The Arizona Entity Restructuring Act

Arizona Entity Restructuring Act

Arizona entities have received some clarity on entity restructuring transactions under the Arizona Entity Restructuring Act (AERA).

Entity Restructuring

An entity restructuring transaction is used when an entity wants to change its structure in one of several ways.  The reasons for such a change vary and may be driven by business, legal, or tax considerations.

For example, a social entrepreneur tests her idea in an LLC and determines capital markets are just not getting it done for her venture. She decides that if she could access philanthropic markets the venture may be sustainable. In this scenario, she may decide to use AREA to convert her Arizona LLC to an Arizona nonprofit corporation.

The reverse, however, is more complicated. Although AERA facilitates the state-level change, the Internal Revenue Code and the organization’s governing documents may still control; think dissolution clause for nonprofits. Federal and other regulatory overlays must not be forgotten when considering a restructuring transaction of any kind; not just those involving nonprofits.

Types of Entity Restructuring Transactions AERA addresses

  • Mergers
  • Conversions
  • Domestications
  • Interest Exchanges
  • Divisions

Prior to the passage of AERA, an entity seeking to change its structure likely had to undergo a multi-step transaction to accomplish its goal.  AERA permits direct conversions and makes clear that it applies to all entity types (corporations, nonprofits, benefit corporations, LLCs, partnerships, etc.). AERA also:

  • Streamlined the procedure for filing with respect to mergers and domestications;
  • Allows conversion of one entity type to another (e.g., corporation to LLC);
  • Changed share exchange to interest exchange; and
  • Allows division.

Finally, the statutes related to entity restructuring transactions can be easily referenced in a signal statute title.  AERA can be found in Sections 29-2101 through 29-2703 of the Arizona Revised Statutes. The Arizona Corporation Commission has also provided a form for the statements required to be filed under AERA.

Related Post: The Arizona Benefit Corporation

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations.  Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.

Share this post

Scroll to Top

How to Start a Non-Profit Organization

Download our free guide to learn about the many elements needed to run a successful nonprofit organization, as well as how to avoid common pitfalls and mistakes.