Chapter 18 LLC Legal Audit - LLC Operations Manual

Forming an LLC is the easy. It’s the operational aspect of owning an LLC that people frequently underestimate. In forming 9,000+ Arizona LLCs we’ve learned the most common i’s and t’s that people fail to dot and cross.

The purposes of this LLC Legal Audit are to: (i) alert you to important tasks that need to be accomplished, and (ii) explain how to accomplish each task. The audit is dynamic, which means that it is divided into sections that may or may not apply to your LLC. The audit questions depend on which sections you select.

The audit has the following sections:

Newly Formed LLC: For an LLC created within the last year.
Real Estate LLC: For an LLC that owns or will own real estate.
Insurance Coverage: A review of the types of insurance policies LLCs should have.
LLC Loans: For an LLC that has borrowed or loaned money.
Multi-Member LLCs: For an LLC with two or more members who are not married to each other.
LLCs with Employees: For an LLC that has or will have an employee.
LLCs with Independent Contractors: For an LLC that has an independent contractor.
Member Capital Contributions: For an LLC that has a member that has or will contribute money or property to the LLC.
Arizona Sales Taxes: For an LLC that is involved or will be involved with one or more of the following activities: retail sales, restaurants/bars, hotel/motel (transient lodging), commercial lease, amusements, personal property rentals, contracting, severance (metal mining), transporting, nonmetal mining, job printing, publishing, utilities, communications, and private (rail) car.
Intellectual Property: For an LLC that has a trademark, service mark, copyright-able work, domain name or website.

The audit is easy. All you do is answer a series of questions then click on the “submit” button at the end of the Audit Questionnaire. You can save your answers and return later by clicking on the “Save and Continue Later” text at the end of the Audit Questionnaire. We encourage you to take the audit now and every six months to make sure over time that all of your LLC bases are covered.

Begin LLC Legal Audit

Arizona Limited Liability Company Legal Audit*
- This Questionnaire contains the answers to questions about the formation and operation of the LLC named below. Throughout this audit questionnaire you will see Alerts and Tasks that are generated based on the answers given to the audit questions. Alerts give you information about legal issues. Tasks are tasks that the LLC should accomplish as soon as possible. KEYTLaw, LLC and its attorneys are not responsible for accomplishing any Task unless hired to do so in a separate written agreement. Copyright © 2016 - 2019, Richard Keyt
Date of this LLC Audit*
MM slash DD slash YYYY
Name of the LLC Being Audited*
What is the exact legal name of your LLC or PLLC?
LLC Audit Content*
This audit questionnaire is divided into sections. If you want the complete audit, check every box. If you do not the complete audit, check only the boxes that correspond to the areas you want to audit.
- Newly Formed LLC: For an LLC created within the last year.
- Real Estate LLC: For an LLC that owns or will own real estate.
- Insurance Coverage: A review of the types of insurance policies LLCs should have.
- LLC Loans: For an LLC that has borrowed or loaned money.
- Multi-Member LLCs: For an LLC with two or more members who are not married to each other.
- LLCs with Employees: For an LLC that has or will have an employee.
- LLCs with Independent Contractors: For an LLC that has an independent contractor.
- Member Capital Contributions: For an LLC that has a member that has or will contribute money or property to the LLC.
- Arizona Sales Taxes: For an LLC that is involved or will be involved with one or more of the following activities: retail sales, restaurants/bars, hotel/motel (transient lodging), commercial lease, amusements, personal property rentals, contracting, severance (metal mining), transporting, nonmetal mining, job printing, publishing, utilities, communications, and private (rail) car.
- Intellectual Property: For an LLC that has a trademark, service mark, copyrightable work, domain name or website.
Name of the Person Completing this Questionnaire*
Address of the Person Completing this Questionnaire*
Street Address Address Line 2 City State / Province / Region ZIP / Postal Code Country
Phone Number of Person Completing this Questionnaire*
Email Audit the Report to this Email Address*
Enter the email address of the person to whom we are to email the completed Audit Report when the Submit button is clicked.
Enter Email Confirm Email
LLC Information
How to Check Your LLC's Information on File with the Arizona Corporation Commission*
- The questions in this section concern legal issues related to the LLC's formation and information on file with the Arizona Corporation Commission. Before answering the questions in this Section go to the ACC's entity database to search for your LLC and gather the information needed to answer questions about your LLC.
Number of Members*
How many members does the LLC have?
- The LLC has one member
- The LLC has only two members who are married to each other
- The LLC has two or more members who are not married to each other
Member Status*
Select the statement that applies to your LLC.
- No member of the LLC is a person
- All members who are married people are residents of Arizona.
- At least one member is a married resident of Arizona and one or more other members is a married person who is a resident of California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin.
- No married member is a resident of Arizona and one or more other members is a married person who is a resident of California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin.
- None of the above
Who Formed Your LLC*
- KEYTLaw, LLC
- Somebody other than KEYTLaw, LLC
LLC Formation Package*
Which LLC formation package did you purchase?
- Bronze
- Silver
- Gold
- IRA LLC
Type of Management*
Is the LLC's management type member manager managed or member managed? If you are not sure the LLC's Articles of Organization states the type of management.
- The LLC's Articles of Organization state that the LLC is manager managed.
- The LLC's Articles of Organization state that the LLC is member managed.
Arizona Corporation Commission Information
How to Correct Mistakes on the ACC's Website*
- Before answering the questions in this Section go to the ACC's entity database to search for your LLC and gather the information needed to answer questions about your LLC.
  If any information displayed on the ACC's website for the LLC is incorrect, but correctly stated in the LLC's Articles of Organization filed with the ACC you correct the error by calling the ACC at 602-542-3026 and pointing out the typo on the website.
  If information on the website is incorrect or missing, select the appropriate radio buttons below to get instructions on how to correct the mistake(s).
Good Standing*
Is the LLC in good standing with the Arizona Corporation Commission? Click on this link to go to the ACC's entity database and check the information on file for your LLC. When you find your LLC click on the icon on the middle right of the ACC's web page that says "Check Corporate Status." Does the ACC say the LLC is in good status?
- Yes. The Arizona Corporation Commission's website shows that the LLC is in good standing as of the date of this audit report.
- No. The Arizona Corporation Commission says the LLC is not in good standing as of the date of this audit report.
***Task*** Reinstate the LLC to Good Standing*
- If the LLC is not in good standing the problem that caused the LLC to be in "bad" standing must be corrected immediately. If the problem is not corrected the Arizona Corporation Commission will dissolve the LLC.
  If the problem is the LLC does not have a statutory agent then the LLC must appoint a new statutory agent by filing a Change of Statutory Agent form. To appoint a new statutory agent the LLC must complete and file the following documents with the ACC: (i) LLC Statement of Change of Principal Address or Statutory Agent form and (ii) Statutory Agent Acceptance form.
  If the problem is the LLC does not have a principal address the LLC must file a LLC Statement of Change of Principal Address or Statutory Agent form to update its principal address.
  Each of these forms must be accompanied by an ACC coversheet.
Principal Address*
Is the company's principal address displayed on the ACC's website correct?
- Yes. The company's principal address displayed on the Arizona Corporation Commission's website is correct.
- No. The company's principal address displayed on the Arizona Corporation Commission's website is not correct. The LLC must file a change of address form with the ACC.
***Task*** Correct the Company's Principal Address
- If the company's principal address shown on the ACC's website is not correct you must file the ACC's LLC Statement of Change of Principal Address or Statutory Agent form to correct the LLC's principal address on file with the ACC. The form must be accompanied by an ACC coversheet.
Statutory Agent's Name
Is the LLC's statutory agent displayed on the Arizona Corporation Commission's website correct?
- Yes. The LLC's statutory agent displayed on the Arizona Corporation Commission's website is correct
- Yes. The LLC's domestic address displayed on the Arizona Corporation Commission's website is correct, but the LLC wants to appoint a new statutory agent.
- No. The LLC's statutory agent displayed on the Arizona Corporation Commission's website is not correct. The LLC must file a form with the ACC to change the statutory agent's address if it is not correct and/or the LLC must file a form with the ACC to appoint a new statutory agent for the LLC.
Hire KEYTLaw, LLC as Statutory Agent
Do you want to hire KEYTLaw, LLC, to be the LLC's statutory agent for $99/year?
- Yes
- No
How to Hire KEYTLaw, LLC, to be Statutory Agent
- To hire KEYTLaw, LLC, to be the statutory agent for your LLC complete and submit our Statutory Agent Questionnaire. Pay with your major credit card in our secure online payment page: (i) $99 for statutory agent service, or (ii) $199 for statutory agent & address service.
***Task*** Appoint a New Statutory Agent
- If the statutory agent name or address is incorrect, you must correct it by preparing and filing with the ACC its LLC Statement of Change of Principal Address or Statutory Agent form. If you need to replace the statutory agent then the new statutory agent must prepare, sign and file ACC's Statutory Agent Acceptance form. The form must be accompanied by ACC coversheet.
Statutory Agent Address*
Is the statutory agent's address displayed on the ACC''s website correct?
- Yes. The address of the LLC's statutory agent displayed on the Arizona Corporation Commission's website is correct.
- No. The address of the LLC's statutory agent displayed on the Arizona Corporation Commission's website is not correct. The LLC must file a form with the ACC to change the statutory agent's address if it is not correct and/or the LLC must file a form with the ACC to appoint a new statutory agent for the LLC.
***Task*** Correct the Statutory Agent's Address
- If the statutory agent's address is incorrect, you must correct it by preparing and filing with the ACC an LLC Statement of Change of Principal Address or Statutory Agent form. The form must be accompanied by an ACC coversheet.
In What County is the Company's Statutory Agent's Address?*
- Maricopa County or Pima County
- A county other than Maricopa County or Pima County
Newspaper Publication Not Required*
- Because your company's statutory agents' street address is in Maricopa County or Pima County newspaper publication is not required.
Newspaper Publication Requirement*
- Within sixty days after the ACC files the Articles of Organization the company or its agent must publish a notice of the filing of the Articles in a newspaper of general circulation in the county of the statutory agent’s street address for three consecutive publications. See list of ACC approved newspapers. The publish must contain the information required in Arizona Revised Section 29-3201.B.
Did the Company Satisfy the Newspaper Publication Requirement?*
- Yes. The LLC published the required information within 60 days of the date the Arizona Corporation Commission approved the Articles of Organization.
- No. The LLC did not publish the required information within 60 days of the date the Arizona Corporation Commission approved the Articles of Organization.
***Task*** Publish a Notice of Publication*
- Arizona's LLC law does not provide a penalty if the company does not satisfy the publication requirement. Although Arizona's LLC law is silent, we recommend that the company publish the required information if it failed to do so within the sixty day required period because if a court is ever asked to rule on the failure to publish you can argue that it is better to publish late than never publish.
Affidavit of Publication*
When you publish in a newspaper the newspaper will send to the person who submitted the Notice a document called an "Affidavit of Publication." Does your LLC have this document in its records? Is should because this document is your proof of publication.
- Yes. The LLC has a copy of the Affidavit of Publication.
- No. The LLC does not have a copy of the Affidavit of Publication.
***Task*** Get an Affidavit of Publication
- Contact the newspaper that published the Notice of Publication and get a copy of this document. Publication is required by Arizona LLC law so the LLC needs this important document to prove it complied with the law.
ACC's Website Shows Publication*
Does the ACC show a date after the text "Original Publication Date"? To check the publication date go to the ACC's entity database and search for your LLC.
- Yes. The Arizona Corporation Commission's website shows a date after the text "Original Publication Date."
- No. The Arizona Corporation Commission's website does not show a date after the text "Original Publication Date."
***Task*** Correct ACC's Website's Failure to Show Publication*
- If the ACC's website does not show that the company satisfied its newspaper publication requirement and it did, in fact, publish and you have the affidavit of publication, call the ACC at 602-542-3026 and ask the clerk if the ACC has a record of the affidavit of publication. If it does, ask the clerk to add the publication date to the LLC's record displayed on the ACC's website. If the ACC does not have a copy of the affidavit of publication, ask the clerk how you can deliver a copy of the affidavit of publication to the ACC so the publication date will be displayed on the ACC's website.
LLC Formation Documents
Articles of Organization*
Do the members and managers of the LLC have a copy of the Articles of Organization that were filed with the Arizona Corporation Commission? The ACC's approved stamp will be on the top of the first page?
- Yes. All members have a copy of the Articles of Organization.
- No. Not all members have a copy of the Articles of Organization.
Articles of Organization on the Web*
- If you do not have a copy of the LLC's Articles of Organization approved by the Arizona Corporation and stamped with the ACC's stamp and file number on the top of the first page, then search for the LLC in the ACC's entity database and download a copy of the approved Articles of Organization.
***Task*** Give Members a Copy of Articles of Organization
- Every member of the LLC should have a copy of the LLC's Articles of Organization Articles of Organization. From time to time third parties may ask for a copy of the Articles. If all members do not have a copy then members who have a copy should give a copy to all members who do not have a copy of this document.
Operating Agreement*
Have all of the members of the LLC signed an Operating Agreement? It is very important that all members of the LLC sign a "good" Operating Agreement drafted specifically for an Arizona LLC.
- Yes. All members of the LLC have signed an Operating Agreement.
- No. The LLC has an Operating Agreement, but all members of the LLC have not yet signed it.
- The LLC does not have an Operating Agreement.
***Task*** Get Members to Sign Operating Agreement
- You should immediately arrange for all of the members of the LLC to sign the Operating Agreement.
***Alert*** Operating Agreement Importance*
- Not only does a good Operating Agreement state the names of each member, percentage of the LLC owned by each member and if any members are required to contribute money and/or property to the LLC, it also sets the rules for how the LLC will be governed.
  We prepare custom Operating Agreements for $247 for a single member LLC or an LLC owned by a married couple, $497 for multi-member LLCs and $897 for multi-member LLCs when the members want to pick and chose 30+ clauses to include or omit from the agreement. To hire us to prepare a custom Operating Agreement for an Arizona LLC complete our Operating Agreement preparation questionnaire. Our service includes 1/2 hour of attorney time to answer questions and modify the Operating Agreement).
Members' Copy of the Operating Agreement*
Does each member of the LLC have a copy of the signed Operating Agreement? If not, make sure every member gets a signed copy of the Operating Agreement.
- Yes. Every member of the LLC has a copy of the Operating Agreement.
- No. Not every member of the LLC has a copy of the Operating Agreement.
- Don't know if all the members have a signed copy of the Operating Agreement.
***Task*** Give Members a Copy of Signed Operating Agreement
- Every member must have a copy of the Operating Agreement signed by all of the members. Arrange to give every member of the LLC a copy of the fully signed Operating Agreement.
Manager Signed Operating Agreement*
Have all managers signed the Operating Agreement?
- Yes. All managers of the LLC have signed the Operating Agreement.
- No. All managers of the LLC have not yet signed the Operating Agreement.
***Task*** Get Manager to Sign Operating Agreement
- If a manager does not sign the Operating Agreement the manager is not bound to comply with obligations of the manager set forth in the Agreement. The Operating Agreement should contain provisions that state the duties of managers. You want the managers to be legally obligated to satisfy the manager's obligations stated in the Operating Agreement, which means all managers must sign the Operating Agreement.
Manager's Copy of the Operating Agreement*
Does each manager of the LLC have a copy of the signed Operating Agreement? If not, make sure every manager gets a signed copy of the Operating Agreement.
- Yes. Every manager of the LLC has a copy of the Operating Agreement.
- No. Not every manager of the LLC has a copy of the Operating Agreement.
- Don't know if all the managers have a signed copy of the Operating Agreement.
***Task*** Give Managers a Copy of Operating Agreement
- Every manager must have a copy of the Operating Agreement signed by all of the members and managers. Arrange to give every manager of the LLC a copy of the fully signed Operating Agreement.
Membership Percentages*
Does the Operating Agreement state the membership (ownership) percentage of every member?
- Yes. The Operating Agreement correctly states the percentage ownership of every member.
- No. The Operating Agreement does not correctly state the percentage ownership of every member.
***Alert*** Correct Membership Percentages in Operating Agreement*
- Because the Operating Agreement does not correctly state the percentage membership of all members, it is imperative that the Operating Agreement be corrected and that all members sign the amended and corrected Operating Agreement. Call KEYTLaw LLC attorney Richard C. Keyt at 480-664-7472 to hire him to amend your Operating Agreement.
Resolutions Signed by All Members*
Have all the members of the LLC signed the organizational resolutions?
- Yes. All members have signed the organizational resolutions contained in the LLC portfolio.
- No. All members have not yet signed the organizational resolutions contained in the LLC portfolio.
***Task*** Get All Members to Sign Resolutions
- The organizational resolutions are not legally effective unless all members sign the document. Arrange for all members to sign the organizational resolutions.
Resolutions Given to Members*
Have all members received a copy of the resolutions signed by all of the members?
- Yes. All members received a copy of the resolutions signed by all of the members.
- No. All members have not yet received a copy of the resolutions signed by all of the members
***Task*** Give Resolutions to Members
- All members must be given a copy of the resolutions signed by all of the members. Arrange for all the members to get a copy of the signed resolutions.
Membership Certificates*
Has the manager signed all the membership certificates, made copies for the LLC's records and distributed the original certificate to each member?
- Yes. A manager signed all of the membership certificates.
- No. A manager has not yet signed all of the membership certificates.
***Task*** Get Manager to Sign Membership Certificates
- There is a tab in the LLC's red portfolio called "Membership Certificates." Arrange for a manager of the LLC to sign each membership certificate.
Membership Certificates Given to Members
Has the LLC given each member the member's membership certificate signed by a manager?
- Yes. The LLC has given each member the member's membership certificate signed by a manager.
- No. The LLC has not yet given each member the member's membership certificate signed by a manager.
***Task*** Give Membership Certificates to Members
- Give each member the member's membership certificate signed by the manager.
Required LLC Records*
Does the LLC maintain the records Arizona LLC law requires all Arizona LLCs to maintain?
- Yes. The LLC maintains all of the records Arizona LLC law requires it to maintain and all members can inspect and get a copy of the records.
- No. The LLC does not maintain all of the records Arizona LLC law requires it to maintain.
- I do not know what records LLC law requires the to maintain.
***Alert*** Required LLC Records*
- All Arizona LLCs must keep the following records and allow all members to inspect and copy the records:
  1. A current list of the full name and last known business, residence or mailing address of each member.
  2. A copy of the initial articles of organization and all amendments.
  3. Copies of all written operating agreements and all amendments to the agreements, including any prior written operating agreements no longer in effect.
  4. Copies of any written document in which any member promises to contribute capital to the LLC.
  5. Copies of the limited liability company’s federal, state and local income tax returns and reports, if any, for the three most recent years.
  6. Copies of any financial statements of the limited liability company for the three most recent years.
Manager Information
Managers
Does the ACC's website correctly list the name of EVERY manager of the LLC? If not then you must amend the Articles of Organization to add or remove managers and correct the error(s).
- Yes. The ACC's website correctly names every manager of the LLC.
- No. The ACC's website does not correctly name every manager of the LLC.
***Alert*** Managers*
- Arizona LLC law requires that the LLC's Articles of Organization filed with the Arizona Corporation Commission state the name of all managers of the LLC. If a person or entity is incorrectly named as a manager on the ACC's website or if a person or entity who is a manager is not named on the ACC's website then a manager of the LLC must prepare and file the ACC's Articles of Amendment form to correct the error(s). The form must be accompanied by an ACC coversheet.
Managers Address
Does the Arizona Corporation Commission's website correctly show the address of EVERY manager of the LLC? If not then you must file a change of address form with the ACC to correct the error(s). The address can be a home or business address or a U.S. post office box or UPS store mailbox.
- Yes. The ACC's website shows the correct address of every manager.
- No. The ACC's website does not show the correct address of every manager.
***Task*** Correct Managers Address*
- Arizona LLC law requires that the LLC's Articles of Organization filed with the Arizona Corporation Commission state the address of all managers of the LLC. If a manager's address on the ACC's website is incorrect, then a manager of the LLC must prepare and file a Statement of Change of Manager or Member Addresses form to correct the error(s). The form must be accompanied by an ACC coversheet.
Manager Change
Do you want to add a new manager or remove a current manager?
- Yes. The LLC wants to add one or more new managers and/or remove one or more existing managers.
- No. The LLC does not want to change any manager.
***Alert*** How to Add or Remove Managers*
- Arizona LLC law provides the following rules for electing a new manager:
  1. If the members signed an Operating Agreement, a manager shall be designated or elected and may be removed or replaced in the manner provided in an operating agreement.
  2.If there is no Operating Agreement and all managers have resigned or ceased to be managers one or more new managers must be elected by a majority of the members. For example, if there are three members, a husband and wife and a third person, a majority is 2. If there are four members, a majority is 3.
  If neither of the above situation applies Arizona LLC law is silent on how to add one or more managers. Arizona LLC law is also silent on how to remove a manager if there is no procedure set forth in the Operating Agreement. Bottom line : If the LLC wants to add or remove a manager the best practice is for the members to vote on the addition or removal and to document the members' vote in a resolution signed by the members.
  After the addition or removal of a manager has been properly approved, a manager must file the ACC's Articles of Amendment form to reflect all member and manager changes. The form must be accompanied by an ACC coversheet.
Member Information
Members of a Member Managed LLC*
Does the Arizona Corporation Commission's website show the name of EVERY member of the LLC? Arizona LLC law requires that the name of every member of a member managed LLC be contained in the Articles of Organization.
- Yes. The Arizona Corporation Commission's website correctly shows the name and address of every member of the LLC.
- No. The Arizona Corporation Commission's website does not correctly show the name and address of every member of the LLC.
Members of a Manager Managed LLC*
Does the Arizona Corporation Commission's website show the name of EVERY member of the LLC who owns 20% or more of the membership interests in the LLC? Arizona LLC law requires that the name of every member who owns 20% or more of the LLC be contained in the Articles of Organization.
- Yes. The Arizona Corporation Commission's website correctly shows the name and address of every member of the LLC that owns 20% or more of the LLC.
- No. The Arizona Corporation Commission's website does not correctly show the name and address of every member of the LLC that owns 20% or more of the LLC.
***Task*** Correct an Incorrect Member Listing
- If the Arizona Corporation Commission's website displays the name of a person or entity that is not a member or if it fails to correctly show the name(s) of all members a member of a member managed LLC or a manager of a manager managed LLC must file a ACC's Amendment to the Articles of Organization form to correct the error(s). The form must be accompanied by an ACC coversheet.
Member's Address
Does the Arizona Corporation Commission's website display the correct address for every member? The address can be a home or business address or a U.S. post office box or UPS store mailbox.
- Yes. The Arizona Corporation Commission's website displays the correct address of every member.
- No. The Arizona Corporation Commission's website does not display the correct address of every member.
***Task*** Correct a Member's Address
- If the address of a member on file with the Arizona Corporation Commission is not correct a member of a member managed LLC or a manager of a manager managed LLC must file a ACC's LLC Change of Address form to correct the member's address on file with the ACC. The form must be accompanied by an ACC coversheet.
Former Members
Are there any former members of the LLC?
- Yes. There is at least one former member who is no longer a member of the LLC.
- No. There are no former members of the LLC.
Former Member Transfer Documents
Did the former member(s) sign a document by which the member assigned ownership of the member's membership interest as of a specific date?
- Yes. All former members signed a document that transferred ownership of the member's membership interest to the LLC or one or more transferees as of a specified date.
- No. Not all former members signed a document that transferred ownership of the member's membership interest to the LLC or one or more transferees as of a specified date.
***Alert*** Former Member Transfer Documents
- Membership interests in LLCs do not transfer magically from a member by osmosis or transmutation to another person or entity. The former member must sign a document that states the former member transfers a specified percentage of the LLC to the person or entity that receives the membership interest. Purchase Richard Keyt's Assignment of Membership Interest Agreement for $97. This form is in editable Word format so you can modify it to transfer a membership interest from a former member to a new member.
Former Member Removed from Operating Agreement
Did the LLC amend its Operating Agreement to remove all former members as parties to the Agreement.
- Yes. The LLC amended its Operating Agreement to remove all former members as parties to the Agreement.
- No. The LLC has not amended its Operating Agreement to remove all former members as parties to the Agreement.
***Task*** Remove all Former Members from the Operating Agreement
- All former members must be removed as parties to the Operating Agreement. The only way to remove a former member is to have all current members sign an amended Operating Agreement that removes all former members as members and signers. Purchase Richard Keyt's Amendment to Operating Agreement for $47. This form is in editable Word format so you can modify it for your specific former member situation.
Individual Members*
Does the LLC have at least one member who is a person who is an Arizona resident?
- Yes. The LLC has at least one member who is a person who is an Arizona resident.
- No. The LLC does not have a member who is person who is an Arizona resident.
Who Inherits Member's Interest in the LLC?*
Have all people who are members signed a Will that provides who inherits their membership interest in the LLC if the person were to die?
- Yes. All people who are members have signed a Will that specifies who will inherit the person's membership interest in the LLC if the person were to die.
- No. All people who are members have not yet signed a Will that specifies who will inherit the person's membership interest in the LLC if the person were to die.
- Don't know.
***Alert*** Who Inherits Membership Interest Importance
- Every member must plan ahead for death because: (i) it is inevitable, and (ii) to make sure that the membership interest is inherited by the member's desired heirs rather than the heirs selected by the state of the member's residence. Planning means signing a Will the provides for who inherits the membership interest or signing a Transfer of Membership Interest Testament. The problem with a Will is it may require the family to do a probate for $2,000+ and five or more months. The Transfer of Membership Interest Testament causes the membership interest to pass automatically after death without the need for a probate.
  Purchase Richard Keyt's $97 Transfer of Membership Interest Testament in editable Word format from Richard's legal forms website called Keyt Forms.
Capital Contributions
***Alert*** Members' Capital Contributions*
- A capital contribution is a payment of money or a contribution of property to the company that does not obligate the LLC to repay the money or property. Arizona LLC law states that no member of an Arizona LLC is legally obligated to pay money or contribute property to the LLC unless the member agreed to do so in writing. The most common way to obligate a member to make a capital contribution is to include appropriate language in the Operating Agreement signed by the member.
Written Agreement to Contribute Capital
Have all members who are to contribute money or property to the LLC signed a written document in which the member promises to make the contribution by a specified date?
- Yes. All members who are to contribute money or property to the LLC signed a written document in which the member promises to make the contribution by a specified date.
- No. All members who are to contribute money or property to the LLC have not yet signed a written document in which the member promises to make the contribution by a specified date.
***Task*** Get Member(s) to Sign Agreement to Contribute Capital
- If the LLC wants any member to be legally obligated to contribute money or property to the LLC the LLC must get the member to sign a document in which the member promises to contribute the money or property on or before a specified date. The best way to document the obligation to make a capital contribution is to put appropriate language in the Operating Agreement.
Capital Contributions Paid?
Have all members who agreed to pay money or property to the LLC paid the money or transferred the property to the LLC?
- Yes. All members who agreed to pay money or property to the LLC paid the money or transferred the property to the LLC.
- No. All members who agreed to pay money or property to the LLC have not yet paid the money or transferred the property to the LLC.
***Task*** Cure a Capital Contribution Default
- If a member promised in writing to contribute money or property to the LLC and failed to do so, the LLC should send a certified mail, return receipt requested letter to the defaulting member and demand payment within a reasonable period or time or the LLC will sue the defaulting member to collect the debt.
Capital Contribution of Property*
Has any member contributed property (not money) such as real estate to the LLC or will any member contribute property?
- Yes. At least one member contributed or will contribute property (not money) to the LLC.
- No. No members have contributed or will contribute property (not money) to the LLC.
***Task*** Document Capital Contributions*
- If a member contributes property to the LLC, the contributing member and the LLC should sign a document in which they agree on the value of the property at the time of the contribution and how much of that value will be credited to the member's capital account if the LLC is taxed as a partnership.
Loans
Loans Documented?*
Has every loan of money in which the LLC is the borrower or lender been documented by: (i) the borrower signing a promissory note in favor of the lender that evidences the loan and that states the repayment terms, and interest rate, if any.
- Yes. Every loan of money in which the LLC is a borrower or lender is evidenced by a promissory note signed by the borrower that states the repayment terms and the interest rate, if any.
- No. Every loan of money in which the LLC is a borrower or lender is not yet evidenced by a promissory note signed by the borrower that states the repayment terms and the interest rate, if any.
***Task*** Document All Loans
- The borrower must sign a promissory note and deliver it to the party that loans money. It is particularly important to properly document loans between the LLC and its members for three reasons: (i) to prevent the IRS from re-characterizing the loan as a capital contribution, (ii) to prevent a creditor from having a priority to collect money before a member because the loan is re-characterized as a capital contribution that gets repaid after all creditors of the LLC are paid, and (iii) if the LLC has multiple members who are not married to each other a signed promissory note eliminates or reduces arguments among the members over the loan's terms.
  If you need to document a loan purchase a Promissory Note and Borrowing Resolution in editable Word format from Keyt Forms.
Member Loan Approvals
Have the members approved all loans in which the LLC is a borrower or lender and signed a resolution that evidences the members' approval?
- Yes. All loans in which the LLC is a borrower or a lender have been approved by the members and the members have signed resolutions approving the loans.
- No. All loans in which the LLC is a borrower or a lender have not yet been approved by the members and the members have not yet signed resolutions approving the loans.
***Task*** Get Members to Approve Loans*
- The Operating Agreement signed by all of the members may set forth procedures for how a member loan is approved. If so, make sure that the loan rules in the Operating Agreement are followed to the T. Unless the Operating Agreement provides otherwise, all loans should be approved by the members in one of the following two ways: (1) a meeting of the members is properly noticed and called and the required number of members approve the loan and its terms at the meeting, or (2) the required number of members in lieu of holding a meeting sign a resolution approving the loan and its terms.
  Purchase a Borrowing Resolution in editable Word format from Keyt Forms for $27..
Loans in Default
Is the LLC the lender on any loans that are in default?
- Yes. The LLC is the lender in at least one loan that is in default.
- No. The LLC is not the lender in any loan that is in default.
***Task*** Send Demand Letter to Borrower
- If the LLC is the lender on any loan that is in default, the LLC should send a demand for payment letter to the borrower by certified mail, return receipt requested. If the borrower does not bring the loan current the person or people managing the LLC may have a fiduciary duty to take legal action to enforce collection of the loan.
Separate Property vs. Community Property
***Alert*** Married Members Who are Arizona Residents*
- Arizona is a community property state. This means that when an Arizona resident who is married acquires a membership interest in an LLC both spouses automatically own the interest in the LLC as community property EVEN IF ONE SPOUSE IS NOT NAMED IN THE ARTICLES OF ORGANIZATION OR THE OPERATING AGREEMENT unless the membership interest was acquired by the spouse as a gift or by inheritance.
  If a married member who is an Arizona resident is named in the Articles of Organization and his or her spouse is not named in the Articles of Organization as a member then the answer to the question "Are All Members Listed in the ACC's website is No unless one of the following applies to that married member:
  1. The member acquired his or her interest in the LLC before the member was married.
  2. The member was married at the time the member acquired the interest in the LLC and the interest in the LLC was acquired as a gift or from an inheritance.
  3. The member was married at the time the member acquired the interest in the LLC and the spouse of the member signed a disclaimer by which the non-member spouse acknowledged that the member owns the interest in the LLC as separate property.
Community Property States
- The states that have community property for married residents are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin.
Separate Property Members
- Yes. At least one member who is married and a resident of a community property state wants to own his or her membership interest in the LLC as separate property.
- No member who is married and a resident of a community property state wants to own his or her membership interest in the LLC as separate property.
Separate Property Disclaimer*
If any member of the LLC is an Arizona resident who is to own his or her interest in the LLC as separate property has that member's non-owner spouse signed a Disclaimer and given a copy to the other members of the LLC for their records?
- All non-owner spouses of married members who desire to own their membership interests in the LLC as separate property have signed a Disclaimer.
- At least one non-owner spouse of a married member who desires to own his or her membership interest in the LLC as separate property has not signed a Disclaimer.
***Task*** Get Non-owner Spouse to Sign a Disclaimer
- All married members who are Arizona residents who want to own their LLC interest as separate property must get the non-owner spouse to sign a Disclaimer. If any married member needs a Disclaimer form for his or her spouse to sign go to our forms website and purchase an editable Disclaimer form in Word format for $47.
***Task*** Get Non-owner Spouse to Sign a Disclaimer
- We prepared a Disclaimer for every Arizona resident who intends to own his or her membership interest in the LLC as separate property. The Disclaimer we prepared is located at the end of the Operating Agreement. Arrange for all non-owner spouses to sign his or her Disclaimer.
Multi-Member LLCs
Buy Sell Agreement
Have all the members signed a Buy Sell Agreement that contains the members' exit strategy in the event of death, disability, breach of the Operating Agreement, termination of employment and other triggering events. What happens the membership interest of a member who dies?
- Yes. All the members have signed an agreement that contains buy-sell provisions and the members' exit strategy.
- No. All the members have not yet signed an agreement that contains buy-sell provisions and the members' exit strategy.
***Alert*** Buy Sell Agreement
- To learn more about Buy Sell Agreements and why all multi-member LLCs should sign a Buy Sell Agreement read Richard Keyt's article called A Multi-Member LLC’s Most Important Document. To hire Richard to prepare a Buy Sell Agreement follow the instructions under the section in the article called "Buy Sell Agreement Preparation Service" or call Richard at 480-664-7478.
Buy Sell Agreement Discount
- Note: Save $600 by purchasing your Buy Sell Agreement within 120 days of the date we formed your LLC for $897. After 120 days, the price for a Buy Sell Agreement increases to $1,497.
  To hire Richard to prepare a Buy Sell Agreement: (i) complete our Buy Sell Agreement Questionnaire; and (ii) go to our secure web order form and pay with your major credit card. You may also call Richard Keyt at 480-664-7478 and give him your information over the phone.
***Task*** Purchase a Buy-Sell Agreement
- To hire Richard to prepare a Buy Sell Agreement for $1,497: (i) complete our Buy Sell Agreement Questionnaire; and (ii) go to our secure web order form and pay with your major credit card. You may also call Richard Keyt at 480-664-7478 and give him your information over the phone.
Member Meeting Minutes
- Although Arizona LLC law does not require members of an Arizona LLC to hold meetings, LLC attorney Richard Keyt strongly recommends that all multi-member LLCs have meetings of members to approve major actions taken by the LLC.
Member Meetings
Has the LLC held meetings of the members to approve major actions taken by the LLC?
- Yes. The members of the LLC have held meetings to vote on and approve all major actions of the LLC
- No. The members of the LLC have not held meetings to vote on and approve all major actions of the LLC
***Alert*** Member Meetings
- The most common cause of member disputes is caused by the LLC taking action without the prior knowledge of the members. We recommend that all multi-member LLCs call a meeting of the members to discuss all proposed major actions and that the members vote to take or not take the action. It is imperative that meetings and votes of members be documented with minutes or resolutions signed by the members so the members will have a record as to what was approved by the members.
  Purchase minutes and resolutions forms in editable Word format from our Keyt Forms website.
Tasks for Newly Formed LLCs
The following questions concern actions the company and/or its members may have taken shortly after the formation of the LLC.
Employer ID Number*
Does the LLC have an employer ID number (EIN) issued by the IRS?
- Yes. The LLC has an IRS issued Employer Identification Number (EIN).
- No The LLC has not yet obtained an Employer Identification Number (EIN) from the IRS.
***Task*** Get an Employer ID Number*
- Get an Employer ID Number (EIN) in 5 minutes from the IRS using its online wizard located at IRS EIN wizard .
Bank Account*
Has the LLC opened a bank account is its name?
- Yes. The LLC opened a bank account.
- No. The LLC does not have a bank account.
***Task*** Open a Bank Account
Why it is critically important for the LLC to have a bank account.
- If the LLC does not have a its own bank account into which it deposits its income and from which it pays its expenses a court may pierce the company veil and hold the member(s) liable for the LLC's debts and obligations.
Bookkeeping*
Has the LLC set up QuickBooks or another bookkeeping system?
- Yes. The LLC has configured and is using QuickBooks or another bookkeeping system.
- No. The LLC is not yet using QuickBooks or another bookkeeping system.
***Task*** Set Up the LLC's Bookkeeping System
- If your LLC has income and expenses it must have a good bookkeeping system. We highly recommend QuickBooks, which we have used for 15+ years. It is business malpractice to fail to adopt a good bookkeeping system. Most accountants will either do your books or help you set up QuickBooks for your LLC. We recommend you hire CPA for Hire, P.C., to set up its cloud version of QuickBooks. We've used CPA for Hire many years and they do a great job. It is located at 33755 North Scottsdale Road #130, Scottsdale, Arizona 85266; Phone 480-437-9022; email: [email protected].
Tax Accountant*
Has a member consulted with a CPA or tax accountant to determine if the LLC should be taxed as a: (i) sole proprietorship / disregarded entity, (ii) partnership (iii) C corporation, or (iv) an S corporation. If we formed your LLC and you purchased our Silver or Gold package, see your Arizona LLC Operations Manual for a detailed discussion on the four ways an LLC can be taxed.
- Yes. The member(s) have consulted with a tax accountant for advice on which of the four LLC tax methods is best.
- No. The members have not yet consulted with a tax accountant.
***Task*** Consult with a Tax Accountant
- There are two very important reasons all LLC owners should consult with a tax accountant as soon as possible after forming the LLC, but not later than 74 days after the LLC's formation date. The reasons are: (1) to set up the LLC's books or help setting up the LLC's books, and (2) to get the accountant's advice on the best tax method for the LLC. If the LLC's tax advisor recommends the LLC be taxed as an S corporation its members must complete, sign and file an IRS Form 2553 with the IRS.
S Corporation Tax Method*
Do you want the LLC to be taxed as an S corporation or is S corporation taxation a possibility?
- Yes. I want the LLC to be taxed as an S corporation, but have not yet filed an IRS Form 2553 with the IRS.
- The members of the LLC have already filed an IRS Form 2553 with the IRS.
- Not sure if the LLC should be taxed as an S corporation.
- No. The members are not interested in having the LLC be taxed as an S corporation.
***Alert*** S Corporation Tax Election
- If the best tax method is S corporation all of the members must prepare, sign and file an IRS Form 2553 with the IRS not later than 75 days after the date the LLC was formed. See the Instructions for IRS Form 2553. If you miss the deadline you accountant can assist you in making a late S corporation election. If the members fail to elect S corporation status for the LLC's first year, the members can make the S election by filing IRS Form 2553 with the IRS the first 2.5 months of each calendar year.
Real Estate LLCs
Real Estate*
Does the LLC own any real estate in Arizona?
- Yes. The LLC owns one or more parcels or Arizona real estate.
- No. The LLC does not currently own any Arizona real estate, but it intends to acquire real estate in the near future.
Deed Recorded*
Did the prior owner(s) of the real estate sign a deed that conveyed the land to the LLC and was that deed recorded in the county in which the real property is located?
- Yes. The prior owner(s) of the real estate signed a deed that conveyed the land to the LLC and the deed was recorded in the county in which the real property is located.
- No. The current owner(s) of the real estate have not yet signed a deed that conveys the land to the LLC.
- No. The former owner(s) signed a deed that conveys the land to the LLC, but the deed has not yet been recorded in the county in which land is located.
***Task*** Get Signed Deed
- The LLC must arrange for the current owner(s) of the real estate to sign a deed that conveys the land to the LLC. The deed should not be a Quit Claim Deed because it will void the title insurance policy. The deed should be a Special Warranty Deed.
***Task*** Record the Deed
- The LLC must cause the deed to be recorded in the county in which the land is located. There are too many bad things that can happen to list here.
Real Estate Title Insurance*
Does the LLC have title insurance insuring that it has good title to its real estate?
- Yes. The LLC acquired title insurance on the real property when it acquired the land.
- No. The LLC does not have title insurance on its real property.
***Task*** Get Real Estate Title Insurance
- The LLC should have title insurance on its real estate. If one or more members conveyed the land to the LLC the LLC can contact the title insurance company that insured the prior owner(s) title and purchase an endorsement on the prior owner(s) policy as of the date of the prior owner(s) policy. The cost of the endorsement should be approximately $75. The endorsement should name the LLC as an additional insured on the title insurance policy.
Real Estate Lease*
Has or will the LLC lease real property to one or more tenants, including a member or an affiliated entity?
- Yes. The LLC has leased its land to one or more tenants and all tenants signed a written lease.
- Yes. The LLC has leased its land to one or more tenants, but not all tenants signed a written lease.
- No. The LLC has not yet leased its land to a tenant.
***Task*** Get Real Estate Lease
- Never lease real estate to a tenant unless the tenant has signed a lease. If the LLC is leasing residential real estate it should purchase and use Norman Keyt's Arizona Residential Lease for $197. You can download the Word version of the lease and edit it for your particular tenant. If you need a lease for Arizona commercial real estate Richard Keyt can prepare it. Call Richard at 480-664-7478.
Existing Tenant(s)*
Was the real estate leased to any tenants at the time the LLC acquired title to the land?
- Yes. When the LLC acquired its real estate there was one or more tenants.
- No. When the LLC acquired its real estate there were no tenants.
Assignment of Lease*
Did the previous owner/landlord sign a document by which the previous owner assigned the lease to the LLC?
- Yes. The previous owner of the real estate signed a document by which the owner assigned the lease(s) to the LLC.
- No. The previous owner of the real estate has not yet signed a document by which the owner assigned the lease(s) to the LLC.
***Task*** Get a Signed Assignment of Lease
- Given that the LLC owns the real estate, it must be a party to the lease signed by the tenant. The way the LLC becomes a party to the lease is by the previous owner assigning the landlord's rights and obligations under the lease to the LLC. If you need an Assignment of Lease agreement, purchase Richard Keyt's Assignment of Lease for $57.
Tenant Notification*
Did the LLC notify all tenants in writing that: (i) the previous landlord transferred the real estate to the LLC, (ii) the landlord's rights under the lease were transferred to the LLC, and (iii) all future rent payments are to be paid to the LLC?
- Yes. The LLC notified all tenants in writing that: (i) the previous landlord transferred the real estate to the LLC, (ii) the landlord's rights under the lease were transferred to the LLC, and (iii) all future rent payments are to be paid to the LLC.
- No. The LLC has not yet notified all tenants in writing that: (i) the previous landlord transferred the real estate to the LLC, (ii) the landlord's rights under the lease were transferred to the LLC, and (iii) all future rent payments are to be paid to the LLC.
***Task*** Give Tenants Notice of New Landlord
- The LLC must notify all tenants in writing of the change of ownership of the real estate and the fact there is a new landlord. The notice should also tell the tenant who to pay the rent to and where to make the payments.
Insurance
Why the LLC Must be Insured
- Insurance is the first line of defense that protects against claims and losses that might arise from the operation of the business. Insurance is also critical because in addition to paying covered losses insurance will pay the legal fees necessary to defend the LLC in court. Insurance is a must have item. There are a lot of different types of insurance policies, which is why you must consult with an experienced business insurance agent as to the type of coverage to purchase and the dollar amount of coverage.
General Liability Insurance*
Has the LLC purchased general liability insurance that insures it from losses arising from the operation of its business?
- Yes. The LLC is covered by general liability insurance.
- No. The LLC is not covered by general liability insurance.
- No. The LLC does not need general liability insurance.
***Alert*** General Liability Insurance
- Every business, even if home-based, needs to have liability insurance. The policy provides both defense and damages if the LLC, its employees or the LLC's products or services cause or are alleged to have caused Bodily Injury or Property Damage to a third party.
Property Insurance*
Has the LLC purchased insurance on its property?
- Yes. The LLC has purchased property insurance to cover the cost to repair or replace losses to personal property.
- No. The LLC needs property insurance, but it has not yet purchased property insurance to cover the cost to repair or replace losses to personal property.
- No. The LLC does have any personal property to insure.
***Alert*** Property Insurance
- If the LLC owns any buildings or business personal property such as office equipment, computers, inventory or tools it should purchase an property insurance policy that protects the LLC in the event of a fire, vandalism, theft, smoke damage or other harm. Consider business interruption/loss of earning insurance as part of the policy to protect earnings if the business is unable to operate.
Business Owner's Insurance*
Has the LLC purchased a business owner's insurance policy?
- Yes. The LLC purchased a business owner's insurance policy.
- No. The LLC operates a business, but it has not yet purchased a business owner's insurance policy.
- No. The LLC does not operate a business and does not need business owner's insurance.
***Alert*** Business Owner's Insurance
- A business owner policy (BOP) packages all required coverage a business owner would need into one policy. Often, BOP’s include business interruption insurance, property insurance, vehicle coverage, liability insurance, and crime insurance . The policy can be customized for your LLC's needs. A BOP is usually cheaper than the total cost of individual policies.
Commercial Auto Insurance*
Has the LLC purchased a commercial auto insurance policy?
- Yes. The LLC purchased a commercial auto insurance policy.
- No. The LLC needs commercial auto insurance, but has not purchased a commercial auto insurance policy.
- No. The LLC does not need commercial auto insurance.
***Alert*** Commercial Auto Insurance
- Commercial auto insurance protects the LLC’s vehicles that carry employees, products or equipment. With commercial auto insurance the LLC insures its work cars, SUVs, vans and trucks from damage and collisions. If the LLC does not have company vehicles, but has employees who drive their own cars on company business the LLC should have non-owned auto liability to protect the company in case the employee does not have insurance or has inadequate coverage. Many times the non-owned vehicles can be added to a business owner policy.
Umbrella Insurance*
Has the LLC purchased umbrella insurance coverage?
- Yes. The LLC purchased an umbrella insurance policy.
- No. The LLC has not yet purchased an umbrella insurance policy.
- No. The LLC is does not want an umbrella insurance policy.
***Alert*** Umbrella Insurance
- We recommend the LLC purchase umbrella insurance coverage of at least $1,000,000. Additional amounts of $1,000,0000 up to $5,000,000 coverage can be relatively inexpensive. Ask your insurance agent for information about and the cost of various amounts of umbrella insurance.
Professional Liability Insurance*
Has the LLC purchased professional liability insurance?
- Yes, the LLC provides services and purchased professional liability insurance.
- No, the LLC provides services, but has not yet purchased professional liability insurance.
- No. The LLC does not provide services and does not need professional liability insurance.
***Alert*** Professional Liability Insurance
- Professional liability insurance is frequently called Errors and Omissions Insurance. This type of policy provides defense costs and damages for failure to or improperly rendering professional services. A general liability policy does not provide this type of protection. Professional liability insurance is needed by all professional businesses including lawyers, accountants, consultants, notaries, real estate agents, insurance agents, hair salons and technology providers to name a few.
Directors and Officers Insurance*
Has the LLC purchased directors and officers (D & O) insurance?
- Yes. The LLC has purchased directors and officers insurance.
- No. The LLC should acquire directors and officers insurance, but has not yet purchased it.
- No. The LLC does not need directors and officers insurance.
***Alert*** Directors and Officers Insurance
- Directors and officers Insurance protects the directors and officers of a company against their actions that affect the profitability or operations of the company. If a director or officer of your company, as a direct result of their actions on the job, finds him or herself in a legal situation, this type of insurance covers costs or damages lost as a result of a lawsuit.
Data Breach Insurance*
Has the LLC purchased data breach insurance?
- Yes. The LLC has purchased data breach insurance.
- No. The LLC has not yet purchased data breach insurance.
- No. The LLC does not maintain customer or client data and does not need data breach insurance.
***Alert*** Data Breach Insurance
- Data breach insurance is must have insurance for all LLC's that store third party data digitally and/or the old fashioned way on paper. If the LLC stores sensitive or non-public information about employees or clients on their computers, servers or in paper files they are responsible for protecting that information. If a breach occurs either electronically or from a paper file a Data Breach policy will provide protection against the loss.
Business Interruption Insurance*
Has the LLC purchased business interruption insurance?
- Yes. The LLC purchased business interruption insurance.
- No. The LLC needs business interruption insurance, but has not yet purchased it.
- No. The LLC does not need business interruption insurance.
***Alert*** Business Interruption Insurance
- If a disaster or catastrophic event occurs, the LLC's operations may be interrupted and the LLC will lose income due to your staff’s inability to work in the LLC's place of business, manufacture products or provide other services. Business interruption insurance is especially important if your LLC needs a physical location to conduct its business. Business interruption insurance would compensate the LLC for its lost income during these events. With this insurance the LLC may avoid a major financial loss due to a lawsuit or catastrophic event.
Products Liability Insurance*
Has the LLC purchased products liability insurance?
- Yes. The LLC has purchased products liability insurance.
- No. The LLC manufactures one or more products, but has not yet purchased products liability insurance.
- No. The LLC does not manufacture any products and does not need products liability insurance.
***Alert*** Products Liability Insurance
- If your LLC manufactures products for sale on the general market, product liability insurance is a must. Even a business that takes every measure possible to make sure its products are safe can find itself named in a lawsuit due to damages caused by one of its products. Product liability insurance works to protect a business in such a case, with coverage available to be tailored specifically to a specific type of product.
Employee Issues
New Hire Registration*
Has the LLC registered its employees with the State of Arizona?
- Yes. The LLC has registered its employees with the State of Arizona.
- No. The LLC has not registered its employees with the State of Arizona.
***Alert*** New Hire Registration
- Federal and State law requires employers to report newly hired and re-hired employees in Arizona to the Arizona New Hire Reporting Center. In 1996, Congress enacted a law called the "Personal Responsibility and Work Opportunity Reconciliation Act," or PRWORA, as part of Welfare Reform. This new legislation required that employers in all 50 states directly report their new hires and re-hires to a state directory.
  Employers and/or labor organizations conducting business in the State of Arizona are required to report the following employees: (1) New employees: Employers must report all employees who reside or work in the State of Arizona to whom they anticipate paying earnings. Employees must be reported even if they only work one day, and are terminated prior to the employer fulfilling the new hire reporting requirement, (2) Re-hires or Re-called employees: Employers must report all re-hires, or employees who return to work after being laid off, furloughed, separated, granted a leave without pay, or terminated from employment for at least 60 consecutive days; and (3) Temporary employees: Temporary agencies are responsible for reporting any employee who they hire to report for an assignment. Employees only need to be reported once, and do not need to be re-reported each time they are placed with a new client. However, they do need to be reported as a re-hire if the worker has a break in service, or gap in wages from your company.
  Arizona Revised Statute 23-722.01 requires that all employers submit their new hire reports within 20 days after an employee is hired, re-hired, or returns to work. To file a report with Arizona Arizona's online reporting website or hire a payroll service like ADP or Paychex or a CPA. For more on this topic see Arizona's New Hire Reporting Center's Frequently Asked Questions.
Worker's Compensation Insurance*
Has the LLC applied for and obtained worker's compensation insurance?
- Yes. The LLC applied for and obtained worker's compensation insurance.
- No. The LLC has not yet applied for or obtained worker's compensation insurance.
***Alert*** Worker's Compensation Insurance
- Under Arizona law, it is mandatory for employers to secure workers’ compensation insurance for their employees. Note: An employer that does not carry workers’ compensation insurance is guilty of a Class 6 felony. A.R.S. § 23-932. Workers’ compensation is a “no fault” system in which an injured employee is entitled to receive benefits for an industrial injury, no matter who caused the job-related accident. If an illness or injury is job-related, then the injured worker (also known as a claimant or applicant) receives medical benefits and may receive temporary compensation, if eligibility requirements are met. In some cases, a claimant may also receive permanent compensation benefits, “job retraining,” and supportive medical care. Workers’ compensation insurance can be obtained from an insurance company licensed to issue workers’ compensation insurance in Arizona. For a listing of these companies contact the Arizona Department of Insurance at (800) 325-2548 or Arizona Department of Insurance's website For more on this topic see the Worker's Compensation Insurance Employer's Frequently Asked Questions.
Employment Agreements*
Does the LLC have one or more employees who need to sign a written employment agreement?
- Yes. The LLC has one or more employees who need to sign a written employment agreement.
- No. The LLC does not have any employees who need to sign a written employment agreement.
***Alert*** Employment Agreement
- A business that has employees is five times more likely to be sued by an employee than any other person. Employees who sign a written employment agreement are less likely to sue employers because the terms of the employment are set forth in the agreement. LLC managers who are employed by the LLC should always sign an employment agreement.
  If you need an employment agreement call KEYTLaw attorney Richard C. Keyt at 480-664-7472 or send him a message at [email protected].
Independent Contractors
Independent Contractor vs. Employee
- There are often disputes over whether a worker is an employee or an independent contractor. To resolve these disputes courts consider the “totality of facts” on a case-by-case basis. Some of the factors a court might consider include: the duration of the employment, the method of payment, the right to hire and fire, the extent to which the employer may exercise control over the work, who supplies the tools, who sets the hours of work, and whether the work was performed in the usual and regular course of the employer’s business. There may be other factors the court will consider and no one factor is, in itself, conclusive. Therefore, even if you believe you have an “independent contractor” relationship, a court could still decide that based on the totality of the facts, the worker was an employee.
  Warning: Mischaracterizing an employee as an independent contract can be a very expensive mistake for the employer.
Independent Contractor Agreement*
Have all of the LLC's independent contractors signed an Independent Contractor Agreement with the LLC?
- Yes. All of the LLC's contractors have signed an independent contractor agreement.
- No. Not all of the LLC's contractors have signed an independent contractor agreement.
***Alert*** Independent Contractor Agreement*
- If the LLC has any independent contractors, it must have a written independent contractor agreement with each contractor because without one a court and the IRS are likely to find the parties have an employee / employer relationship rather than an independent contractor relationship. A written independent contractor agreement with a key employee can help prevent disputes and litigation arising from the contractor services. The agreement should specify the contractor's duties and that the contractor is responsible for paying all income and employment taxes arising from the contractor's services. If you need an independent contractor agreement call KEYTLaw attorney Richard C. Keyt at 480-664-7472 or send him a message at [email protected].
Transaction Privilege Tax License (Arizona's Sales Tax)
***Alert*** The Arizona Transaction Privilege Tax License
- Transaction Privilege Tax (TPT) is imposed on the seller for doing business in the state, although the tax may be passed on to the customer. Various business activities are subject to transaction privilege tax and must be licensed. A transaction privilege tax license must be issued for each location at which business is conducted. Businesses with multiple locations or business lines can opt to license and report for each location separately or have a consolidated license (and report aggregate sales). For more on this topic see "Business Basics, a Guide to Taxes for Arizona Businesses."
Transaction Privilege Tax License*
Has the LLC obtained a transaction privilege tax license from the Arizona Department of Revenue?
- Yes. The LLC obtained a transaction privilege tax license from the Arizona Department of Revenue.
- No. The LLC has not yet obtained a transaction privilege tax license from the Arizona Department of Revenue.
***Alert*** Get a Transaction Privilege Tax License
- If the LLC is engaged in an activity that requires it to have a transaction privilege tax license the LLC must obtain the license from the State of Arizona, every county in which the LLC has an office or employee and every city in which it has an office or employee. The LLC must get the license before it engages in any of the activities that require it to be licensed.
Transaction Privilege Tax License Application
- To obtain a transaction privilege tax license from the Arizona Department of Revenue go to the ADR's TPT Information web page where you will find information about the TPT and the TPT application form. Use the Arizona Joint Tax Application to apply for your transaction privilege tax license.
County Transaction Privilege Tax License
Has the LLC obtained a transaction privilege tax license from each Arizona county in which the LLC has an office, store or facility?
- Yes. The LLC obtained a transaction privilege tax license from each Arizona county in which the LLC has an office, store or facility.
- No. The LLC has not yet obtained a transaction privilege tax license from each Arizona county in which the LLC has an office, store or facility.
***Task*** Get a County Transaction Privilege Tax License
- Contact every Arizona county in which the LLC has an office, store or location and obtain a transaction privilege tax license for each county.
City Transaction Privilege Tax License
Has the LLC obtained a transaction privilege tax license from each Arizona city in which the LLC has an office, store or facility?
- Yes. The LLC obtained a transaction privilege tax license from each Arizona city in which the LLC has an office, store or facility.
- No. The LLC has not yet obtained a transaction privilege tax license from each Arizona city in which the LLC has an office, store or facility.
***Alert*** Get a City Transaction Privilege Tax License
- Most Arizona cities require LLCs that do business in the city to collect city sales tax on sales within the city limits. The Arizona Department of Revenue's Joint Tax Application allows the applicant to apply for city TPT licenses concurrently with applying for the state TPT license. If your city or cities are on the Joint Tax Application, check the box or boxes for your city or cities.
  The Department of Revenue does not collect transaction privilege taxes for all cities within Arizona. If you don't see your city on the ADRE's Joint Tax Application you will have to contact the city in which the LLC does business to obtain the city's TPT license application and complete and submit the form to the city. The cities that collect their own taxes are commonly referred to as "Non-Program Cities." See the list of Non-Program Cities, their telephone numbers, certain tax rates and links to their respective web sites. Non-Program cities collect and administer their own taxes, which are reported on their own tax forms.
Intellectual Property
***Alert*** Trademarks & Service Marks*
- A trademark is generally a word, phrase, symbol, or design, or a combination thereof, that identifies and distinguishes the source of the goods of one party from those of others.
  A service mark is the same as a trademark, except that it identifies and distinguishes the source of a service rather than goods. Throughout this booklet, the terms “trademark” and “mark” refer to both trademarks and service marks.
  A trademark typically protects brand names and logos used on goods and services. A copyright protects an original artistic or literary work. A patent protects an invention.
Trademarks & Service Marks
Does the LLC have any trademarks or service marks?
- Yes. The LLC has at least one trademark or service mark.
- No. The LLC does not have any trademarks or service marks.
Registered Marks
Has the LLC registered its trademarks and service marks?
- Yes. The LLC has registered its trademarks and service marks with the U.S. Patent & Trademark Office.
- No. The LLC has not yet registered its trademarks and service marks with the U.S. Patent & Trademark Office.
***Task*** Register the LLC's Trademarks
- Hire KEYTLaw's trademark attorney Matt Kulseth to register a trademark or service mark with the U.S. Patent & Trademark Office. Call Matt at 602-906-4953, ext. 4 or email him at [email protected].
Alerts & Tasks
***Alerts***
- Through out this audit questionnaire you will see entries that start with ***Alert***. These entries contain explanations about the subject of each alert.
***Tasks***
- The entries that start with ***Tasks*** describe tasks that the LLC should accomplish as soon as possible.
Retake this Legal Audit at Least Once a Year
- Because things change over time, we recommend that you retake this LLC legal audit every six months, but not less than once a year. The retake the audit go to the Arizona LLC Audit Questionnaire and conduct a new audit using the password az-llc-audit.
End of the Audit Questionnaire
Click on the Submit icon to finish your Audit Questionnaire. Our system will send the completed Questionnaire and answers to the email address first entered above.
If you click Submit and do not get an email message with the audit results, check your spam folder. If you cannot find the message with the audit results send an email message to Richard Keyt at [email protected].

Save and Continue Later

Begin LLC Legal Audit

LLC Information

Arizona Corporation Commission Information

LLC Formation Documents

Manager Information

Member Information

Capital Contributions

Loans

Separate Property vs. Community Property

Multi-Member LLCs

Tasks for Newly Formed LLCs

Real Estate LLCs

Insurance

Employee Issues

Independent Contractors

Transaction Privilege Tax License (Arizona's Sales Tax)

Intellectual Property

Alerts & Tasks

End of the Audit Questionnaire