While creating an LLC is somewhat more complex than creating other types of business entities, much of the difficulty is removed by following the proper procedures and guidelines. Individuals must take each of the following steps when creating an LLC. By relying on legal counsel, individuals can avoid the complications that sometimes arise when taking these steps alone.
- Choose a name for the LLC. The Arizona Corporation Commission must approve the name. The Commission will not grant approval unless the name is easily distinguishable from the names of existing LLCs.
- Prepare the Articles of Organization with a cover sheet and file them with the Arizona Corporation Commission.
- Pay the $50 filing fee to the Arizona Corporation Commission. For an additional $35, the ACC will review the Articles of Organization on an expedited basis.
- Publish a Notice that includes the Articles of Organization. The notice must be published for three consecutive days in a newspaper circulating in the county where the LLC will operate.
- Select a Statutory Agent that can receive legal documents on behalf of the LLC. The Statutory Agent can be an individual or an Arizona company.
- Speak with a professional about tax classification issues. LLCs can be classified differently for tax purposes, and individuals should carefully weigh the relevant factors when deciding how to designate their LLC.
- Obtain the appropriate licenses and permits. LLCs offering a good or service that is subject to sales tax must obtain a transaction privilege tax license. LLCs that provide wages to employees must obtain an Arizona unemployment number and withholding number.
- Decide how the LLC will be managed. A single class or multiple classes of members may manage member-managed LLCs. Manager-managed LLCs have two tiers, with outside managers that operate much like officers in a corporation.
Another integral part of creating an LLC is establishing an operating agreement. An LLC’s operating agreement defines the relationship between owners, and provides a place to define ownership rights and responsibilities. Moreover, an operating agreement is essential to protect limited liability status. Because LLC owners can create the terms of their operating agreement, it is essential that they counsel with an expert about including those most suitable to their enterprise. An operating agreement may include the following issues:
- Definition of whether the LLC is member-managed or manager-managed.
- Terms of Buy-Sell Agreement.
- Capital contribution requirements.
- Allocation of profits and losses.
- How much members and owners will be compensated.
- When and where company meetings will be held.
- The process for transferring ownership interest in the LLC, and right of first refusal.
- To whom authority is given to act on behalf of the LLC.
- Owner and member duties to the LLC.
Because the operating agreement controls the manner in which the LLC will operate, it is important for people to duly consider each term before including it in the agreement. The terms of an operating agreement will be relied on for the life of the company, unless they are revised. LLCs that include a term in an operating agreement without fully understanding the ramifications for doing so could suffer consequences. It is best to establish an operating agreement with a professional who understands the complexities of LLCs.
