Before proceeding, you must first determine how your LLC is managed.Arizona LLC’s determine in their articles of organization who is to manage the LLC, setting up one of the two following options:
Member-Managed (most common) – The Members/Owners run the show, each having authority to sign on behalf of the LLC.The members are often referred to as “Managing Members.”
Manager-Managed – This is where a separate group of people, called managers have the authority to operate and decide the affairs of the LLC and the members have no authority.This is more complicated.
Internal Changes First
When you add a member or remove a member, it must first be done in writing.Below are the typical methods
Update operating agreement
Every LLC should have an operating agreement, even if there is only one member.
If Member-Managed - When adding a member, simple put together a new agreement and have all members sign.When removing a member, have the departing member sign a resignation and have all the remaining members sign a new agreement.
If Manager-Managed – When adding or removing members, the managers are typically signing a new agreement, which lists the members.Even if a member is being removed in this case, member should still sign a resignation or other agreement showing their acceptance of the change.
When a member is leaving or being removed, that member must show their acceptance of the removal.A resignation or other agreement showing their acceptance, what they are receiving for their removal, and the business reason why is always a wise way of avoiding legal issues later on.
An Arizona LLC must file an amendment with the Arizona Corporation commission if it makes a change in any of the following ways:
Change a member (if member-managed)
Change a manager (if manager-managed)
Any other change making the articles of organization incorrect (other than change to statutory agent which is filed using a different document)
Because Arizona does not have any annual filing requirements with the Arizona Corporation Commission, your LLC’s reporting cannot be done by filing an amended report at it is with some other nearby states.
If your LLC is foreign registered in Arizona, the same rules apply if your foreign registered LLC is changing its members, in that it must file Articles of Amendment to Application for Registration with the ACC.If your LLC is an Arizona LLC and it is foreign registered in other states, it may have to amend those registrations as well.Visit our pages for each state or call us for more information on this.
An Arizona LLC does not have to publish its amendment unless it is changing its name or adding additional articles.In other words, changes to its members or managers does not require publishing
Besides legally making the internal change to add or remove members and then filing with the state articles of amendment, changing the public record, there are other considerations after making your change.Here are a few:
If your change in membership, changes the way your LLC is to be taxed, you may need to notify the IRS.In other words, if your LLC is taxed as disregarded entity (sole proprietorship) and you add a member, you will need to decide if you want to be taxed as a partnership (and file an informational partner return) or as a corporation (The IRS allows LLC’s to be taxed as a corporation even though they are not corporations).Likewise, if your LLC is taxed as a partnership and you remove one or more members and are now a single member LLC, you may want to notify the IRS of this.Our company has a page that describes the various changes your entity might make, including changes to its tax status, here:smallbiz.com/Howto/notify-IRS-of-changes-to-EIN
If you are adding or removing members in a member-managed LLC, you will need to update your banking records.If your LLC has provided a banking resolution, listing members that are no longer part of the LLC, this should be changed.Additionally, the bank’s signature card should be updated to reflect the new member’s or those removed members.NOTE:Often a bank’s signature card is a banking resolution for the company (take a look at the back of it).
Check to make sure none of your vendor relationships are affected by the removal of a member.Additionally, perhaps your additional member(s) should be connected to your vendor relationships.
Regardless of whether your adding or removing members to your Arizona LLC, be sure to take care of all the little details today so that you can operate more smoothly tomorrow.
CEO & Founder of SmallBiZ.com, created over seventeen years ago to help small business owners simplify the process of starting & managing their small businesses. SmallBiZ.com now serves over 10,000 businesses per year with various filing and subscription services; in addition to the 1000's of daily visitors to www.smallbiz.com, accessing free services, help pages, & educational videos & webinars.