Arizona corporate law is in place for a legal entity that exists separately from its owners, the shareholders. The Arizona Corporate Commission is in charge of forming all Arizona corporations. A corporation can only exist if the articles of incorporation are filed with the Arizona Corporation Commission. The corporation is then run by the board of directors and the officers only if it is stipulated in the articles of incorporation.

Arizona case law has shown that de facto corporations are not legally recognized. De facto corporations are corporations that do not properly file with the Arizona Corporation Commission. This is why all proper procedures should be taken to file properly with the commission.

2016 Arizona Corporate Law Changes

On August 6, 2016, two legislative bills were enacted into law and became effective on January 1, 2017. The two bills, SB 1356 and HB 2447, continue the updating of corporate law by the Arizona legislature that started with the Entity Restructuring Act.

SB 1356 includes changes that impact corporate governance. Three examples include:

  • A certificate of disclosure must be filed at the time of formation and with annual reports. Disclosures such as criminal and bankruptcy must be reported in five years, not seven.
  • Majority approval is needed to take corporate action via written consent. Previously, this required a unanimous approval. However, if the bylaws were in place prior to ARS§ 10-704's effective date and have not been updated to reflect the new law, they can still require a unanimous vote.
  • Electronic transmission, or signing via an electronic format, is now permitted when providing consent in place of a meeting of the board or shareholders. The meeting minutes should be in the form in which they are maintained, either written or electronic.

HB 2447 is a requirement that the Arizona Corporation Commission create a searchable database. The database will include documents that are required to be published. A fee from the Arizona Corporation Commission will not be charged for any entity that enters information into the database. However, a special caveat says that only entities whose place of business is in a county with a population of 800,000 people or more will have access to the database. At the time this law was enacted the only counties that qualify are Pima and Maricopa counties.

Arizona Shareholder Law

Arizona has specific laws in place in respect to shareholders. Shareholder inspection rights give the shareholder access to review corporate documentation. The law limits the review to specific files, and the shareholder must provide notice five days prior to their visit. The visit must be within business hours at the corporation's principal office. Documents that are required to be available include:

  • Articles of incorporation.
  • Corporate bylaws.
  • Resolutions related to classes or series of shares.
  • Shareholder meeting minutes.
  • Records of action in the previous three years that occurred without a meeting.
  • Written shareholder communication over the last three years.
  • Names and business addresses of current directors and officers.
  • The most current annual report.
  • Shareholder agreements.

If the corporation does not comply with the shareholder inspection request, the corporation will be liable for any costs incurred by the shareholder including attorney fees. However, the corporation will not need to pay the fees if they can prove they have a reasonable basis for doubt related to the shareholder's demands and intent.

Shareholder oppression, while not addressed by the Arizona court system, includes a statute to allow for judicial dissolution if the “directors or those in control of the corporation have acted, are acting or will act in a manner that is illegal, oppressive or fraudulent,” per Id. § 10-1430(b)(2).

Shareholder derivative suits can only be brought by shareholders who were members at the time the cause of action took place, or if they became a shareholder by another who was active at the time the cause of action took place. Derivative suits may not move forward if an attempt to have the corporation take action has not occurred. In this scenario, the shareholder must wait ninety days before filing suit unless the demand has been rejected. A derivative proceeding requires court approval to be dismissed or settled.

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