Arizona LLC Operating Agreement (Guide + Free Template)
Writing a formal Arizona operating agreement means you will provide definite guidelines and expectations for the administration and operations of your LLC.
To help you understand what's included in an Arizona operating agreement, we teamed up with our certified LLC attorneys with over fifteen years of experience in the industry.
We spent three weeks researching the components of an operating agreement, and here's a comprehensive guide on everything you should know.
Quick Summary
- An Arizona operating agreement is a legal contract that outlines to the members the rules of a limited liability corporation.
- An operating agreement lays out the course for the company to take and improves management and operations.
- While not legally required in Arizona, the majority of business attorneys recommend that over 90% of LLCs have a documented operating agreement to prevent internal disputes and manage financial and operational agreements effectively.
- From my observations, I've learned that thousands of LLCs are formed in Arizona, reflecting the state's business-friendly environment.
Arizona LLC Operating Agreement Free Template
Disclaimer: This template is offered for informational purposes only and is not intended as legal advice. We highly advise consulting a qualified attorney to confirm its suitability and accuracy for your specific needs. We assume no responsibility for any consequences arising from the use of this template.
We recommend reading our comprehensive article on the essential differences between member-managed and manager-managed LLCs before downloading our template.
What Is an Arizona LLC Operating Agreement?
An Arizona LLC operating agreement is an internal document that serves as the company's manual. It gives directions and instructions on how the firm will operate so that it may accomplish its objectives.
An operating agreement contains comprehensive information about the company, the management framework, and its shareholders or members.
Arizona does not mandate that LLCs have an operating agreement. They are still encouraged to do so in accordance with the Arizona Corporation Commission Limited Liability Company Act [1].
In Arizona, a limited liability company can be verbal or written. However, written agreements are strongly favored since disagreements over the contents of verbal agreements frequently result in legal action, which is expensive and detrimental to corporate success.
How to Write an Arizona Operating Agreement?
To write an Arizona operating agreement, you must gather the business and details, member information, define management structure, and calculate company ownership before drafting the sections on the document.
Here are the ten steps to draft an operating agreement in Arizona.
1. Collect Basic Business Information
Start by supplying details about your LLC, including its business name and place of operation.
If you’re a sole owner, you should also provide the name and address of your statutory agent since they will receive legal paperwork regarding your firm and not your LLC.
Include relevant business details to demonstrate that the operating agreement was written for your entity.
2. Write Business Objectives
Next, you must describe the goals of your company on your operating agreement template.
These will function as your LLC's mission and vision statements, outlining the exact objectives that your business aspires to. By doing this, you define your company's direction.
3. Provide Member Information
Even though some members, particularly those who made little donations to your business, may not have had their names listed in your articles of incorporation, you must list all the members in your operating agreement, including their full names, contact information, and addresses.
"When drafting the LLC members information paragraph, it's important to include the capital contributions and ownership interest rates for each individual member."
- Greg Friedman, LLC Attorney
4. Determine Organizational Structure
Under this section, you must show how your Arizona LLC will be run. It can be a member-managed LLC, where the owners actively participate in the company's management.
Another option is a manager-managed LLC, which is run and directed by a sole member or a manager who’s elected by other LLC members.
5. Divide Roles and Duties of Members
Then, list the positions and duties that each member has. This paragraph on the legal document lets you clearly define your team members' duties and set performance expectations.
By doing this, you also eliminate any work-related ambiguities that can cause employee conflicts.
6. Provide Limited Liability and Indemnification
You must provide information restricting members' liability to your LLC in this area. This section must be included since it sets the division between your firm and its participants.
This strengthens your defense to the court's finding of limited culpability.
7. Develop Rules for Voting and Gatherings
Include rules for organizing and running meetings amongst members in this area.
Meetings must be held for members to learn about the LLC's development and debate various topics.
It would help if you encouraged the LLC members to use their voting rights to participate in corporate decisions occasionally.
8. Set Up Accounting Methods
The accounting system used by your organization must be fully described in your legal document.
This section of the operating agreement includes the specifics on how your company keeps track of its financial reporting, bank accounts, initial capital contributions, record-keeping, and cash flow.
Include your company's fiscal year and tax treatment by the Internal Revenue Service.
9. Create Rules for Resolving Disputes
Your operating agreement must also contain provisions for resolving disputes.
Members must be instructed to settle disputes first among themselves and then in front of other members.
If they have been tried and failed, outside mediation may be required; ensure your policies cover these aspects.
10. Terms of Dissolution
In the worst-case situation, your company could cease to conduct business and close down because of several factors, such as the member's premature resignation.
When this happens, your own LLC operating agreement must provide procedures for resolving disputes before the company's closure and rules for managing the dissolution procedure.
Why Do You Need an LLC Operating Agreement in Arizona?
You need an LLC operating agreement in Arizona to safeguard your LLC's limited liability status so that you are less likely to face personal accountability for obligations and debts incurred by the firm.
Here are the other advantages of having an LLC operating agreement in Arizona:
Strengthens Agreements Between Members
Members of an LLC must agree on a distribution of rights, obligations, ownership, remuneration, and other terms as part of forming their firm.
This is where the operating agreement comes in handy, as it reinforces all these company aspects.
If the members have different views on enforcing these rules, it'll be difficult to violate the operating agreement illegally because it's a binding contract.
Robust Limited Liability Protection
Your operating agreement is a legal declaration separating your LLC from you as a member.
This will reduce your liability in relation to the duties of your business.
Also, courts cannot order you to use assets under your name to settle the company's obligations if the firm is sued for legitimate grounds and loses.
To Attract Investors
You may utilize your operating agreement to persuade investors to fund your business. Investors frequently seek out businesses with definite, realistic objectives.
Additionally, they seek investments in companies with reliable accounting and management systems.
More significantly, they want to invest in a business that offers a strong return on their money. Your operating agreement's specifics should demonstrate the value of your LLC to investors.
Avoid State Default Laws
If an LLC does not already have an operating agreement, Arizona has "default laws" that dictate how it functions and is handled legally.
An LLC can be exempt from these general restrictions and have far more control in defining and regulating itself by having its agreement.
Gives Your Business More Credibility
Third parties may consider professional operating agreements a stand-in for a reliable company.
While creating a limited liability company is easy by default, you still need a strong operating agreement demonstrating that your entity has gone far and wide to set up shop and conduct itself as legally as possible.
Outsource Financial Aid
Certain banks may request an operating agreement before opening a business bank account.
Financial institutions are also vested in determining a company's reliability and skill before lending.
Without a solid operating agreement, obtaining business funding and credit for your startup entity cannot be easy.
Prevent and Resolve Conflicts
Your operating agreement's principles and directions clear up any ambiguity regarding your company's specifics and internal procedures, averting conflicts and fights.
Additionally, the agreement contains steps for conflict resolution, and following these steps will aid in resolving any conflicts that could develop.
FAQs
Is an Operating Agreement Required in Arizona?
No, an operating agreement is not required in Arizona by the state. However, under the Arizona LLC Act, having one is important to manage your company's internal and external operating procedures.
How Much Is an Arizona LLC Operating Agreement?
An Arizona LLC operating agreement costs $0 if you draft it yourself. However, if you hire a lawyer, you may pay up to $1000, depending on the task.
Does a Single-Member LLC Need Operating Agreements in Arizona?
Yes, a single-member LLC needs operating agreements in Arizona to maintain a reliable management system for the company and keep its legal Identity separate from the owners.
Can an Arizona LLC Operating Agreement Be Amended?
Yes, an Arizona LLC operating agreement can be amended as the business changes. Examples of amendments you can make to your own operating agreement template include changes in management, ownership percentages, and the inclusion of new member details.
