Arizona LLC Operating Agreement
Every Arizona LLC should have an Operating Agreement obtaining one doesn't have to be costly. You can use our free template to download and customize your Operating Agreement.
Arizona LLC Operating Agreement (Member-managed)
Here is a template for a Member-managed Operating Agreement that is available. This can be used for either a Single-Member LLC or a Multi-Member LLC:
In a Member-managed LLC, all the Members (owners) have the authority to bind the LLC in contracts and agreements legally, and they handle the daily operations and management of the business.
Arizona LLC Operating Agreement (Manager-managed)
Here is a template for a Manager-managed Operating Agreement that is available. This can be used for either a Single-Member LLC or a Multi-Member LLC:
In a Manager-managed LLC, one or more designated Managers have the authority to legally bind the LLC in contracts and agreements, as well as handle the day-to-day operations. The Members have an investor-like position and are not able to bind the LLC or oversee its operations. On the other hand, Members have a say in some important choices, such as whether or not to remove Managers.
Which Agreement Should You Choose?
Your choice depends on how you want your LLC to be managed. For more details, see Member-managed vs Manager-managed LLC. If you’re unsure, the Member-managed Operating Agreement is a common choice and might be the right fit for most situations.
What is an Arizona LLC Operating Agreement?
An Arizona LLC Operating Agreement is a formal document that describes how the LLC is owned and managed. It explains who owns the business and who is in charge.
Every LLC, whether it has one member or more, should have this agreement. It should be kept with the company's records and given to each member.
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What Should Be Included in an LLC Operating Agreement?
Basic Information
An Operating Agreement should be drafted for both single-member and multi-member LLCs, kept alongside the company's records, and distributed to each member in copy.
- LLC Name
- Effective Date of the LLC
- Arizona Registered Agent (if applicable)
- Purpose of the LLC
- Duration of the LLC
- Taxation method of the LLC
LLC Ownership
The Operating Agreement will list all LLC Members and their ownership percentages, known as LLC Membership Interest. Membership Interest is usually represented as a percentage (e.g., 5%, 50%, 100%).
Initial Capital Contributions
Once your LLC is approved, open an LLC bank account and deposit money into it. The initial capital contributions made by each Member should be listed in the Operating Agreement. If the amounts change later, you can update the Operating Agreement accordingly.
Statement about Taxes
How the LLC will be taxed should be outlined in the Operating Agreement. For LLCs, there are four typical tax structures:
- Taxed as a Sole Proprietorship
- Taxed as a Partnership
- Taxed as an S-Corporation
- Taxed as a C-Corporation
✎ Note:
Arizona LLCs cannot be taxed as Qualified Joint Venture LLCs since Arizona is not a community property state.
Voting Rights of LLC Members
The LLC Members' voting rights must be specified in the Operating Agreement. Voting power in a member-managed LLC is based on membership interest. In an LLC controlled by managers, members elect managers who make decisions without requiring further votes from members. However, major decisions like adding or removing Members require a Member vote.
Distribute Copies
Ensure all Members receive a copy of the finalized Operating Agreement. Keep a copy of your LLC’s business records.
This approach ensures clarity and straightforwardness in managing your Arizona LLC.
Is an Operating Agreement required for an LLC in Arizona?
As per Section 29-3105 of the Arizona LLC Act, an Operating Agreement isn’t required for an LLC in Arizona. But while it’s not required in Arizona to conduct business, we strongly recommend having an Operating Agreement for your LLC.
Additionally, financial institutions (like banks) and other organizations may need to see a copy of this paperwork for you to do business with them.
Why should an LLC with only one Member still have an Operating Agreement?
It’s best to have an Operating Agreement, even if you are the sole Member (sole owner) of your Arizona LLC (a Single-Member LLC). If you go to court, an Operating Agreement helps prove that your Single-Member LLC is being run as a separate legal entity. And that protects your assets by reinforcing the limited liability status of the business entity.
Does a Multi-Member LLC need an Operating Agreement?
It’s best to have an Operating Agreement, especially for a Multi-Member LLC. This document will spell out ownership percentages, profit distribution, and management responsibilities. If you go to court, an Operating Agreement helps prove that your Multi-member LLC is being run as a separate legal entity.
Do I have to send my Operating Agreement to the state?
No, you don’t have to send your Operating Agreement to the Arizona Corporation Commission, or any other government agency. Operating Agreements are “internal documents”. Meaning, the Members just need to keep a copy of their business records.
The Operating Agreement is a legally binding document upon the LLC Members because of the Members’ signatures. It doesn’t need a government stamp of approval from the Arizona Corporation Commission. However, in the future, if your company were involved in a lawsuit or an audit, a court or government agency might ask to see a copy of your Operating Agreement.
Additionally, you may also need to show this document to financial institutions when you open a business bank account, if you apply for a loan for the LLC, or to a title company if your LLC is buying real estate.
Does my LLC Operating Agreement need to be notarized?
No, your Operating Agreement doesn’t need to be notarized. Each Member just needs to sign it. Once you (and the other LLC Members, if applicable) sign the Operating Agreement, then it becomes a legal document.
Can I write my own Operating Agreement?
Yes, but we recommend using an Operating Agreement template. An Operating Agreement is a legal document. You don’t have to hire an attorney to write one, though. Using a template helps make sure you cover everything you need to.
What is the difference between an LLC and an Operating Agreement?
An LLC (Limited Liability Company) is a type of business structure. It’s a legal business entity that you form by filing a document called the Articles of Organization with the state. An Operating Agreement is an internal document that governs how your LLC is run. It contains rules about how much of the company each Member of the LLC owns, and other details about management and taxes.
Said another way, the LLC is your legal entity. The Operating Agreement is a written set of rules for how the LLC will operate. You could have an LLC without an Operating Agreement (but you shouldn’t). But you can’t have an Operating Agreement without an LLC.
How do I set up a Limited Liability Company in Arizona?
To set up an LLC in Arizona, follow these steps:
- Choose an LLC name and make sure it's available.
- Choose who will be your Arizona Statutory Agent.
- File the Arizona LLC Articles of Organization.
- Complete and sign an LLC Operating Agreement.
- Get a Tax ID Number (EIN) from the Internal Revenue Service.
- Publish a notice about your new company in the newspaper.
- Research business license requirements.
- Open LLC bank accounts.