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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How Many Members Are Needed to Form an LLC in Arizona?

How Many Members Are Needed to Form an LLC in Arizona?

Business Formation, Entity Formation, Limited Liability Company, Single Member LLC, Start-Up
Is there a minimum number of members required to form an Arizona LLC (limited liability company)?  As a Phoenix startup and small business attorney, this is a question I am sometimes asked by entrepreneurs and expectant business owners who are new to the State and looking to form their Arizona LLC. Although most states used to require a minimum of two members to form an LLC, now all of them and the District of Columbia allow "single member" LLCs to be created. Arizona allows formation of single-member LLCs Arizona LLCs are governed by the Arizona Limited Liability Company Act (Arizona Revised Statutes, Title 29, Chapter 4).  Under A.R.S. §29-601(15), a "Member" is defined as "a person who is admitted as a member in a limited liability company pursuant to this…
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How Many Officers Are Required for an Arizona Corporation?

How Many Officers Are Required for an Arizona Corporation?

Business Formation, Corporations, Start-Up
I'm often asked by startup founders of new Arizona corporations how many corporate officers they need as part of their initial filing with the Arizona Corporation Commission (ACC).   In this post, we'll look at the number---and which types---of officers are required for a new, domestic for-profit corporation in Arizona. Corporate officer requirements under The Arizona Business Corporations Act The good news? Arizona is pretty business-friendly in this regard. Arizona Revised Statutes, Title 10, Chapter 8, Article 4 of the Arizona Business Corporation Act (the "Act") tells us that a corporation shall have "the officers described in its bylaws or appointed by the board of directors in accordance with the bylaws." Subpart D of A.R.S. §10-840 goes on to explain that the same individual "may simultaneously hold more than one…
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So You Want to Invest in Your Friend’s Business (Part Two)

So You Want to Invest in Your Friend’s Business (Part Two)

Business Formation, Contracts, Limited Liability Company, Operating Agreement, Sale of Business
In Part One, I talked about some of the more important questions overlooked (or usually glossed over) by people looking to invest in a friend's existing business. In this part, I'll delve into some of the key documents used to formalize the purchase of an interest in a business, what they are for and why they are important. For purposes of this article, we are going to assume that the business being invested in is formed and operated as a Limited Liability Company (LLC), although the concepts here are applicable to a corporation or partnership, too: Operating Agreement -  As I touched on in Part One, this is a document that hopefully already exists. You should insist upon a complete copy of the version executed by your friend and his…
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