As of September 1, 2019, Arizona’s LLC and PLLC law has changed. For LLCs created on or after September 1st, they must comply with the new law at the time they are created. For existing LLCs there is a grace period of 1 year. The biggest change to LLC law is the fiduciary requirement placed on managers, members and managing members to the LLC and to others. You should read and understand these changes. The new LLC law is in Chapter 7, sections 29-3101 to 29-4202.
In June 2019, the Arizona Supreme Court ruled in Sky Harbor Properties, LLC v. Patel Properties, LLC and found a similar fiduciary requirement under agency law should be applied to LLCs. So, essentially, existing LLCs should be actively complying with the new LLC law in order to comply with the Court decision.
For REALTORS® and investors who have the LLC as part of their business model, you should know there are now default provisions in the new LLC law you may want to change through the Operating Agreement. Some of the provisions you may want to address are:
- The fiduciary duties of members and managers – The default provisions assume an agency relationship between managers, members and the LLC entity. You can change this in your Operating Agreement and limit the fiduciary relationships.
- Define the Managing Members, their responsibilities and duties in the Operating Agreement.
- Distributions to members – There are tax and legal implications if you do not change the default distribution provisions contained in statute.
- Read ARS section 29-3301 – to understand the default agency relationships and decide if you need to address this issue in the Operating Agreement.
- Understand how and why you may or may not want to hold your interest as Tenants in Common, Joint Tenants with right of survivorship or as Community Property with right of survivorship.The bottom line is the Operating Agreement is very important and can make the difference legally and financially.
If you are a broker or agent who represents investors or LLCs as part of your business, there are some considerations you may want to ask your attorney about. For example: What happens if your brokerage lists an LLC property for sale and also represents the buyer LLC? While the brokerage would disclose its dual agency relationship, it may not know there are members common to each LLC. Failure to disclose common members and any pertinent information is a violation of fiduciary, and yet in a multi member LLC, members may not even know they are part of both LLCs.
To help you consider the implications to your business and clients, WeMAR is hosting an hour-long Lunch & Learn as part of our Oct. 22nd Government Affairs Advisory Council Meeting. Our guest will be David Brnilovich from Jennings Strouss. David will walk us through both the Supreme Court decision and the new LLC law. He will help us understand the fiduciary duty, ways to mitigate fiduciary via the Operating Agreement, and outline possible issues you or your clients may encounter going forward.
I hope you can join us on October 22nd, 2019 from 10am to 1pm for our last Government Affairs Advisory Council Meeting of the year. Our first guest will be our own Roger Nelson, CEO of WeMAR. Roger will update us on the merger with SEVRAR and tell us more about our association in the future. Next, we will have an hour-long conversation about issues you and your clients are dealing with in the field and update you on the WeMAR Task Forces and Workgroups. Our last hour will be the Lunch & Learn with David Brnilovich.
This event is free and open to all WeMAR members, but we ask you to register so that we have lunch and seats for all. WeMAR members in Pinal and Douglas will be able to join us live via Live Zoom Meeting.
WeMAR GAD: Advocating for Private Property Rights, the Right to Private Contract and YOUR Business!