Is Your Foreign LLC Qualified to Do Business in AZ?

Is Your Foreign LLC Qualified to Do Business in AZ?

Business Formation, Foreign LLC, Limited Liability Company, registration to transact business
I frequently see startups who've organized as limited liability companies that operate (or at least have an office) here in Arizona but (for a various of reasons) opted to initially form in another state, such as Delaware or Nevada. Many of these LLC owners or partners don't realize that having formed in one state does not automatically mean that it can conduct business any old way in the other 49--- including Arizona.  This misconception can be a costly one. "Foreign" vs. Domestic LLCs in Arizona The Arizona Limited Liability Company Act (Arizona Revised Statutes, Title 29, Chapter 7) (the "Act") specifically requires a foreign LLC to obtain a certificate of registration "before transacting business" in Arizona (A.R.S. 29-3902(A)) [formerly §29-802(A)]).   In other words, here in Arizona anyway, every foreign (i.e., one formed…
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My LLC Doesn’t Have an Operating Agreement; Can I Sell My Interest?

My LLC Doesn’t Have an Operating Agreement; Can I Sell My Interest?

Business Formation, Limited Liability Company, Operating Agreement
An operating agreement of a limited liability company (LLC) is the company's instruction manual.  Through an operating agreement, the members (i.e., owners) can agree on critical things like their ownership percentage, roles in the company, and other rights and obligations as a member. The no operating agreement problem As a Phoenix Arizona business attorney, I (far too) often come across LLC owners without an operating agreement.  Typically, the company's owners don't really think about it until there's a problem and one or more of the partners wants out.  These members usually want to know if they can sell their interest (either to the other members or even an outsider), given the lack of an operating agreement between the members. Enter the Arizona Limited Liability Company Act Where the members of…
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Does My Delaware LLC Have to File an Annual Report?

Does My Delaware LLC Have to File an Annual Report?

Business Formation, Entity Formation, Limited Liability Company
As a Phoenix Arizona attorney who advises startup companies, I have seen more than a few early-stage company clients who have chosen to form as a Delaware limited liability company (LLC) instead of the more popular Delaware corporation form popular among start ups. The reasons some of these owners (more correctly, "members") elect to do this exceed the scope of this post and will be covered in a later article. The members of these Delaware LLCs sometimes ask me whether they must file an annual report with the Division of Corporations, similar to how Delaware corporations are required to do. The good news?  Just like with an Arizona LLC, a Delaware LLC is not required to file an annual report. The bad news?  Unlike here in Arizona, the State of…
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Got DIBS? How AZ’s Independent Contractor Law affects Your Startup

Got DIBS? How AZ’s Independent Contractor Law affects Your Startup

Business Formation, Employment Agreements, Independent Contractor
In this post, we examine Arizona's "DIBS" independent contractor law and whether it matters what startup companies call their employees. To be more specific, whether an emerging business can (or should) characterize its workers as regular employees or "1099" independent contractors? The Contractor/Employee Classification Dilemma The choice of whether a new business should call their new employee a "contractor" or an "employee" can be a difficult one, but it's a choice that comes with very real consequences for the wrong choice.  Generally speaking, you as the employer ordinarily have the burden of proving that an actual independent contractor relationship exists by "clear and convincing" evidence.   The need for clarity on this issue is perhaps more important than ever.  State and Federal misclassification enforcement efforts have been on the rise.  To…
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But I Thought I Had an LLC?!  The S-Corp Election Dilemma

But I Thought I Had an LLC?! The S-Corp Election Dilemma

Business Formation, Corporations, Limited Liability Company
The other day, a colleague of mine (who works in an unrelated practice area) messaged me wanting to refer a client who wanted to "convert an LLC to an S-Corp".  As a Phoenix business lawyer, I frequently get this question (or some version of it) from new entrepreneurs or business partners looking into forming a new business entity, as well as business owners who formed their LLC some years ago and are now having second thoughts on the IRS' default tax treatment of LLCs. The difference between legal entity selection and taxable entity election The confusion is understandable.  The problem stems from the fact that LLC owners are really dealing with two separate issues; when it comes to forming a legal business entity (at least here in the United States)…
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