Starting a S Corp

By | Forming a Corporation | No Comments

When word gets out that you’re starting a business, suddenly everyone in your social circle becomes a business expert. One of the most common pieces of “friendly advice” new business owners get is to form an S Corp for tax advantages, though the armchair expert offering this advice can rarely expound on what an S Corp is and what the benefits actually entail.

Adopting an S Corporation structure may be advantageous to some businesses, but it’s not for everyone. In fact, it’s far more common to register a different type of business, such as an LLC or proprietorship, and subsequently file to have that business treated as an S Corp for tax purposes. 

What is an S Corp?

An S Corp (short for S Corporation) is a simplified version of a C Corp (or C Corporation), offering many of the standard C Corp advantages while stripping away some disadvantages. S Corps are a popular choice for business owners for the following reasons:

  • Annual tax filing requirement
  • Investment opportunities
  • Limited liability
  • Pass-through taxation
  • Perpetual existence

While that is an impressive list of benefits, there are still plenty of situations where an S Corp is inadvisable or simply impossible.

For example, only US citizens and permanent residents can register an S Corp, which prevents visa-holders and illegal immigrants from starting or owning an S Corp in Arizona.

An S Corp also can only have up to 100 shareholders, which can be problematic when a business is trying to raise capital from outside investors.

S Corps are more costly to register and operate than a simple proprietorship or LLC, and they also tend to invite increased scrutiny from the IRS and the Arizona Department of Revenue.

Considering you can lose your S Corp tax benefits if you fail to uphold the various filing requirements, many S Corp owners in Arizona hire an accountant and/or attorney to ensure their compliance with state and federal requirements.

While there are surely benefits of filing as an S corp, it will bring additional ongoing costs you may be able to avoid with a simpler business structure. It depends entirely on your specific situation and the goals of the company.

How to Set Up an S Corp in Arizona

Setting up an S Corp in Arizona can be rather complicated. The state provides an excellent platform for e-filing that makes the process fairly smooth, but it can be a confusing landscape for new business owners.

Generally speaking, there’s a 10-step process to incorporating a new business in Arizona:

  1. Choose and reserve your business name
  2. Appoint a registered agent (referred to as a statutory agent in Arizona)
  3. Appoint initial directors
  4. Prepare your corporate bylaws
  5. Draft and file your Articles of Incorporation 
  6. Issue stock certificates to shareholders
  7. Apply for appropriate business licenses and industry-specific certificates, if required
  8. Apply for a Federal Employer Identification Number (FEIN) with the IRS
  9. Apply for state and local ID numbers (e.g. sales tax, employee withholding)
  10. File Form 2555, Election by a Small Business Corporation, with the IRS within 75 days of formation

The Arizona Corporation Commission imposes a number of fees for registering and maintaining an S Corp, so be sure to check the state’s fee schedule ahead of time. Keep in mind that these fees are separate from the state’s LLC fee schedule, business owners often get them confused and can run into issues.

You’re welcome to register an S Corp on your own, but it’s generally inadvisable to do so. It’s well worth the price to work with an experienced small business attorney who can guide you through the process.

An experienced professional will help you make the important foundational decisions for your business structure and organization, and ensure you don’t make any costly mistakes in the registration process.

Can Other Business Types be Treated as an S Corp in Arizona?

It is true that you can enjoy the tax benefits of an S Corp without actually incorporating in Arizona.

After registering your proprietorship, partnership, Limited Liability Company (LLC), or Limited Liability Partnership (LLP) with the Arizona Corporate Commission, simply file Form 2553 with the IRS.

Registering a different business type before requesting taxation as an S Corp is a great way to cherry pick the benefits you want and the disadvantages you wish to avoid. It eliminates the complexity of registering a corporation, issuing stock, and creating a board of directors, while still allowing you to claim the tax benefits of an S Corp. 

Note, however, that requesting S Corp tax status for a proprietorship or partnership does not come with limited liability benefits. For that, you’d have to register as an LLC or LLP.

How to Add a Shareholder to an S Corporation in Arizona

Adding a new shareholder to an S Corp is a tricky process with potentially significant tax consequences. It’s important to consult with a small business attorney and an accountant before transferring shares to the new owner.

Generally speaking, the process is as follows:

  1. Value the company and assign a value to its stock
  2. Draft a sales agreement that formalizes the transfer of shares to the new owner
  3. Update the Arizona Corporation Commission and the IRS using the appropriate forms

Adding a new shareholder is also subject to your corporation’s bylaws. Even if you’re the sole-owner of the business, that means you may need approval from the board of directors before taking on a new shareholder.

Receive Help With Your Arizona Business

It’s a good idea to consult with a small business attorney before deciding on a business structure and filing strategy. Choosing the right type of business structure and getting the necessary paperwork is a tall order, and it’s much easier when you’re working with an expert who can guide you through the big decisions.
 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

How to Pay Taxes on an LLC

By | Forming an LLC, Small Business Representation, Taxes | No Comments

Limited Liability Companies (LLCs) are commonly referred to as a tax pass-through entity. Where corporations pay corporate taxes, LLCs do not pay taxes at the business level.

Instead, the company’s profits and losses are passed to the owners, who report their respective gain or loss on their annual income tax return.

Paying Taxes on Income From an LLC in Arizona

The IRS does not distinguish LLCs. Instead, the LLC must elect to be treated for tax purposes as a sole proprietorship, a partnership, or a corporation.

Sole Proprietorship and Partnerships

When there’s only one business owner, the member can elect to be taxed as an individual or as a corporation.

When there’s two or more business owners, the members can elect to be taxed as partners or as a corporation. Note that for partnerships, the members can split the profits and losses as they see fit, regardless of ownership percentage. 

For LLCs that elect to be taxed as a proprietorship or partnership (the most common scenario), the member(s) pay their annual taxes through quarterly estimated tax payments.

The easiest way to pay quarterly estimated tax payments is online through IRS Direct Pay, but you can also elect to send a check by mail.    

The state of Arizona also requires estimated tax payments to fulfill state income taxes, but only when the member’s individual income is over $75,000 (or joint income over $150,000 for married individuals).

If you are subject to estimated tax payments for Arizona income taxes, you must pay at least 90% of the tax due for the current year or 100% of the tax due for the previous year.

Corporations

LLCs that elect to be taxed as a corporation are much trickier when it comes to taxes, so you’ll want to discuss your situation with a small business attorney.

Generally speaking, an owner who reports income from an LLC taxed as an S Corp will report their income on a Schedule K-1. They may also receive income in the form of corporate dividends, which would be taxed as capital gains.  

How Much Tax Should You Pay on Your Salary in Arizona?

Tax brackets are frequently changing, so it’s important to consult the most recent tax publications from the IRS and the Arizona Department of Revenue. 

There are seven federal tax brackets as of 2019: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Your tax bracket depends on your taxable income and filing status.

There are only four income tax brackets in Arizona. As of 2019, the tax rates are 2.59%, 2.88%, 3.36%, 4.24%, and 4.54%. Again, your tax bracket hinges on your taxable income and filing status.

Federal and state income taxes are often the first taxes on Arizonans’ minds, but don’t forget about Medicare and Social Security taxes.

As of 2019, the Medicare tax rate is 1.45% and the Social Security tax is 6.2%. That’s a combined 7.65% tax, though there’s an annual maximum of $8,239.80 that kicks in for high-income households.

Self-Employment Tax

That’s all the taxes you have to worry about as an employee, but if you’re self employed in Arizona you also have to pay the self employment tax of 7.65%.

Before you start complaining how unfair that is, keep in mind that employers pay that tax for their employees, too. It may not come directly out of an employee’s paycheck like it does for self employed professionals, but rest assured an employee’s compensation package takes that tax into effect. 

How to Pay Payroll Taxes for a Small Business in Arizona

The easiest way to pay payroll taxes in Arizona is through the state’s e-filing portal, AZTaxes.

Small businesses can also use this website to file and pay transaction privilege taxes (i.e. sales tax), pay corporate income taxes, verify the status of tax licenses, and find the answers to frequently asked questions.

Note that filing taxes electronically is actually a requirement for businesses of a certain size in Arizona. As of 2019, the following criteria determines which Arizona taxpayers are required to pay electronically:

Withholding taxes: taxpayers with an average quarterly liability of $2,500 or more for withholding tax during the prior tax year

Corporate estimated tax: corporations with a prior tax year liability of $10,000 or more

Transaction privilege tax: taxpayers with a prior tax year liability of $10,000 or more

Tobacco luxury tax: all licensed distributors must submit all documents and payments electronically through Arizona Luxury Tax Online (ALTO)

Related Questions

How Much Can I Pay Someone Without Paying Taxes in Arizona?

An employer’s obligation to withhold taxes for an employee depends on whether they are an employee or an independent contractor. As long as the individual in question is actually an employee, you’ll need to withhold payroll taxes regardless of how much you pay them. 

For independent contractors, you are not required to withhold any taxes. However, you are required to report their income to the IRS on Form 1099 MISC if the income is greater than $600.

Do YouHave to Pay Self Employment Tax on a 1099 MISC in Arizona?

Independent contractors are required to pay self employment taxes on all of their freelance income — not just the total reported on their 1099 MISC. For example, taking payments via PayPal or Venmo doesn’t result in a 1099 MISC, but your income from these sources is still subject to income taxes and self employment taxes.

How to Pay Taxes Monthly When Self Employed in Arizona

Just as an employer withholds an employee’s income in anticipation of taxes due at the end of the fiscal year, self-employed professionals are required to send the IRS estimated tax payments throughout the year.

You may be fined for not sending in enough estimated taxes, so it’s important to forecast your annual income to estimate your tax bracket.

The IRS requires quarterly estimated tax payments, though some self-employed professionals choose to send in monthly payments. As long as you’re meeting the quarterly minimum requirement, it doesn’t actually matter whether you send in payments monthly, bi-monthly, or every three months.

Receive Legal Help With Your Arizona Small Business

Owning a business is rewarding, but also comes with responsibility and important decisions to make, like deciding how the business files taxes. Working with a small business legal professional can help your Arizona business thrive.

A small business attorney can help you decide on the best direction for your company, which can result in your business qualifying for tax breaks and exemptions.
 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

Can I Be My Own Registered Agent?

By | Forming an LLC | No Comments

When registering a business in the state of Arizona, you’re required to register a statutory agent (aka registered agent) with the Arizona Corporation Commission. This individual will serve as the legal point-of-contact for official correspondence on behalf of your business, receiving official mail from the state and accepting Service of Process for court documents.

Many new business owners gloss over this seemingly minor appointment, often defaulting to themself or their spouse without much thought. Unfortunately, this can lead to challenges down the road that may jeopardize your business.

As long as you meet Arizona’s simple qualifications, you certainly have the right to be your own statutory agent. However, the better question isn’t “can I” — but “should I be my own registered agent?”

What is a Statutory Agent in Arizona?

Before we dive into who should serve as your statutory agent, it helps to understand what the role entails. 

In Arizona, a business’s registered agent is legally referred to as the statutory agent. The terms are generally interchangeable as most other states refer to the position as a registered agent, but you’ll need to use the proper terminology on state documents and applications.

What does a statutory agent do? A statutory agent is generally tasked with receiving important documents, including:

  • Official correspondence from the state
  • State and federal tax correspondence
  • Service of Process

If you’re thinking these duties are as simple as picking up the mail, think again.

When the government mails a time-sensitive letter to the statutory agent, they expect it to be opened and acted upon in a timely manner. If the correspondence includes a deadline, such as a requirement to pay a past-due tax balance by a certain date, you can’t claim the excuse that you didn’t pick up the mail until after the deadline. 

Similarly, when someone files a lawsuit against your business and attempts to deliver court documents via Service of Process, you’ll be in trouble if the courier can’t reach the statutory agent during normal business hours.

You can also find yourself in a pickle if your statutory agent neglects to pass the documents to you in a timely manner. There’s often a strict timeline attached to court cases, and your failure to act or respond within the allotted time can lead to serious consequences. 

Who Can Be a Statutory Agent in Arizona?

Under Arizona law, a statutory agent must be “an individual resident of this state, a domestic corporation, a limited liability company or a foreign corporation or limited liability company authorized to transact business in this state” (ARS 29-604).

The statutory agent must have a physical address in the state of Arizona (not a PO Box or CMRA), and he or she must be available during normal business hours to receive Service of Process.

Under these restrictions, the following individuals can serve as a statutory agent provided they maintain a permanent residence in Arizona:

  • The business owner
  • A business member, manager, executive, or employee
  • A trusted family member (e.g. your spouse)
  • A trusted friend or neighbor

Third-party business entities can serve as a statutory agent, too. It’s actually quite common for business owners to outsource the role of statutory agent to an Arizona Statutory Agent Service, though doing so requires a monthly or annual fee.

Should I Be My Own Statutory Agent?

Now that we understand you can serve as your own statutory agent, let’s talk about the pros and cons of appointing yourself to the position.

The obvious benefit to serving as your own registered agent is that it’s free — you don’t have to pay a third party to handle your business correspondence for you. It also removes the anxiety of worrying about a third party statutory agent failing to receive correspondence and Service of Process and pass important documents along to you. 

The primary challenge of serving as your own statutory agent is that you’ll be rooted to your office.

The statutory agent has a legal responsibility to be available at the listed address during normal business hours, meaning you’ll technically be in breach of state law if you are frequently out of the office (lunch breaks and occasional meetings aside). The associated risk of getting caught out of the office is relatively low, but if the Arizona Corporation Commission or a Service of Process courier is repeatedly unable to reach you, the state may administratively shut down your business.

Other than that, the risks of being a registered agent are minimal.

As long as you can fulfill the state’s mandate to be available in the listed location during normal business hours, it’s completely acceptable to be your own registered agent. However, if you’re frequently out of the office for sales appointments or regularly traveling, you should consider designating a third party as the statutory agent. 

How to Be Your Own Statutory Agent in Arizona

Once you’ve made the decision to be your own statutory agent, the registration process is easy. As you’re preparing your Articles of Incorporation (Corp) or Articles of Organization (LLC), you’ll simply need to list the statutory agent’s name, address, and email address. 

Filing your Articles of Incorporation or Articles of Organization requires much more than your statutory agent designation, though. Depending on the complexity of your business, you may wish to consult with a small business attorney before filing to ensure everything is in order.

How to Designate a Third Party Statutory Agent in Arizona

Whether you choose to designate another business owner (referred to as a member for LLCs), employee, family member, or friend, the registration process is largely the same in Arizona. Simply list the individual’s name, address, and email address on the Articles of Incorporation or Articles of Organization.

When hiring a Statutory Agent Service in Arizona, the agency’s information is often listed in the state business registration database. When you’re e-filing your Articles, you can simply select the agency from the drop-down menu and it will autofill their information. 

In any case, designating a third party statutory agent does require one additional step. After submitting your business application to the state, the Arizona Corporation Commission will email the statutory agent to confirm their appointment.

The statutory agent will have 7 days to click on the confirmation link in the email and affirm their acceptance. Be sure to speak with this third party in advance to obtain their permission, and follow up to ensure a timely confirmation.
 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

How to Pay Yourself with an LLC

By | Forming an LLC | No Comments

Limited Liability Companies, or LLCs, are one of the most popular types of small businesses in Arizona. An LLC offers the benefits of business ownership without the personal liability that comes with standard proprietorships and partnerships.

It also strips away the complexity of a corporation, making it easier for Arizonans to pursue their dream of starting a business.

LLCs are referred to as tax pass-through entities because the business itself doesn’t pay income taxes. Instead, the owner(s) take a distribution of the company’s annual profits and report that income on their personal income taxes. This avoids the challenge of double taxation that corporations face, though it can make paying yourself a little confusing.

There are three ways that you can pay yourself as the owner (or member) of an LLC:

  1. Taking distributions from profits
  2. Paying yourself a salary
  3. Paying yourself as an independent contractor

Taking Distributions From Profits

The most popular way to pay yourself with an LLC is to take distributions of the company’s annual profits. This is the most flexible solution, as your annual income is pegged to the company’s profitability — not a set salary.

In a single-member LLC, the sole owner has a 100% claim to the company’s annual profits. In a multi-member LLC, each owner shares a percentage of the profits based on their percentage of ownership in the company. In either case, the member’s percentage is often referred to as their capital account.

For example, if your single-member LLC has an annual profit of $200,000, you can take a distribution of up to $200,000. In a multi-member LLC where your ownership stake is 50%, you could take a distribution of up to $100,000.

Of course, most people like to get a paycheck more often than once a year. Based on your year-end profit projections, you could set up a draw on a regular basis to provide consistent income throughout the year.

It doesn’t matter if the draw is weekly, monthly, or quarterly — the amount just needs to be based on accurate profit projections. If you reach the end of the year and there are excess profits that you didn’t draw during the year, you can take a one-time distribution or leave those profits in the capital account for next year’s draws.

When tax season arrives, the owner of a single-member LLC will simply need to file a Schedule C with the IRS to report the profits and losses of the LLC on their personal tax return.

For multi-member LLCs, the company would need to file IRS Form 1065 to report how the profits are divided among the members. The members would then report their share of the profits on a Schedule K-1.

Paying Yourself a Salary

LLC members also have the ability to pay themselves a salary. You must qualify as an employee of the company by actively working in the business with an actual role and real responsibilities, but that shouldn’t be a problem as most LLC owners can check those boxes.

As with a corporation, employee wages are deducted from the company’s profits as an operating expense. So, any salary you take will have a direct impact on your ability to take distributions from profits.

If you choose this route, the IRS expects you to pay yourself a reasonable wage that reflects industry norms. You’ll be at serious risk of an IRS audit if you choose a massively inflated salary that doesn’t reflect similar-sized businesses in your industry, or if the company’s profits don’t justify the salary.

In the same breath, you can also pay yourself (and any other employees) bonuses. Just be sure bonuses are in line with the employee’s salary if you don’t want to raise any red flags with the IRS.

One area where paying salaries to LLC owners can get a little tricky is when you’re dealing with a multi-member LLC. When LLC members are equal participants in the company, you can’t just pay one salary while the other members take distributions — it’s an all or nothing approach in this scenario.

However, if you have an active management role and the other LLC members are silent partners who simply provided the capital, you could pay yourself a salary and bonuses without setting up salaries for the other owners.

Should you choose to pay yourself a salary, you’ll need to file IRS Form W-4 and withhold payroll taxes from your paychecks. Come tax season, the LLC must issue you a W-2.

Paying Yourself as an Independent Contractor

This is the least popular route for paying yourself from an LLC, but it’s certainly an option. Freelancers who perform irregular work with unpredictable income streams occasionally choose this route, though it’s worth noting that taking distributions from profits would be easier.

Paying yourself as an independent contractor would require filing IRS Form W-9 with the LLC. At the end of the fiscal year, the LLC would then issue IRS Form 1099-MISC to report your income for personal income taxes.

Payment Options are not Mutually Exclusive

As the owner of your LLC, you have the right to dictate how and when you’re paid. If you’d like to pay yourself a regular salary throughout the year and take a lump sum distribution of remaining profits at the end of the year, that’s perfectly acceptable. 

The only combination the IRS will not allow is claiming yourself as an employee and an independent contractor. By definition, you cannot be both. 

If you’re having a hard time deciding the best way to pay yourself from your LLC, talk it over with a small business attorney or accountant. An experienced professional can help you establish a plan that maximizes your income while minimizes your tax burden.

Can You Elect to Not Pay Yourself From an LLC?

In some cases, entrepreneurs choose to keep profits within their business to fuel growth rather than take personal income. That’s perfectly acceptable, though you’ll still have to report the business profits each year on your personal income tax return. As a tax pass-through, the tax burden always falls to the LLC members — not the business itself.

Working With a Small Business Attorney in Arizona

Creating a new business is exciting and is filled with important decisions to make, like which type of business entity best suits your business. Understanding exactly which type of business entity your company should use is not always simple, as each business entity type comes with different benefits and drawbacks.

Having an experienced small business law attorney by your side will have countless benefits, such as explaining the differences between your options (LLC, Sole Proprietorship, S Corporation, etc.) and the advantages and disadvantages each would have for your company.

JacksonWhite has a team of lawyers dedicated to providing legal counsel to Arizona small businesses. The benefits of working with a small business attorney highly outweigh the costs of hiring one, especially during the early phases of a company’s creation. Contact us today to discuss your business needs and we will help set you on a course for success.
 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

How to Secure Startup Costs Using Arizona Small Business Grants

By | Blog | No Comments

Are you wondering how to get government grants for your small business and not sure where to start? Securing capital can be one of the trickiest parts of any new business venture, reaching a grant can take some stress out of the equation. 

Whether or not you will qualify for free funding to support your company will depend on the nature of your business and a few other factors. Funding for small businesses and startup grants are typically given if the work you’re doing aligns with specific local needs in Arizona.

The Arizona Commerce Authority

The ACA is a helpful resource for Arizona residents who are starting a small business. You can check their website periodically for grant opportunities and competitions.

The AZ STEP Program

The Arizona Commerce Authority runs the Arizona’s State Trade Expansion Program (STEP). The STEP Grant offers some funding to small businesses expanding into the international market or exporting their products for the first time. The program is partially funded by a grant from the Small Business Organization (SBA).

It enables eligible businesses in the state to contribute to economic growth, job creation, and increase their revenue through international sales.

STEP Program Benefits

Financial assistance, capacity building, and tech help are just a few of the benefits you may gain from working with this program. Here are some of the specific tools and services that AZ STEP may help your small business with:

  • Export counseling for your business via webinars, seminars, or education and training workshops.
  • Help creating a strategy for your company to choose the right markets and enter those which are suitable for your service or product.
  • Assistance for your business in identifying distributors, potential buyers, agents, and strategic partners to work with.
  • Help with search engine optimization, translation, and website localization for your business regarding export markets.

Opportunities Through Grants.gov

The U.S. government runs Grants.gov to help small business owners find funding. The site has a searchable data base and information on grants available to businesses in a variety of industries.

Whether you are seeking an equipment grant for your small business or some other funding, you can register your organization and get started in your search.

Disability Small Business Grants

If you want to apply for small business grants as a disabled state resident, the Arizona Rehabilitation Services Administration is a good place to start.

AZRSA Assistance

The AZRSA provides vocational counseling, work experience, job placement assistance, and skills training. They might also be able to offer you help with your small business startup costs. To qualify, you must meet the program’s eligibility criteria and develop a business plan that the AZRSA approves.

Keep in mind that this only applies to startup costs and not ongoing expenses for your business. Financial assistance from the AZRSA may not cover all of your expenses and will not supply recurring or ongoing financial support.

While this service is not always available, you may be able to secure funding depending on the office you apply with, your business idea, and the Vocational Rehabilitation counselor you go through. You will want to get in touch with the AZRSA to learn more and find out whether you qualify.

VA Small Business Grants

If you are a veteran with small capital needs for your business, the National Association for the Self-Employed (NASE) Growth Grant may help. This service supplies funding up to $4,000. You may use the funds for hiring new employees, purchasing equipment, or other specific purposes.

NASE Membership

To apply for monthly-distributed financial rewards, you must first become a NASE member. Annual NASE membership fees are $120, but veterans get a discounted $99 rate.

The OSDBU for Veterans

If you’re a veteran and own a small business in Arizona, you might qualify for support from the VA. The Office of Small and Disadvantaged Business Utilization (OSDBU) runs a program called the Vets First Verification Program.

Registering your business may give you better access to capital, tax relief, and priority when you bid on federal contracts.

Small Business Grants for Women

If you’re looking for a grant as a female small business owner, the Amber Grant is a good starting point.

The Amber Grant

WomensNet offers this $2,000 grant every month to women across the country. If you win, you’re automatically eligible for the end-of-year $25,000 Amber Grant for your business.

The AWEE

For further resources as a woman hoping to start or run a small business in Arizona, check out the Arizona Women’s Education and Entrepreneur Center (AWEE). This organization provides education and resources, mentoring, counseling, workshops, and other services at no cost. Resources are available in both English and Spanish.

Rural Small Business Grants

As a rural small business owner in Arizona, you might qualify for financial assistance through the USDA.

The RBDG Program

The Rural Business Development Grants program is a competitive grant for small businesses in rural areas. The program helps with technical assistance, training, and expansion for eligible businesses that have less than $1 million and will employ no more than 50 new employees.

Check Your Eligibility

RBDG funds are for projects that benefit rural communities or towns outside of cities with at least 50,000 people. You can use the Rural Business Services Tool to find out what type of funding you might qualify for.

Further Assistance for Small Businesses in Arizona

Securing funding for your business is only one step along the path to starting a successful company in Arizona. Running a small business will involve complying with federal and state laws. 

Looking for shortcuts in the beginning might lead to obstacles down the road as your small business expands. You can save yourself some time by staying on top of the laws that affect your industry

If you need help with business-related questions such as employment audits, local business laws, tax questions, or related concerns, get in touch with one of our attorneys today.
 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

Creating an LLC in Arizona: 7 Steps to Forming a Limited Liability Company

By | Blog | No Comments

The process of registering a business is dictated by state law, so the actual process and timeline varies across the country. In some states, you can register your business and open up shop in less than a week. In other jurisdiction, it can take months to process the paperwork before you receive the green light to launch your business.

Arizona is one of those states that generally takes longer to register an LLC, but with an experienced small business specialist at your side it’s a fairly straightforward process.

How to Create an LLC in Arizona

Creating an LLC in Arizona is easier than you think. After consulting with a small business specialist, there are just seven simple steps to register your business with the proper agencies:

Step One: Choose a Name

Before diving into all of the forms and applications to register your business, you’ll need to settle on a business name. Choosing a name that’s catchy, easily searchable, and has an available domain name should be your primary focus, but it’s also important to follow the state’s naming guidelines:

  • Check the eCorp business entity database to ensure your business name is available
  • The business name must include the words “limited company,” “limited liability company,” or the abbreviations LLC, LC, L.L.C., or L.C. 
  • Professional LLCs must include the words “professional limited liability company” or the abbreviations PLLC, PLC, P.L.L.C., P.L.C.
  • The business name cannot include the words “incorporated,” “corporation,” “association,” or an abbreviation of these words
  • Do not include the words “bank,” “banker,” “banking,” “banco,” “banc,” “banque,” “credit union,” “deposit,” “savings association,” “building association,” savings and loan association,” “savings bank,” “thrift,” “trust,” or “trust company” without prior written authorization from the Arizona Department of Financial Institutions

Most LLCs don’t require registering a DBA (doing-business-as alias) or trade name. However, you’re welcome to register one if you prefer to use another business name for marketing or other purposes.

Step Two: Choose a Statutory Agent

Arizona LLCs are required to nominate a statutory agent, referred to in other states as a registered agent. The statutory agent can be an individual or business entity, and will be responsible for receiving legal documents on behalf of the business. In short, the statutory agent is the middleman between your business and the state.

When the statutory agent is a person, the only requirement is that he or she must be a resident of Arizona. When the statutory agent is a corporation, the business must be authorized to transact business in Arizona.

In most cases, the business owner or founder elects himself/herself to be the statutory agent. However, there are circumstances where it may be wise to elect a third party to this position. There are a number of organizations that offer outsourcing of the statutory agent position for a fee. 

Step Three: File the Articles of Organization

Now that you have a business name and a statutory agent, it’s time to register your business with the Arizona Corporation Commission. The easiest way to register your business is online through the eCorp website, but you can file by mail or in person if you prefer.

Should you decide to file by mail or in person, you’ll need to download and complete four important forms:

There is a $50 nonrefundable fee to file your LLC registration paperwork with the Arizona Corporation Commission. The standard processing time is 50-55 days, though you can request to expedite your application for an additional fee.

Step Four: Complete Publication Requirements (if applicable)

Businesses whose principal address is outside of Maricopa County or Pima County are required by law to publish a Notice of LLC Formation for three consecutive weeks in an approved newspaper. Businesses have 60 days to comply with this order after forming an LLC.

While this may be a nuisance, the good news is you don’t have to write a whole article about your business. Your Notice of LLC Formation simply needs to include five elements:

  1. The business name
  2. The statutory agent’s name and street address
  3. The address of the LLC’s principal place of business
  4. Whether the business is manager-managed or member-managed
  5. The name(s) and address(es) of any LLC managers and members

Step Five: Obtain an EIN

An Employer Identification Number (EIN) is used to identify your business. Sometimes referred to as a Federal Tax Identification Number (FTIN) or FEIN, it’s the equivalent of a social security number for business entities.

Though you don’t need an EIN to register your business with the Arizona Corporation Commission, you will need it for state and federal tax purposes. You’ll also need an EIN to open a business checking account, and when you eventually begin to hire employees.

Obtaining an EIN is easy and free of charge. The IRS handles EIN applications online through their EIN Assistant. You’ll receive your EIN immediately upon completing the online application, and the IRS will mail a formal letter with your EIN to keep in your records.

Step Six: Register with the Arizona Department of Revenue (if applicable)

Businesses that sell physical products or taxable services will need to apply for an Arizona Transaction Privilege Tax (TPT) License. In other states, this is referred to as a sales tax license, tax license, vendor license, wholesale license, or resale license. It is not a business license (business licenses aren’t required in Arizona).

When you’re ready to apply for a TPT License, visit the Arizona Department of Revenue’s AZTaxes Registration Page. If you have any questions regarding your business’ tax liability, you should discuss your situation with a business law attorney or small business tax accountant.

Step Seven: Register your LLC with the city

The Arizona Department of Revenue will handle the collection of all state, city, and local TPT taxes, but you’ll still need to register your business with the city where you do business. The application and registration process varies by city, as do the associated fees.

While the Arizona Corporation Commission doesn’t issue business licenses, many cities do. You should receive a business license from the city in the mail, and depending on local ordinances you may be required to display the license if your business is open to the public.

How long does it take to form an LLC in Arizona?

Though processing times vary depending on the number of pending applications, it generally takes a little under two months to process an LLC registration in Arizona. Most applicants report the process takes 50 – 55 days.

If time is of the essence, you can pay an additional fee for expedited processing. Instead of waiting up to two months, an expedited case should be processed in about 10 days.

Working With a Small Business Attorney to Create Your LLC

Creating a new business is exciting and is filled with important decisions to make, like which type of business entity best suits your business. Understanding exactly which type of business entity your company should use is not always simple, as each business entity type comes with different benefits and drawbacks. Having an experienced small business law attorney by your side will have countless benefits, such as explaining the differences between your options (LLC, Sole Proprietorship, S Corporation, etc.) and the advantages and disadvantages each would have for your company.

JacksonWhite has a team of lawyers dedicated to providing legal counsel to Arizona small businesses. The benefits of working with a small business attorney highly outweigh the costs of hiring one, especially during the early phases of a company’s creation. Contact us today to discuss your business needs and we will help set you on a course for success.

 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

How the Arizona Corporation Commission Affects Small Businesses

By | Blog | No Comments

Arizona is one of only seven states with a Commission formed by state constitution. There are only 13 states with elected commissioners — the rest are appointed by the state legislature or governor.

Established by Article 15 of the Arizona Constitution, the Arizona Corporation Commission has a broad mandate. Under the direction of five elected commissioners, the Commission has jurisdiction over four major areas: corporations, safety, securities, and utilities.

The Corporations Division

The Corporations Division of the Commission handles a variety of responsibilities related to corporations and limited liability companies in Arizona. Generally speaking, the Corporations Division is charged with the following tasks:

  • Approving articles of incorporation for Arizona businesses
  • Approving articles of organization for limited liability companies
  • Granting authority to foreign corporations to do business in Arizona
  • Ensuring companies doing business in Arizona operate lawfully
  • Revoking corporate charters of corporations that fail to comply with Arizona law
  • Collecting annual reports from Arizona corporations reflecting current status, business, and financial conditions
  • Maintaining a public record of annual reports from Arizona corporations
  • Responding to public questions concerning Arizona businesses and corporation law
  • Disseminating important information to Arizona businesses
  • Handling amendments, consolidations, mergers, dissolutions, and withdrawals related to articles of incorporation or articles of organization for Arizona corporations and LLCs

The Safety Division

The Safety Division of the Arizona Corporation Commission is divided into two sections: Pipeline Safety and Railroad Safety.

The Pipeline Safety Section of the Arizona Corporation Commission enforces pipeline safety standards and operating practices for transporting gas and hazardous liquids by pipeline. They also enforce safety standards and operating practices for liquefied natural gas facilities, and inspect all interstate gas transmission and hazardous liquid pipeline facilities.

The Railroad Safety Section of the Arizona Corporation Commission enforces federal safety standards for railroad operating practices, signals, tracks, motive power and equipment, and the shipment of hazardous materials by railway. This section is also responsible for inspecting and reviewing industrial tracks and rail-highway crossing construction projects.

The Securities Division

The ultimate mission of the Securities Division is to protect Arizonans against securities fraud. That may sound like a simple mandate, but it’s far from easy. To foster a fair and honest securities market in Arizona, the Securities Division handles the following tasks:

  • Reviewing prospective securities offerings to ensure full and fair disclosure 
  • Screening prospective securities offerings for fraud
  • Registering securities salespersons, dealers, investment advisors, and investment advisor representatives
  • Monitoring the conduct of securities salespersons, dealers, and investment advisors
  • Investigating securities violations
  • Initiating administrative actions, civil lawsuits, and referring cases for criminal prosecution

The Utilities Division

The Utilities Division of the Arizona Corporation Commission has jurisdiction over the quality of service and rates charged by public service utilities in Arizona. Given the fact that public service utilities are regulated monopolies with no local competitors, balancing the interests of local citizens, businesses, and utility companies is an ongoing challenge. The goal is to keep rates fair for citizens and businesses, while allowing utility companies to earn a fair profit.

To accomplish this task, the Utilities Division assumes the following responsibilities:

  • Researching and developing utility issues
  • Providing information and evidence in Commission proceedings regarding utility applications
  • Monitoring the quality of utility service
  • Monitoring utility rates approved by the Commissioners
  • Inspecting gas pipelines and railroad safety programs in conjunction with the Safety Division

In Arizona, utility rate changes require Commission approval in an open meeting. The process often takes 4 – 6 months before the hearing takes place, during which time the Utilities Division will audit the utility company’s books and records, hold discussions with interested parties, formulate a staff recommendation, analyze the impacts of the recommendation, and prepare written testimony and schedules. 

Which Utility is Regulated by Arizona’s Corporation Commission?

The Utility Division of the Arizona Corporation Commission has jurisdiction over four classes of public utilities: electric, gas, telephone, and water/sewage. The Division’s Consumer Services Staff is able to assist consumers with inquiries or disputes relating to these utilities, including:

  • Rates and charges
  • Installations and disconnections
  • Responsibility for utility bills
  • Deposit requests
  • Refusal of service
  • The type and quality of utility service
  • A utility company’s procedures and policies

Unfortunately, the Utilities Division does not have jurisdiction over inquiries and disputes regarding public utility merchandise, complaints against landlords or property owners, bottled propane or oil companies, municipally-owned utilities, cable television services, satellite TV service, or internet providers.

Arizona certificate of good standing

A certificate of good standing is an official document issued by the state that verifies a business entity is legally registered with the state and authorized to do business. In other states, the same document may be referred to as a certificate of status or certificate of existence.

To obtain a certificate of good standing from the Arizona Corporation Commission, search for your business entity name online through the Commission’s eCorp database. On the business entity’s information page, click on the button that says “Check Corporate Status.” As long as the business is in good standing, you may pay $45 to print a certificate of good standing from this page.

Arizona Corporation Commission Processing Times

In most cases, the Corporations Division is able to process paperwork related to LLCs and corporations in 3-4 weeks. However, actual processing times are always subject to change based on the division’s current workload.

If you’re in a hurry and can’t wait 3-4 weeks for the Corporations Division to process your paperwork, consider paying for expedited processing. Expedited processing cuts your wait time in half, and in some cases it can process in less than a week.

What is a Corporate Commissioner?

While the Arizona Constitution initially provided for three commissioners, Arizona voters approved a ballot measure in November 2000 expand the Commission to five Commissioners. These elected officials are charged with approving and denying utility rate adjustments, approving securities matters, and enforcing safety and public service requirements.

Commissioners are elected to an initial four-year term, with the possibility of being reelected to an additional consecutive four-year term. When a vacancy arises between elections, the governor can appoint a commissioner to fill the office until the next general election. While all five commissioners are elected by the public, it’s up to the commissioners to choose a Chairman of the Arizona Corporation Commission.

Arizona Corporation Commission Annual Reports

The Arizona Corporation Commission publishes an annual report every year. The purpose of this report is to keep the public apprised of the Commission’s organization, important accomplishments, ongoing priorities, and upcoming initiatives.

You can view the Commission’s most recent annual report online. The Commission maintains an online archive of past annual reports, too.

Receive Help With Your Small Business Needs in Arizona

Whatever your needs are as a small business or corporation in Arizona, working with a small business attorney is the best way to ensure that your company is in compliance with Arizona laws. When it comes to running a business you want to make sure that you are doing everything legitimately, and the benefits of being in compliance with all Arizona business laws will make your company more attractive to customers and investors alike. Consider speaking with the JacksonWhite small business law team and we can discuss your business law needs and how to set your company on track for success.

 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

What the Law Says About Small Business Loans in Arizona

By | Blog | No Comments

When you’re launching a small business, finding adequate funding can be a major obstacle. Even if you have the greatest business idea of the century, banks are reluctant to loan money to a brand new entity with no collateral and limited financial records.

Fortunately, the government takes a special interest in supporting small businesses to fuel job growth, lift communities, and boost tax revenue. The government formed the Small Business Administration in 1953 to help bridge the gap between small business owners and banks, and since then the SBA has helped thousands of entrepreneurs launch and grow their businesses.

SBA-Backed Small Business Loans

The Small Business Administration doesn’t lend money directly to small businesses, but the agency is instrumental in helping small businesses obtain loans with local lenders. The SBA makes it easier for small businesses to access capital by reducing the risk for lenders. It also protects small businesses by setting guidelines for SBA loans made by partnering lenders, community development organizations, and micro-lending institutions.

Small business loans backed by the SBA offer competitive terms, with interest rates and fees comparable to standard non-guaranteed loans. Some loans include counseling and education programs to help you launch and lead your business. They also offer unique benefits like flexible overhead requirements, lower down payments, and no collateral, depending on the type of loan.

SBA loans can range from as little as $500 to as much as $5.5 million dollars. You can use the funds for most business purposes from working capital to long-term fixed assets, though some loans will specify what you can use the funds for. It’s best to discuss your case with an SBA loan specialist before filling out the paperwork to ensure the loan in question matches your needs. 

SBA 7(a) Loans

The 7(a) program — the SBA’s primary, most popular type of loan — is what most people have in mind when they think about an SBA loan. With the potential to provide up to $5 million, proceeds from a 7(a) loan may be used to buy a small business, expand a business, purchase new land (including construction costs), refinance existing debt, repair existing capital, and purchase assets like materials, supplies, fixtures, and machinery.

To qualify for an SBA 7(a) loan, you must have a sound business purpose in mind, a good plan in place, and demonstrate a need for funds. Your business must be a for-profit entity doing business in the United States, and the business must be considered small within the particular industry. You’ll need to demonstrate an ability to fund some of the business with your own equity, and you must have tried to use other financial resources (including personal assets) before applying for the loan. 

SBA 504 Loans

SBA 504 loans are great for expanding and modernizing small businesses. Sometimes referred to as Certified Development Company (CDC) loans, an SBA 504 loan is intended to help a business grow with funds to purchase land, buildings, equipment, machinery, and improvements like parking lots, utilities, street improvements, grading, and landscaping. SBA 504 loan funds may also be used to modernize, renovate, or convert existing facilities.

Eligibility requirements for an SBA 504 loan include a tangible net worth of less than $15 million, an average net income of less than $5 million after taxes for the last two years, and proof that your business can repay the loan on time based on the projected operating cash flow for the business. Of course, the standard SBA requirements also apply, too. You’ll need a feasible business plan, relevant management expertise, and proof that you’ve tried to use other financial resources (including personal assets) already. 

SBA 504 loan limits and terms are based on how the funds will be used. Loans for land and buildings typically carry a 20-year term, while loans for equipment and machinery are for 10 years. There is a prepayment penalty for SBA 504 loans during the first half of the loan.

Arizona Banks That Offer Small Business Loans

There are 40 banks in the state of Arizona that offer small business loans: Alliance Bank of Arizona, Arizona Central Credit Union, Arizona Bank & Trust, Arizona Business Bank, Bank 34, Bank of America, Bank of Arizona, Bank of the West, BBVA Compass Bank, BMO Harris Bank, BNC National Bank, Comerica Bank, Commerce Bank of Arizona, Enterprise Bank, Grandpoint Bank, Great Western Bank, Horizon Community Bank, Johnson Bank, JP Morgan Chase Bank, Meadows Bank, Metro Phoenix Bank, Midfirst Bank, Midwest Regional SBL, Mohave State Bank, Mutual of Omaha, National Bank of Arizona, Stearns Bank, T Bank, UMB Bank, US Bank, Vantage West Credit Union, Wells Fargo Bank Arizona, Western Bank, and West Valley National Bank.

There are also eight specialty lenders that offer small business loans in Arizona: Business Development Financial Corporation, CDC Small Business Finance, Mountain West Small Business Finance, Southwestern Business Finance, Prestamos Small Business Lending, Accion, Portable Practical Educational Preparation (PPEP), and Local Initiatives Support Corporation (LISC). Some of these specialty lenders are an excellent resource for micro loans for small businesses.

Arizona Small Business Administration Resource Guide

The Arizona District Office of the Small Business Administration publishes an annual Small Business Resource Guide with excellent resources for local business owners and entrepreneurs. The topics and resources covered in the annual guide include:

  • Local SBA resource partners
  • Local funding programs
  • Financing
  • Investment capital
  • How to start a business
  • How to write a business plan
  • Programs for veterans
  • Programs for entrepreneurs
  • Programs for Native Americans
  • Federal research and development
  • SBA disaster loans
  • How to prepare your business for an emergency
  • SBA contracting programs
  • Woman-Owned Small Business Certification
  • Tips for finding government contracting opportunities

For assistance in-person, you can visit the SBA Arizona District Office in Phoenix at 2828 North Central Avenue, Suite 800. You can also reach out for assistance by phone at (602) 745 – 7200, or visit their web page online at www.sba.gov/az.

Receive Help With Your Small Business Loans

When it comes to the important aspects of your business, such as applying for a loan to provide money for growth and development, you want to make sure that you do everything correctly. Not only will this help you actually acquire the loan, but it will set you up with a good foundation to recover the money and make your small business successful. It is for these reasons that working with a small business attorney is so important, especially during the initial phases of starting your business or during a period of growth.

Working with a small business attorney could be the difference between your small business being a short-term operation and your business growing into everything you know it can be. Don’t wait, call (480) 464-1111 or fill out a form online to start talking with our small business law team here at JacksonWhite.

 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.

The First Steps to Starting a Business in Arizona

By | Blog | No Comments

Becoming an entrepreneur is a viable option for many people in our modern world. A college degree, business experience, and large sums of money may all be helpful, but aren’t strictly necessary for success. However, you will need enthusiasm, a solid plan, and some other tools to get started.

The first question you should ask yourself is why you would like to start a business. This will help you discover which type of company you should run. If your main goal is extra money, a side gig could work. But if your motivation is complete financial freedom, you’ll need to dedicate more time to this pursuit. As soon as you have defined your reason, you can look into the following steps for achieving your dream.

For many entrepreneurs, they simply “know” instinctively that starting a business is right for them. “If your gut tells you that it’s what you’re meant to do, that it’s your destiny, then you should consider it, especially if your instincts have served you well in the past,” writes Steve Tobak at Entrepreneur.com.

Write a Business Plan

Many people choose to write a plan because it’s required by banks to obtain a loan. While this is a good reason to write one, it’s far from the only benefit. A strong business plan will be your roadmap for the future of your company.

There is no strict formula for a successful roadmap because every plan will be unique. But here are some sections you will want to include, regardless of which type of business you start:

Executive Summary

Your business plan summary will give potential investors and lenders an idea of your goals with starting the company. Although this section will come first in your plan, it’s typically written last.

Overview

Your business overview will define what your business will sell and the value it will offer customers. This is your chance to cover all the relevant details that a review committee will want to see. Make it simple and show that there’s an existing need in the market your business can provide for.

Employees and Management

This is where you will cover employee salaries, staffing needs, and operations for day-to-day transactions and activities. You will also cover your experience as the owner here, which is highly relevant for obtaining a loan.

Marketing Strategy

Any potential business owner must develop a strategy for marketing to make sure enough customers exist to support the business, and to figure out how to advertise. Every successful company needs a plan for finding its customers, or a profitable business may not be possible.

Look into Licensing in Arizona

Next, you will have to think about the necessary licensing for your Arizona business. Check out some of the categories below to see which of them apply to your situation:

Local Licenses for Business

Most counties, towns, and cities in the state will require registration for a business, even if it’s home-based. These business activity rules will vary according to each local entity. This means that some locations will call for a license, and others will have specific rules for signage, liquor licenses, construction or building changes, zoning, and more.

The State Transaction Privilege Tax

Arizona may require that you register for a transaction privilege tax (TPT), which taxes a business based on its sales. Also called a vendor, wholesale, or sales tax license, the TPT applies to construction contracting, motels, property rental services, restaurants, retail, and more. The state Department of Revenue determines tax rates based on the physical location of the business.

Occupational and Professional Licensing

Some professionals in Arizona will be subject to regulation including those who sell tobacco or alcohol, pest control services, daycare services, adult care, message therapy, construction contracting, and more. Find out whether your business will be subject to this regulation on Arizona Business One Stop.

Conduct Market Research

Market research is how you will determine why people will want your service or product. It will look at consumer patterns, behavior, and factors that influence behavior (including personal, societal, and cultural conditions). This section is often split into two categories: primary and secondary research. For your business plan, you can focus on both, or just one:

  • Primary Research: This research will directly study customers using online polls or phone interviews with random target group members. Many business owners also use their sales records to obtain this information.
  • Secondary Research: This research is focused on finding the data that has already been collected about customers. It may come from existing blogs on your industry, along with reports posted on organization or business websites.

Market research is essential to the long-term success of your business, and is one of the first ways you can ensure – or at least predict – the viability of your business idea. “You may have all the aspirations and ideas in the world,” says Cozzi Recycling Director Albert Cozzi, “but until you put together the necessary market research and demographic studies, you won’t actually know your business landscape as intimately and realistically as you need to.”

Market Research Questions

Whether you decide to focus more on primary research, secondary research, or both, you will want to answer some basic questions when gathering market information.

Who will be buying your product or service? Describe your customers in regards to occupation, age range, income, education level, lifestyle, and any other potentially relevant factors.

What is their motivation for buying? Answers to this question will vary widely depending on your specific service or product and what it’s used for. Try to place yourself in your customers’ shoes to figure out why they buy what they buy, whether it’s saving money, finding a product that will last, or making their lives easier.

What are they currently buying? In answering this question, you’ll be describing the buying habits of your customers in terms of your service or product. You will also cover popular features of the product, general price points, how much they purchase, and from which suppliers.

Look at Similar Businesses

Every successful future business owner should conduct due diligence for their industry. Check out comparable business by finding those that serve the same area or location as you. Look for businesses that are somewhat new, are of relative size and that have an ownership structure as close to yours as possible. For example, if you have two people running your company, try to find businesses that mirror that instead of single-ownership entities.

This information will help you get a realistic idea of how much demand there is for your product and also how you can adapt to the existing marketplace.

Choose a Business Entity

Also called the business structure, selecting your business entity is legally required in the state of Arizona. There are four categories that your company can potentially fit into. They are partnership, sole proprietorship, LLC, and corporation. Let’s look a bit closer at each.

Partnerships

A general partnership applies to businesses which have at least two people running the company together. There isn’t any formal filing required for this category, and partnerships have unlimited liability. This means that in the event of the partnership being sued, there are consequences for both (or all) partners.

The entity itself won’t be subject to business income tax. Instead, losses and profits will be passed onto the business owner’s tax return, where the income will be subjected to self-employment taxes.

Sole Proprietorships

This category applies to individual entrepreneurs who wish to start a business on their own. The least expensive and simplest to set up, with a sole proprietorship, the business owner is the overseer of all actions and debts in their business.

Although it is the easiest entity to start, it comes with the downside of unlimited liability. If someone sues the business, the personal assets of the owner are put at risk. Business profits will be subject to self-employment tax, which may be higher than other categories.

LLC or Limited Liability Companies

This is a popular choice for business entities as it offers liability protection. It doesn’t have burdens such as taking minutes, conducting shareholders’ meetings, or holding board of directors’ meetings. It also comes with greater tax flexibility than the other three entities available.

Corporations

This legal entity is considered separate from the business owner. Although it’s a more complicated and expensive path than a partnership or sole proprietorship, it also shields the owner’s assets in the event of a lawsuit. Corporations also have the benefit of choosing how to be taxed. Since income will come to the business owner or owners through dividends or salary, corporations are not subject to self-employment taxes.

Of every decision you’ll need to make in starting your business, the legal structure you choose is one of the most crucial. This will affect the amount you’re taxed, how much paperwork will be required of you, and your business funding. When in doubt, don’t be afraid to consult a professional. There is much more to starting a business, but the information in this article is a good place to start.

If you’re considering starting a business, know that there are risks involved, but there are also great rewards. “I used to find it hard to picture myself getting old and becoming like my boss and wondering at the age of 60 if I should have given it a shot when I was 30,” says entrepreneur Prashant Singh. If you’re in the same boat, the regret of missing your opportunity may far outweigh the regret of a business chance that didn’t work out the way you imagined.

 

Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.

Schedule Your Consultation

Fill out the form below to get your consultation and discuss your best legal options.