Year-End Business Planning in Arizona: Legal Steps Every Business Owner Should Take Before January 1

As the year draws to a close, Arizona business owners often focus on financial reviews, tax preparation, and setting goals for the new year. Just as important and often overlooked are the legal steps necessary to strengthen your business, reduce risk, and prepare for growth.

The Arizona Limited Liability Company Act (ALLCA), codified at A.R.S. §§ 29-3101 to 29-4202, governs how LLCs operate in Arizona and provides the foundation for many year-end legal considerations. ^¹ Ensuring your business is legally sound today can help prevent costly disputes tomorrow.

1. Review and Update Your Operating Agreement

Your operating agreement is the backbone of your LLC, yet many businesses operate with outdated or incomplete agreements. Under the ALLCA, default statutory rules apply unless an operating agreement provides otherwise—meaning the state may be making decisions you intended to control contractually.^{² ³} A year-end review should confirm that your operating agreement accurately reflects:

• Current ownership and membership status
• Management structure and voting rights
• Profit distribution methods
• Restrictions on transfers
• Updated fiduciary duties^⁴
• Dispute-resolution procedures

If your business has experienced changes over the past year, such as new members, new revenue streams, or shifting goals your operating agreement should be updated before year-end.

2. Confirm Member Status and Plan for Potential Dissociation

Life events such as death, disability, financial hardship, or an unexpected departure can disrupt a business if the LLC’s governing documents are unclear. While Arizona law provides default dissociation rules, those rules may not align with the intentions of the members.^⁵ Year-end is an ideal time to:

• Verify membership records
• Review dissociation provisions
• Confirm procedures for voluntary or involuntary member exits

Proactive planning reduces uncertainty and helps preserve continuity.

3. Establish or Update Your Buy-Sell Agreement

A buy-sell agreement is one of the most effective tools for ensuring long-term business continuity. Although not required by the ALLCA, these agreements determine what happens when a member dies, becomes disabled, retires, or chooses to exit the business. Key provisions typically include:

• Triggering events
• Valuation methods
• Buyout funding mechanisms, such as insurance
• Timelines for ownership transfers

A properly drafted buy-sell agreement helps prevent disputes, protects remaining members, and preserves business stability.

4. Evaluate Whether Trust Ownership Makes Sense

For many business owners, estate planning and business planning intersect. Arizona law permits trusts to own LLC membership interests, which can allow for a smooth transfer upon death and help avoid probate delays.^⁶ Before year-end, it is worth considering whether:

• Ownership should be transferred to a revocable trust
• The operating agreement permits trust ownership
• LLC records need updating to reflect the trust

This step alone can significantly simplify future succession planning.

5. Conduct a Legal Compliance Checkup

A year-end compliance review helps reduce the risk of administrative dissolution and other avoidable penalties. This review may include:

• Confirming Arizona Corporation Commission records are current
• Verifying statutory agent information
• Reviewing indemnification provisions^⁷
• Ensuring corporate and tax records align with the legal structure
• Assessing potential exposure to derivative claims under the ALLCA^⁸

Even minor compliance issues can become major problems if left unresolved.

Conclusion

Year-end is an ideal time to assess the legal foundation of your business. Whether your goals include updating your operating agreement, implementing a buy-sell arrangement, or strengthening your succession plan, proactive legal planning helps protect what you’ve built.

As Arizona business attorneys, we provide strategic counsel designed to help businesses enter the new year strong, compliant, and positioned for growth. If you are ready to review your business’s legal health, we invite you to schedule a free 15-minute phone consultation.

1. Arizona Revised Statutes §§ 29-3101 to 29-4202 (Arizona Limited Liability Company Act).
2. Arizona Revised Statutes § 29-3105 (Operating Agreement; Scope, Function and Limitations).
3. Arizona Revised Statutes § 29-3106 (Operating Agreement; Effect on LLC and Persons Becoming Members).
4. Arizona Revised Statutes § 29-3110 (Liability of Members and Managers).
5. Arizona Revised Statutes § 29-3107 (Dissociation of Members).
6. Arizona Revised Statutes § 29-3108 (Dissolution of LLC) and general statutory framework permitting trust ownership of membership interests.
7. Arizona Revised Statutes § 29-3111 (Indemnification).
8. Arizona Revised Statutes § 29-3112 (Derivative Actions)