any of the members or to the company. If anyone is responsible for the wrongful dissolution of the company, he/she will lose the opportunity to participate in management meetings, both as a manager and as a member. That person may not have the right to determine any activities that may help the company flourish.

Indemnification

4. LLC indemnification

According to A.R.S. §29-3408, an LLC will reimburse the following people:

  • A former or present member of members the LLC
  • A manager or managers of the LLC

However, this only happens if these members or managers paid for any activities on behalf of the company. It can include charges for fiduciary duties, management duties, and section and distribution duties. The LLC may have to reserve an advance amount to pay for reasonable expenses that include fees of the attorney and cost of legal documentation.

Fiduciary duties

5. Standards of conduct

According to A.R.S. §29-3409, any manager of managers or member of members owes the duty of loyalty to the company also to the other members. They are responsible for winding up company activities that prevent it from reckless conduct, intentional misconduct, or negligent duties. The member or the manager can only discharge his/her duties of care and loyalty as per the Act and Operating Agreement after completing contractual obligations. He/she, before discharging duties, should disclose all details of transactions relating to the LLC. If he/she doesn’t, it is considered a breach of duty and loyalty.

The manager of managers is responsible for the company and all the members. He/she can wind up the company. The manger is also responsible for activities that prevent the company from entering into reckless conduct, intentional misconduct, or negligent duties. He/she should also disclose all details of the transaction before discharging his duties. Otherwise, his duties toward the company and loyalty to the firm are considered a breach of conduct.

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