How to Start an LLC in Arizona? | Step-by-Step Guide
Starting an LLC in Arizona has many benefits for business owners looking to do so.
The formation of an LLC in Arizona is not a very difficult process due to the Arizona Corporation Commission, but it does require some work, even with a registered agent.
Since I’ve been in the business of LLC formation for over a decade, I helped clients start up, manage and maintain their respective companies.
Together with my experience, I have collaborated with business experts to provide you with pertinent information on how to start an LLC in Arizona.
Quick Summary:
- To start an LLC in Arizona, you need to choose a business name, employ a registered agent, file Articles of Organization and draft an Operating Agreement.
- The benefits of an LLC include personal asset protection and pass-through taxation.
- The pros and cons of an LLC structured business entity should be considered before establishing one.
Steps to Setting Up an LLC in Arizona
Setting up an Arizona LLC requires a legal and comprehensive understanding of Arizona law. That means you will have to make sure you are complying with all legal requirements.
The following steps are essential if you are planning on starting a limited liability company in Arizona.
Step 1: Pick a Business Name
Choosing the perfect Arizona LLC name is important. Arizona state law requires that the name of your LLC must be distinguishable on file with the Arizona Secretary of State (SOS).
This means you can't pick a business name already registered in Arizona or one that will likely cause confusion for an Arizona resident or company owner.
You can perform the business entity search by visiting Arizona Corporation Commission through their website.
You also need to make sure your proposed business name doesn't infringe upon any trademarks and service marks because this could lead to complications when trying to obtain necessary licenses and permits from federal agencies like the U.S Patent Office.
Make sure it's not descriptive either because it might limit others from registering unique Arizona business names.
Arizona LLC registration doesn't require publication, so you don't have to worry about getting your name in a newspaper or other media outlet before filing for a certificate of formation.
For detailed guidelines on Arizona LLC name reservation and requirements, visit the Arizona Corporations Commission website and read through the requirements.
The Arizona Corporate Commission is the only entity authorized to take care of name reservation applications.
Before submitting formation papers, all LLCs must get a Certificate of Name Reservation, which ensures that the selected name is free for use.
You can request this certificate either by mail or online. The online filing fee is $45, and if you choose to do it via mail, you'll have to pay $10.
If you want to change your LLC name in Arizona, our simple guide will help you with the process.
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- How Long Does It Take To Form an LLC in Arizona
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Step 2: Find a Statutory Agent
An Arizona statutory agent (known as a registered agent in other states) is a person or business entity that serves as a registered agent for limited liability companies.
An LLC statutory agent is similarly required to be registered with the Arizona Corporation Commission and has to be located in AZ, i.e., has to be a resident of the state.
Arizona law requires all business entities, including LLCs, to have a registered agent or registered agent service in Arizona.
To select your statutory agent online, you can file online with the Arizona Corporation Commission website and pay a $50 fee once you fill in the Statutory Agent Acceptance form M002.
This form confirms that the statutory agent is ready to accept legal documents that are served on it.
This process can be done by mail too, but you will have to submit an additional document containing your registered agent's information if you choose this option. The filing fee is the same as when filed online, even through a statutory agent.
Step 3: File Arizona LLC Articles of Organization
Articles of Organization represent the organization for your business, and they should be written in the language appropriate to Arizona LLC law.
You can draft and file the Articles of Organization yourself, or hire a lawyer to perform this step on your company's behalf.
The articles of organization will contain basic information about your business. The document must include the name, physical address, purpose, members and type of business [1].
The Articles of Organization must include one member to be listed; this person has authority over formal decisions made by the members (owners) regarding running their new corporation or LLC - unless there's something else stated in those articles of the organization.
The fee for filing Arizona Articles of Organization is $50.
Step 4: Draft Your LLC Operating Agreement
Arizona LLC Operating Agreement is a must for you to set up your LLC. It is basically the law that governs how an LLC business will operate, and it covers different aspects of running the LLC, such as:
- Member's contribution;
- Managers (if any);
- Ownership transfer and buyback options;
and other important matters that should be considered to avoid future disputes between members or with third parties.
An LLC Operating Agreement can also determine whether there are penalty fees imposed if someone fails to contribute his/her fair share when needed, so this document has become increasingly popular among entrepreneurs these days not only because it offers them protection but mainly due to its relatively simple language compared with other legal documents.
The best thing about operating agreements is that they are custom-made according to the needs of each LLC.
Unlike Articles of Organization, an operating agreement doesn't have to be filed with the state.
Although the law doesn't require LLCs to have operating agreements, it's highly advisable to have them because the LLC members must ensure that everyone is well aware and in agreement with its terms.
You can draft your own operating agreement by finding free templates online. However, if you're new to LLCs, you may find seeking legal advice from professionals helpful.
Other Important Steps
After completing these steps, your LLC will be registered, and you can begin transacting business.
However, there are still some other important things to take care of before doing so.
1. Set Up a Business Bank Account
LLCs in Arizona need to have a separate business bank account just for their LLC.
This is because personal asset protection shields owners from business debts and liabilities, but this separation isn't complete until the two accounts become entirely separate.
In order to make sure that your personal funds remain separated from those of the LLC, it's important not only to open an LLC-dedicated account at a different institution than where you hold personal or household funds - but also to keep in mind how money flows into and out of your new company's accounts.
To set up a business bank account, you will also need an EIN.
2. Acquire an EIN
Obtaining an EIN is another expense associated with forming an LLC in Arizona.
An EIN is an employer identification number, also called a federal tax identification number or federal employer identification number. It's the equivalent of your business's social security number.
You will need to acquire one in order to set up an LLC bank account for both your LLC and any other companies you wish to create.
Suppose you are only setting up one limited liability company.
In that case, this process can be done with just one EIN - but if you plan on creating more businesses down the road, it may be helpful to obtain multiple ones now rather than waiting until later.
It is possible that some banks won't allow new LLCs without an EIN before opening an account (so make sure to check beforehand).
You will need to apply for your employer identification number through the Internal Revenue Service website. This service is free of charge.
3. Obtain a Business License
Obtaining a business license is extremely important, especially if you're planning on registering a professional limited liability company.
To make sure your limited liability company is in compliance with state laws, you need to be registered and have a business license.
The process for obtaining one varies from city to city, so it's best that you check with local authorities before going through the steps of registering an LLC.
If you're providing professional services through your LLC, a business license is a must.
It shows that you are operating legally and allows for the proper regulation of your limited liability company.
One such license is the transaction privilege tax license, which allows you to transact business in a given city.
The requirements for obtaining this type of license might vary from city to city. You should check with the relevant Arizona commerce authority to find out what they are before going through the steps of applying for one.
Obtaining this license is done through the Department of Revenue, either online or by mail.
Other licenses that you might need to include city, county, or state business licenses.
The specific requirements for these types of licenses also vary based on factors like the size of your LLC company and where it is located, among other things.
To check other requirements for business licenses in Arizona, contact the Arizona Department of Commerce and inquire about their license verification service, making it easy for you to check if your business is in compliance.
What is an Arizona LLC?
An Arizona LLC combines the limited liability characteristic of a corporation with the tax benefits and pass-through taxation of a partnership or sole proprietorship.
With an Arizona LLC, members have many protections from being held personally liable for lawsuits or debts that arise in connection to their businesses - however, they are required to pay federal income taxes on their share of company profits or losses.
The LLC is designed to protect the personal assets of its owners - including your house, cars, and bank accounts.
For example, if a customer wins a large lawsuit against an Arizona LLC that you own, they may be able to seize funds from your business checking account but not from your personal checking account.
What Are the Benefits of Arizona LLCs?
The benefits of Arizona LLCs are personal asset protection and pass-through taxation.
An Arizona limited liability company is designed to protect the personal assets of its owners - including their house, cars, and bank accounts.
Arizona LLCs also allow LLC members to choose between a manager-managed LLC and member-managed LLC.
The LLC designation offers lots of flexibility for members who want to split profits, share costs like rent and supplies, and offer employees ownership stakes.
LLC operating agreements make it easier than ever before to define ownership percentages and rights & responsibilities among LLC owners.
This agreement also helps establish how much money should be put into or withdrawn from the company bank account at any given time.
Lastly, LLC formation is not as expensive as many people think. In fact, you can get an Arizona LLC for less than $100.
An additional benefit to forming a business in this state is that many people do not realize how easy the LLC formation process is.
The process can usually be completed online within just a few hours without any outside submissions or filings with the Arizona Secretary of State's office.
What Are the Cons of Arizona LLCs?
The cons of Arizona LLCs lies in the inability of the company to invest and grow its profits.
The taxes on LLCs may vary from state to state. In Arizona, LLCs are treated as pass-through entities for tax purposes.
This means that taxes on profits and losses will be paid by the members of an Arizona LLC personally rather than taxed at a company level.
For this reason, if you expect to generate large sums of profit through your Arizona LLC, then this business structure might not be ideal for you.
On the other hand, if you are a small business owner who expects to make only modest profits, then you might be better off as a sole proprietorship after all.
As with any business structure decision, it is important to fully understand how each choice may affect you before making a final decision.
Discussing your options with an Arizona LLC formation specialist can help you better understand which option will work best for you and your company's unique needs.
Arizona LLC Taxes
LLCs in Arizona are taxed as pass-through entities, which means that federal income taxes are not levied against the LLC.
The federal government considers an LLC to be a "pass-through" entity meaning that any profits or losses of the business are passed on directly to its members who report them on their federal tax returns.
This reduces paperwork because you don't need separate corporate federal tax filings. It also gives you more flexibility in managing your finances since there is no double taxation like with regular corporations.
However, this does mean that each member must pay self-employment taxes if they receive money from the company in exchange for services rendered.
This essentially functions like normal payroll withholding but under different names, so make sure you understand how it works before deciding whether or not to form an Arizona LLC.
The Arizona Department of Revenue has guidelines as to what types of businesses need to pay sales tax.
If you belong to the group of businesses that need to collect sales tax, you will have to register for the seller's permit before collecting sales taxes.
An Arizona LLC choosing to be taxed as a corporation (whether it's S or C corporation) also needs to pay federal taxes, regardless of the business income it makes.
FAQs
What is Arizona LLC Act?
The Arizona LLC Act is the law that governs the formation and operation of Arizona LLCs through a regulated procedure.
Do I Need to Renew My LLC Every Year in Arizona?
You do not need to renew your LLC every year in Arizona. Although you might need to renew the business licenses and permits on an annual basis.
Can I Form a Foreign LLC in Arizona?
You can form a foreign LLC in Arizona, provided that you file a Foreign Registration Statement.
This document is filed with the Arizona Corporation Commission in person or by mail and is accompanied by a $150 filing fee.
Does Arizona Allow LLC Domestication?
Arizona allows LLC domestication if you make an amendment to your previous Articles of Organization and file Articles of Domestication with the Arizona Corporation Commission.
Can an Arizona LLC Have an Out-Of-State Address?
An Arizona LLC can have an out-of-state address if you’re registered with a different state but is licensed to operate an extended business in Arizona.
How Do I Add a Member to My LLC in Arizona?
To add a member to your LLC in Arizona, you will need to file an Articles of Amendment with the AZ Corporation Commission. The filing fee for this service is $25.
Can I Act as My Own Statutory Agent in Arizona?
You can act as your own statutory agent in Arizona, provided that you meet all the legal requirements. The statutory agent can resign at any time by filing an application with the AZ Corporation Commission.
Starting an LLC in Arizona
Starting an LLC in Arizona can be accomplished by following certain steps and submitting documents that comply with state laws.
When setting up your LLC in Arizona, you have the option to seek professional help, whether through a lawyer or a company like ZenBusiness.
The expertise of the online service provider will prove invaluable when forming, managing and maintaining your Arizona LLC.
Reference:
- https://www.investopedia.com/terms/a/articles-of-organization.asp
