Arizona LLC Operating Agreement

An Arizona LLC operating agreement is a contract that establishes who owns the LLC and how the LLC is managed. An operating agreement also contains detailed information on company rules and procedures, such as holding meetings, transferring membership interest, and keeping the books.

You’re not required to file your operating agreement with the Arizona Corporation Commission—an operating agreement is an internal document. However, having a strong operating agreement can be essential to the survival of your LLC. For example, what happens if a member suddenly leaves the company or a manager isn’t fulfilling their duties? An operating agreement can guide your actions and even help protect your rights as an owner if you end up in court.

Hire us and take advantage our FREE, attorney-drafted operating agreement templates, available for single-member, multi-member, member-managed, and manager-managed LLCs.

Use Our Free Operating Agreement Template

Even if you don’t hire us, you can start drafting a strong Arizona LLC operating agreement with our FREE template. This template was written by one of our lawyers and can be adapted to suit your business.

If you’re not ready to complete your entire operating agreement in a single session, save your progress and return when it’s convenient for you. Once you finish filling out the form, you’ll be able download and print your operating agreement.

Why Does Your Arizona LLC Need an Operating Agreement?

Arizona doesn’t require LLCs to have operating agreements, so you may be wondering, “Do I really need an operating agreement for my Arizona LLC?” The answer is yes. Having an operating agreement is important for logistic and legal reasons.

1. Keep your LLC running smoothly

An operating agreement provides clarity about the structure and operations of your LLC. For example, an operating agreement lays out the duties of each member, how often member meetings are held, and what do to if you decide to take on a new member.

With policies like this in place, you can focus on running your business instead of wasting time figuring out what different members should be doing (or permitted to do) or scrambling to get organized in what should be a routine situation.

2. Avoid confusion and conflict

No one wants to assume that disagreements will arise between LLC members, but even the best working relationships have the potential for at least a little friction. However, a well-written operating agreement can help minimize conflict. For example, if your operating agreement clearly lays out ownership percentages and how profits are distributed, a member who wishes to claim more than their fair share won’t be able to do so easily.

An operating agreement should also put into place procedures for solving disputes—who can call a meeting? How much voting power does each member get? What’s considered a majority vote? Will you call on a mediator? All of this can help your LLC move on as quickly and fairly as possible.

3. Uphold your rights in court

If you end up in court, your operating agreement is a great asset. In situations where a member is suing other members, an operating agreement can help other members assert their rights and provide evidence of ownership percentages or duties.

The financial information in your operating agreement can also show that your LLC and personal finances are separate in situations where you need to prove that there hasn’t been any undue commingling of personal and business funds.

Additionally, if you don’t have an operating agreement, your LLC is subject to default provisions contained in the Arizona Limited Liability Act, which may not adequately support the rights of your LLC members or meet your LLC’s specific needs. Creating your own operating agreement is the best way to protect your LLC and its members.

What’s Included in an Operating Agreement?

Technically, your operating agreement isn’t required to include any specific rules or provisions, but most operating agreements include a common set of specifications about the company’s structural and financial policies. In a way, your operating agreement is like instruction manual for managing and operating your business. Many companies work with an attorney to ensure that their operating agreement meets legal standards.

A typical operating agreement includes the following:

Basic identifying information about your LLC. This includes your company name, the name and address of your statutory agent, and your jurisdiction of formation.

Member & management information. You’ll need to list the full names and addresses of your members. If you hire managers, you may also include identifying information on your managers. You’ll also include:

• Members’ initial contributions to the company and their percentage of ownership in the company. Initial contributions can be financial but may take other forms, such as labor (setting up the office or obtaining clients) or intellectual property (the idea or blueprints for your unique product or service).
• Member and manager rights and responsibilities. For example, who is in charge of keeping the books or making sure that the company’s permits are up to date? Who is authorized to take out loans or lease property in the name of the business?
• Member meeting rules. How often will members meet or when are member meetings required? What are members’ voting rights?
• Member and manager compensation. How are profits and losses distributed among members? How are members and managers paid?

Financial information. This may include details about your business bank accounts, loans, and property or vehicle titles, along with your tax classification and even how you’ll do accounting for your taxes.

Procedures for membership transitions. Your operating agreement should include details on how to buy into or sell out of your LLC, including how to add new members and release members who wish to leave. You might also include instructions for what to do if a member passes away or is unable to fulfill their duties due to unforeseen circumstances.

Procedures for solving member disputes. Even among the best teams, there can be disagreement. How will you decide what to do half your members want to launch a new project but the other half is on the fence? What will you do if a member claims they deserve more compensation?

Procedures for dissolution or merger. Here, you’ll include the requirements for dissolution or merger and how company assets will be distributed in such cases. Certain events may also trigger dissolution. You may even set a date for ending your LLC (for example, if your LLC was set up for a specific event).

Procedures for making amendments. Your operating agreement isn’t completely set in stone—you can include rules for amending and updating your document.

Any other provisions you’d like to include. You have the freedom to add any provisions your company requires as long as they fall within the law.

What can’t be included in your operating agreement?

According to ARS § 29-3105, you can’t include any provisions or clauses designed to subvert the law or to get around the state statutes governing LLCs. For instance, you can’t add a provision that says you don’t need a statutory agent or that changes the way a statutory agent is appointed for your LLC.

Arizona Operating Agreement FAQs

Are LLCs in Arizona legally required to have an operating agreement?

No, there’s no legal requirement for LLCs to have an operating agreement in Arizona. However, without an operating agreement, your LLC must follow the provisions contained in the Arizona LLC Act (ALLCA), which may not suit your company. For instance, you may wish to give members with higher ownership interest more voting power, but the ALLCA states that voting power must be distributed equally among all members.

Do you need to file your operating agreement with the Arizona Corporation Commission?

No, you don’t need to file you operating agreement with the state. Your operating agreement is an internal document.

Do all members need to sign the operating agreement?

Yes, all LLC members will need to sign the operating agreement in order for the document to be legally binding.

Do single-member LLCs need to have an operating agreement?

Even if you only have one member, it’s still a good idea to have an operating agreement. An operating agreement can help you establish ownership of your LLC in court and prove your limited liability status. You may also be required to provide a copy of your operating agreement when opening a business bank account or applying for a loan.

Can you write your own operating agreement?

Yes. It’s possible to draft your operating agreement or use a template you find online. However, if you’re not a lawyer, you can always be sure that your homemade operating agreement or a random template you find through a Google search will hold up in court. We recommend using an attorney-drafted template, like the one we provide. You can also hire a lawyer to write or review your operating agreement.

Can you change your operating agreement?

Yes. You can make amendments to your operating agreement as needed. Be sure to include a provision for performing amendments in your operating agreement to make the process run smoothly.

What happens if your operating agreement is lost or destroyed?

Losing your operating agreement can happen. Maybe you misplace a file during a move or your offices are damaged in a natural disaster, leaving you without a copy of this important document. To avoid this happening, we suggest making multiple copies of your operating agreement and distributing them among your members and giving a copy to your lawyer. You could also keep a copy of your operating agreement and other important documents in a safe deposit box at the bank.

In the case your operating agreement is well and truly lost, meet with your fellow members and draft a new one as soon as possible. Make sure that everyone brings whatever proof they have of initial contribution and ownership interest.