Wright Law Firm

05/31/2022

https://wrightlawaz.com/newsroom/articles/2022/05/what_are_charging_orders_and_how_do_they_affect_my_llc/

Article At-A-Glance

A charging order is a court-authorized lien placed on distributions made from a business.

Charging orders may be used by creditors against limited partnerships (LPs) and limited liability companies (LLCs).

In most cases, a Charging order does not permit a creditor to join in the LLC's management, dissolve the LLC, or sell its assets without the other LLC members' consent.

However, while a charging order does not give the creditor rights of ownership of the company until the debt is satisfied it does allow the creditor to legally attach distributions to the debtor from the business entity.

Bankruptcy may affect the rights of creditors to the LLC, and may also jeopardize the intended operation of the LLC itself.
Given the above, all LLC owners need to draft and implement an operating agreement that takes into account the impact of a member filing bankruptcy or having a court judgment entered against him or her.

A charging order is a court-authorized lien placed on distributions made from a business. The charging order is usually limited to the dollar amount of the judgment and is similar to garnishment of wages or income. It is important to note that a charging order does not give the creditor management r...

05/25/2022

For too long, business lawyers have only charged by the hour. This approach is standard. But it can be costly for business owners and difficult to budget.

This unpredictability results in many small businesses avoiding critical and necessary legal support.

We’re adopting a completely new approach for some business services. Our bundled services will focus on efficiency and pass the savings back to you on a fixed, monthly fee basis.

Our goal isn’t to be a cost item for your business— we aim to be a partner in your success.

At Wright Law Firm, we’re adopting a completely new approach for some business services. Our bundled services will focus on efficiency and pass the savings back to you on a fixed, monthly fee basis. Our goal isn’t to be a cost item for your business— we aim to be a partner in your success.

04/29/2022

Today's tip is Checklist of Some Key Features in a Good Operating Agreement

In addition to addressing the matters described in a previous tip, a good operating agreement will include the following:

* Powers and expected duties of members and managers


* Time and date of the annual meetings that managers and members will attend 


* Process of removing a manager, if needed 


* Procedure for electing or appointing a manager 


* Minimum requirements for member/manager votes 


* Technique for voting with written consent, but without being physically present at a formal meeting 


* Giving proxy to the other members 


* Dividing losses and profits among the members 


* Rules defining the procedures for transferring shares when a member wants to sell their interest 


The members of the company will adopt the agreement by signing it and agreeing that it will run the operation. An operating agreement is a contract among the members of the company; once it has been enforced, the limited liability company’s members must comply with its terms. 


04/27/2022

How LLCs are Created

Each state’s law governs the creation of an LLC. That is, people who want to form an LLC must file with the appropriate state authority. Often the Secretary of State handles the registration. However, here in Arizona you must register with the Arizona Corporation Commission.

As in most other states, to create an LLC Arizona requires that you file “articles of organization.” An LLC’s articles of organization are public documents. In this regard they resemble articles of incorporation, which is the document that must be filed to legally create a corporation.

The articles of organization must meet specific requirements before an LLC can become a legal entity. To make sure that happens the articles are reviewed at the Arizona Corporation Commission by an examiner. If accepted, the LLC comes into existence assuming all other requirements are met and the required fees have been paid.

The minimum requirements for the articles of organization might vary from state to state. In Arizona your articles must include at least the following: (a) the name of the LLC, (b) the principal address of the company,(c) the name, (d) street and mailing address of the company’s statutory agent, and (e) whether the company is member-managed or manager- managed.

Some states, in addition to the previously mentioned items, may require you to provide the LLC’s business purpose, management plan, and membership structure. Wherever you intend to file, you should know in advance exactly what is required. This will streamline the process and save time and frustration. It can be frustrating to confront delays to your LLC when you’re just getting your business started. Avoid them. Do your homework. Spend the time writing your documents. Get everything done right at the start.

Each state requires that a business name include words or phrases that will identify it as an LLC. What is acceptable varies by state. Some states will simply allow an abbreviation while others prefer it to be spelled out completely. In Arizona, for example, the name of a limited liability company must contain the phrase “limited liability company” or “limited company” or the abbreviation “L.L.C.”, “LLC”, “L.C.” or "LC" in uppercase or lowercase letters. A.R.S. § 29-3112.

Incidentally, examiners at the Arizona Corporation Commission have been known to reject a company’s LLC filing if the names are inconsistent on the submitted documents (including the cover sheet). This may be true for for such things as forgetting to include periods between the letters (e.g., “Acme, LLC” or “Acme, L.L.C.”) So proofread your documents before you submit them.



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04/26/2022

What Should My LLC’s Operating Agreement Include?

Arizona does not require a company to have an operating agreement. This is true in some other states as well. But most attorneys would agree that it is foolish to run a multi-member LLC without one.

This may surprise you, but the operating agreement can be oral or sometimes even implied. The best practice will always be to formalize the operating agreement in writing and to include as much detail as reasonably possible.

Good operating agreements are detailed. They outline each member’s responsibilities and describe the inner workings of the business. As a general rule, the operating agreement should attempt to leave very few questions unanswered. That way members will know what they should expect during their involvement.

Each member should receive a copy of the operating agreement so if questions do arise, one can easily check to see if the answer is already there. The operating agreement must be signed by every member of the LLC for it to be enforced, and amending an operating agreement usually requires the unanimous consent of all of the members (note: if there is already a disagreement among the members it is unlikely that you will find the votes needed to amend your LLC’s operating agreement)

The operating agreement should include decisions about the contributions that the members must provide, such as the amount, form, size, or magnitude, depending on its form. Also, the operating agreement should include terms regarding the expulsion or suspension of members existing members.

Here’s an example of something that is often neglected. What happens to a member’s ownership interest if that member dies? As a valuable property item, the member’s spouse or estate now owns the membership interest in your LLC. He or she may want to step in and become part of the LLC. If that’s agreeable with you, great. Often it is not. You can address this scenario when you draft your operating agreement.

A similar situation might arise if a member of your LLC leaves the company to work in a different state.

Or imagine a scenario where a member is unable to make any type of meaningful contribution in operating the company because of an injury or extended illness.

If you didn’t think write your operating agreement carefully, maybe these circumstances were never addressed. Perhaps your operating agreement states that each member is entitled to 50% of the profits. This might leave the other member to generate the profits but require them to share those profits with the non-participating member. And, since unanimous consent might be necessary to amend the operating agreement, this might make or break your entire business.

You get the point. Try to foresee these scenarios before you finalize your LLC’s operating agreement.

04/26/2022

Crypto scams are nothing new. They have been plaguing regulators and investors since 2017. Rug pulls are just the latest form of fraud. Here are some red flags to watch for.

04/24/2022

Today’s tip is a brief summary regarding the Management of an LLC

Corporations are governed by boards of directors, and by a CEO. Partnerships are generally controlled by the partners. But an LLC offers all kinds of flexibility.

You can create a member-managed company (like a partnership) or you can structure a manger-managed LLC (like a corporation).

The management feature is exactly as it sounds. A manager acts on behalf of the company to make decisions during the daily operations of the business. If you prefer, you can also select more than one managing member if need be.

Let’s say you create a manager-managed LLC. In that case, any member could still vote (like shareholders) when needed but the member would not need to be present for daily business operations absent unusual circumstances.

Most smaller LLCs and single-member LLCs are member- managed because it is easier to operate. Often the cost is cheaper as well. This can be incredibly helpful during the formation phase when company hasn’t made any profits. Alternatively, if the LLC has more than a single member, or let’s say more than a married couple are members, the appointment of a manager becomes more attractive.

Many LLCs are created as manager-managed, mostly for financial reasons. Often it is easier and sometimes cheaper than hiring an employee. A managing member has the power to contract on behalf of the company, participates in daily issues, and holds an ownership interest in the company.

Unlike non-managing members, a managing member can act as an agent of the company and can sell and buy products and property based on the normal course of business. Managing members can also hire and fire employees, direct the operations of the company, and even bind the company by participating in contracts on its behalf. Non-managing members do not act as agents of the company. Their authority is limited and generally explained in the operating agreement which we explore in just a minute.

As I mentioned previously, in addition to the flexibility offered by an LLC, the “limited liability” feature is also extremely attractive.

An LLC company generally protects all members from certain wrongful acts committed by employees and each other that may result in civil legal liability. This means that because a managing member is more involved in the operations of the business, their activities could expose them to a higher liability than a non-managing member. And, of course, there are exceptions. For example, an LLC will not protect you for certain wrongful acts either inside or outside the ordinary course of business such as robbing a bank or committing fraud. But we'll save LLC member liability for another time.

04/24/2022

Today's tip is about Distribution Rights as a Member of an LLC

Most people choose to become a member in an LLC to make money. They know that an ownership interest comes the right to share the company profits. In addition to receiving profits, members also have the right to participate in the distribution of tangible assets.

The amount or the percentage of the profits or assets each member receives will be outlined in the operating agreement. This is another reason why it is important to carefully draft your operating agreement.

But what happens if you and the other members of your LLC never got around to drafting or signing an operating agreement?

In Arizona if your LLC does't have its own operating agreement the state will substitute default provisions. So, for example, on the issue of distribution of profits, unless you have an operating agreement that says otherwise, “[a]ny distribution made by a limited liability company . . . must be in equal shares among Members.” A.R.S. §29-3404

Why is this important? Well, suppose John contributed $80,000 to the LLC and the Joe and Jane Smith contributed $20,000. John mistakenly thinks distributions of money and property will be allocated 80% to him and 20% to the Simpsons. In the absence of contrary language in the operating agreement, if the LLC has $10,000 to distribute to the members, $3,333 goes to John, $3,333 goes to Joe & $3,333 goes to Jane.

It is your responsibility to abide by state laws even if they may include default standard criteria. It is definitely better to draft your own criteria in an operating agreement because the defaut laws by your state may not meet your expectations.

04/23/2022

NFTs have been around for several years, but recently mainstream interest has skyrocketed. With that attention have come scammers.

Fraudulent NFT collections were once few and far between. However, it’s becoming increasingly difficult to figure out what budding or soon-to-launch NFT projects might be predatory.

An NFT project called Frosties was outed as a scam after its developers made off with over $1 million in ETH just hours after the project was launched. Ethan Nguyen and Andre Llacuna (both age 20) were both charged with conspiracy to commit wire fraud and conspiracy to commit money laundering after....

04/23/2022

Today’s Tip is about the importance of Operating Agreements. Filing Articles of Organization gives an LLC life, but the operating agreement is its’ heart and soul.

The operating agreement outlines the structure of the company, including financial and working relationships. With some limited exceptions, the operating agreement governs all of the following:

1. Relations among the members as members and between the members and the limited liability company.
2. The rights and duties under this chapter of a person in the capacity of manager.
3. The activities and affairs of the company and the conduct of those activities and affairs.
4. The means and conditions of amending the agreement.

Among other things, the operating agreement details each member’s percentage of ownership, addresses how the profits and losses will be divided, and outlines each member’s responsibilities.

Arizona does not require a company to have an operating agreement (this is true in some other states as well) but most attorneys would agree that it is foolish to run a multi-member LLC without one.

An equally important reason to formalize your operating agreement is to protect the members of the LLC. An operating agreement is often considered “Exhibit A” by the courts with respect limiting the personal liability of the members. Without an operating agreement, a court might assume that the LLC is actually either a partnership or a sole proprietorship.

If you ever need to prove it, a formal operating agreement will lend credibility to your LLC’s separate existence. For example, some banks require an operating agreement before allowing an LLC to open a company bank account.

This next point can’t be said enough. Good operating agreements are detailed! They outline each member’s responsibilities and describe the inner workings of the business. As a general rule, the operating agreement should attempt to leave very few questions unanswered. That way members will know what they should expect during their involvement. It’s best not to rely on a generic form.

One of the issues that can arise when forming an LLC by oneself or creating it online is that the operating agreement gets forgotten or, if one is created, it is simply too generic. If you buy an operating agreement online, 9 times out of 10 it contains boilerplate provisions that are destined to create problems down the road. So spend the time, money, and effort to get this document right.

After practicing business law and litigation for 30 years, it is clear that many disagreements can be prevented with a carefully drafted operating agreement, one that spells out the relationships of the members.

04/22/2022

As a new crypto asset class, NFTs appear to exist almost unbound by current regulatory systems. Not so. It is important to remember that NFT's are subject to copyright law and other IP laws in the same way as traditional artwork.

As a new crypto asset class, NFTs appear to exist almost unbound by current regulatory systems. Despite their newfound popularity, it is important to remember that NFT's are subject to copyright law and other IP laws in the same way as traditional artwork.

04/20/2022

DEALING WITH A BAD OR FAKE GOOGLE REVIEW
Today’s online world sometimes feels like the equivalent of the Wild West. Competition is cutthroat. Often unkind. Business owners had better be prepared to protect their online reputations. One significant skill a business owner must learn is to understand how to remove fake Google reviews. It's a growing problem.

Failing to remove a negative review can put your business name and reputation at serious risk. Bad or fake Google reviews can lead to negative publicity, loss of potential customers, decreased profits, and other consequences.

4 Steps
In general, there are four ways that a businesses can remove unwanted Google reviews:

1. Ask the original author to remove the negative review,
2. Flag the negative review to Google,
3. Pursue legal action against the person who posted it, and
4. Use an online reputation management firm and SEO.

Perspective
If your business has recently been hit with a bad review, DON’T PANIC OR IMPULSIVELY OVERREACT!

Most businesses will eventually experience having a bad or fake negative review. It doesn’t matter if you've never made a mistake, or that you provided exceptional customer service, or even that you offer free returns or replacement merchandise. Someday, somebody, somewhere will be unhappy or just in a bad enough mood for the day. Maybe you will even experience an un-hinged competitor who thinks that leaving a bad review is a competitive business strategy.

No matter what you do, you can’t prevent all bad reviews. It’s the reality of doing business in the age of the internet. The most important thing is how you respond in order to have the bad review removed as quickly as possible.