Executive Summary
- Creating a Limited Liability Corporation (LLC) provides several benefits, including tax advantages, personal legal liability protections, and minimal costs to receive these benefits.
- Necessary steps for forming an LLC in Arizona include choosing a unique name, filing your articles of organization, and registering with the Arizona Department of Revenue.
- Common mistakes in forming an LLC include failing to create an operating agreement, not understanding your tax responsibilities, and neglecting to file annual reports, among others.
- A skilled and experienced small business attorney can help you understand and navigate the requirements for creating an LLC and filing all the necessary documentation.
Introduction
Creating and registering a limited liability corporation (LLC) can be a time-consuming process, but there are many benefits that make it worth it, including tax benefits, personal liability protection, and easier management. 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 jurisdictions, 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. Understanding how to open an LLC in Arizona is important for ensuring you grasp and follow all the legal requirements so you can capitalize on all the potential benefits. If you have any questions about the process, an experienced small business attorney can offer support in navigating the necessary steps.
Benefits of Forming an LLC in Arizona
Forming an LLC is more than just a symbolic designation. In fact, forming an LLC offers specific legal protections and benefits for its members compared to choosing to operate as their own personal entity.
The key benefits of forming an LLC include:
- Limited Liability Protection – Establishing an LLC helps protect owners’ personal assets from being targeted in the event that a business is found liable for any legal or financial concerns.
- Flexible Taxation Options – An LLC is considered a pass-through entity, which means the LLC itself is not required to pay taxes federally on business income, avoiding double taxation on its members.
- Ease of Management – An LLC is relatively easy to manage and maintain if there is a clear operating agreement in place and established terms to follow for business partners.
- Increased Legitimacy – An LLC offers more legitimacy and credibility during business arrangements than acting as your own personal entity.
- Arizona Specific Advantages – Arizona offers specific advantages to forming an LLC, including low formation fees, a business-friendly economy, and favorable tax rates.
Being able to make the most of these benefits requires being meticulous in ensuring you take the proper steps to file your LLC. A small business attorney can play a valuable role in assisting members with forming their corporation while meeting all Arizona requirements.
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 1: 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—it’s also important that your name is unique and distinct.
Be sure 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 2: 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 3: 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 ACC 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 complete four important forms:
- Cover Letter
- Articles of Organization
- Statutory Agent Acceptance
- Member or Manager Structure Attachment
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 4: Create an LLC Operating Agreement
An LLC operating agreement is not required in all states, Arizona included, but it can still be helpful for guiding the operations of your business and avoiding misunderstandings between members. Creating an operating agreement clearly lays out the terms for making decisions, structuring your organization, managing finances, and more.
Some of the key elements of an LLC operating agreement include:
- Basic information
- Whether the LLC is multi-member vs. single-member
- Member roles and information
- Management structure
- Rules and procedures for decision-making
- Profit sharing guidelines
- Processes for how to amend the agreement
- Methods for resolving disputes
Despite an operating agreement not being necessary by law, it’s still incredibly useful to have for understanding how to navigate a variety of scenarios in the future—not having one could also risk disputes or taking actions down the line that contradict the organization’s goals. An attorney can help you create an operating agreement and ensure that it addresses all the necessary criteria to minimize the chances of future disputes.
Step 5: Apply for 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.
Applying for and 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 6: Register with the Arizona Department of Revenue for State Taxes (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’s tax liability, you should discuss your situation with a business law attorney or small business tax accountant.
Step 7: Comply with Local Permits and Licensing
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.
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:
- The business name
- The statutory agent’s name and street address
- The address of the LLC’s principal place of business
- Whether the business is manager-managed or member-managed
- The name(s) and address(es) of any LLC managers and members
Ongoing Requirements After Registering Your LLC
Although establishing an LLC is rather simple, the process of preserving and maintaining your organization doesn’t stop there. As with any business venture, registering an LLC comes with a level of risk, so it’s important that you take extensive care and caution to keep up with the ongoing requirements and maintain your business status.
Some of the ongoing requirements after registering an LLC include:
- Annual Reporting – Arizona requires the filing of an annual report to update or confirm any important business information to maintain good standing with the state.
- Maintain Records and Compliance – Maintain documentation of all business transactions, management documents, member information, and permits. These will all come in handy for filing taxes and in the case of any legal action.
- Renewal of Licenses and Permits – Necessary licenses and permits vary depending on your industry and your local laws, but be sure to know which you should have and keep them active so you can avoid fines or legal charges.
After registering your LLC, it’s important to keep up with the necessary ongoing requirements so that you can avoid any compliance issues in the future. A skilled business lawyer can assist you in understanding the necessary requirements for maintaining your LLC after its formation and how to navigate them.
Common Mistakes To Avoid When Creating an LLC in Arizona
Creating an LLC is a relatively straightforward process, but there are a few key mistakes you can make along the way. It’s important to understand the potential mistakes so that you can carefully create your LLC and stay in good standing with the state.
Some mistakes to avoid in the process include:
- Choosing an unavailable or confusing name
- Not creating an operating agreement for your LLC
- Not understanding the tax obligations of your business
- Neglecting to file annual reports updating your business information with the Secretary of State
Because creating an LLC can be a multi-step process, it can be easy to have an occasional slip-up, especially if you do not understand the state’s legal requirements for establishing or maintaining it. An experienced small business attorney will offer guidance to ensure that you avoid any issues while creating or managing your LLC.
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.
Get Experienced Representation for Your LLC
A limited liability corporation can be a great way to operate as a business entity with tax benefits and protection from personal liability. However, it’s important that you take all of the necessary steps to ensure your organization is properly filed with the Arizona Corporation Commission, has an EIN number, and is registered with your local government. When forming an LLC in Arizona, 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 helping you establish your organization following state requirements.
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.
