The process of forming an LLC can be confusing, but it doesn't have to be. There are some steps you need to take before you apply for your LLC, and just like any other state, there are advantages unique to Arkansas.
In this blog post, we will go over the basics of what you need to know about getting a limited liability company in Arkansas so that you can get started with your new business.
What Is an Arkansas LLC?
A limited liability company in Arkansas is a business structure that includes the limited liability protections of a traditional corporation and the tax benefits of a partnership or sole proprietorship.
One person or multiple persons may own an Arkansas LLC. The state does not require any minimum number of owners for an LLC.
Like other forms of businesses in Arkansas, all profits and losses are passed to members according to their percentage interest each year.
This means income from your company will appear on your individual tax return -- but only if you've elected pass-through taxation with the IRS (which has its own set of rules).
A professional limited liability company in Arkansas can elect to be taxed as a corporation (S or C corporation) or as a partnership. The default tax treatment for all LLCs is as a pass-through withholding entity.
This means the LLC itself does not pay taxes; rather, all profits and losses are passed through to their owners (members), who report them on their personal income tax returns using Schedule K-‐Form or Form 8832.
Corporate taxation has its benefits, too but may not be right for your LLC in Arkansas: it offers more limited liability protection, and the company is taxed separately from its members.
Arkansas LLC Benefits
An Arkansas LLC can be created by filing Articles of Organization with the Arkansas Secretary of State.
An LLC is an entity that has many benefits, including limited liability for members and business tax exemptions.
An LLC offers personal asset protection because business debts and liabilities are not considered to be the responsibility of members.
When an LLC is formed in Arkansas, personal assets are kept separate from company assets. This implies that if your LLC was sued or any debts were to be paid, you would not have to utilize your personal bank accounts for this purpose.
You won't risk losing any property since it will remain distinct from what you own after setting up this sort of business entity.
The only thing at risk is money earned by your LLC while it is run under an Arkansas LLC structure.
But even so, creditors are unable to access personal savings or other financial resources outside of the LLC's operating funds.
LLCs offer a more versatile business structure than corporations, allowing you to expand your company with less risk of personal responsibility.
You can, for example, add or remove company partners at any moment without fear of affecting other LLC members' personal assets.
Arkansas is an excellent option for starting this sort of company because it has one of the most flexible and comprehensive set-up procedures in the country, especially when compared to states with narrower personal protection for LLC owners who form a new firm under their own name (a sole proprietorship).
Arkansas LLC’s Formation Documents
Before the state of Arkansas officially acknowledge your new LLC, it must go through several stages.
You must ensure that everything is done correctly and in accordance with Arkansas law, or you will have to start from scratch. The formation documents of LLCs are crucial, so double-check everything.
Step 1: Choose an LLC Name
Picking a suitable name for your Arkansas LLC involves a few steps. LLC names must be unique, so you cannot just choose a business name that is already registered or used for another LLC in Arkansas.
You can search the Arkansas LLC database of the Secretary of State to make sure your desired business name isn't being used by someone else.
An LLC name must include the LLC designator such as "LLC," "LLC" or any other combination of the words Limited Liability Company.
It cannot contain any other designation such as a geographic location not associated with your business, words like Bank, Government agency, Insurance Company, or Corporation unless it is incorporated under law, names of public officials (such as a judge), and fictitious names that may mislead others about your LLC's nature.
A name you use for an LLC in Arkansas can be one word (like ABC LLC), two-word phrases (Tuna Fish LLC), three-word phrases (Bob Jones University Development LLC), or even longer phrases consisting of more than three words - but only if they don't make the company seem like something else entirely.
You can also file the Application for Reservation of Entity Name with the Arkansas Secretary of State.
This document enables you to reserve an LLC name for up to 120 days without starting business operations or incurring any fees. The mail filing fee is $25 or $22 if you file online.
Step 2: Appoint a Registered Agent
An Arkansas registered agent service is a person or business designated to receive legal papers on behalf of your LLC. Arkansas is an "at-will" state, so you can change registered agents at will with the Secretary of State.
A registered agent must be a resident of the state. If you hire an outside business to serve as your registered agent, there are specific statutory requirements they must meet for them to qualify.
In addition to being available at their physical address during normal business hours, Arkansas law requires that agents have regular access via fax or e-mail before the Secretary of State's office requires an on-site visit.
Registered agent services for LLCs in Arkansas are especially important because the state allows service of process on registered agents, meaning that if you have an unhappy customer or business partner who wants to sue your company, they can serve you via mail at the address listed for your agent.
The Arkansas Secretary of State has a list of companies approved as registered agents and other businesses offering such services.
It is best to choose one from this list so that there is no question about whether or not their service will meet statutory requirements.
Step 3: File Articles of Organization
Arkansas Articles of Organization are filed with the Secretary of State. In Arkansas, this document is called the Certificate of Organization (CO).
The filing fee for LLC Articles of Organization in Arkansas is $50. LLC Articles of Organization are required for LLC formation in Arkansas.
The Articles of Organization must include the following information:
- LLC's name, street address, and registered agent's physical address
- Name and full business or residential addresses of each organizer/member that is not a corporation or limited partnership
- Purpose of the LLC (must be specific enough to show intent) -Signature by an organizer/member who is not a corporation or limited partner
Additional Information can also be added if necessary with prior approval from the Arkansas Secretary of State office.
Once the LLC articles are filed with the state, they become public records. An additional step requires submitting articles to local county registrar offices so your company becomes publicly searchable on their websites.
Step 4: Make an Arkansas LLC Operating Agreement
An LLC operating agreement for you, Arkansas LLC, is an essential part of running your business. You should complete it before you file for LLC status with the state government to avoid any confusion about how the company will operate moving forward.
An operating agreement is a legal document that includes details on how decisions are made, what happens to assets if someone dies or becomes disabled, and other important information regarding ownership rights in Arkansas LLCs.
Operating agreements also have provisions requiring keeping financial records and accounting logs; this makes it easier for individuals who leave the company (such as when they retire) to hand off their responsibilities properly without causing issues with tax returns and bookkeeping.
Operating agreements are documents that set out the rules of your LLC.
An operating agreement can help protect you and your business by providing written rules for managing day-to-day operations, resolving problems, making decisions, dividing profits/losses, etc.
For example, if you don't have an operating agreement, Arkansas' default rule is called "The Implicit Rule of Majority."
This means that if any member objects to an LLC's decision, they can be overruled by a simple majority vote (50% + one) through the operating agreement.
Operating agreements don't have to be filed with the Arkansas Secretary of State.
Step 5: Obtain Business Licenses
If you want to open a professional LLC in Arkansas, you'll need to make sure you get all the required licenses.
Business licenses and permits differ depending on where you live, so it's important to find out what your city or county needs. You'll also want to be aware of any state and federal requirements that may apply as well.
If you don't know where to start, the Arkansas Secretary of State Office maintains a Professional Licensing website that can help answer some questions and point you in the right direction about what business license you need.
Also, note that licenses are not transferable from one location to another; whatever license applies for this LLC is only valid at its registered address (not necessarily where it does most of its work).
Step 6: Obtain an EIN
An EIN provides identification and prevents abuse of your business accounts or personal assets. You can get one online, by mail, over the phone through the Internal Revenue Service.
You can apply for an EIN through the IRS website online filing system free of charge.
An Employer Identification Number is important to help your LLC transact business because it shows your company is a legitimate entity.
You can also use it to open a business bank account, hire employees, apply for business licenses and tax identification numbers in other states if you plan on operating outside of Arkansas.
You need an Employer Identification Number because the IRS assigns one to every single LLC that does not already have its own Federal Tax ID Number (EIN).
Although many banks, credit card companies, and utility providers will allow you to submit your SSN as proof of identification instead of obtaining an EIN number from the IRS via mail or phone call, this should be avoided whenever possible due to security vulnerabilities.
If someone obtains both pieces of information, they could gain access to all your personal financial records through unauthorized means by impersonating you with just those two bits of data.
Arkansas LLC Taxes
Taxes are an important aspect of business finances. LLCs are under the obligation to pay taxes in the same way as other business entities in Arkansas.
LLCs and corporations are considered separate entities and pay their income tax returns, unlike partnerships that consider owners part of a single entity when filing returns.
If your Arkansas LLC sells goods, it is responsible for paying sales tax to the state.
However, if your business is involved in buying and selling goods or providing services, they are not required to pay taxes on their purchase invoices.
Arkansas LLCs must also file an annual franchise tax report with the Arkansas Department of Finance and Administration which requires them to pay a filing fee.
The annual franchise tax is $150 for Arkansas LLCs regardless of their business assets. Annual franchise tax reports are payable online or by mail.
Arkansas Corporation Commission regulates and enforces the actions of limited liability companies that conduct business within their borders.
They can issue fines or penalties to any company that fails to comply with state law and doesn't pay the annual franchise tax.
If your Arkansas LLC has employees, you will have to take care of the employer taxes too.
You will need to withhold federal and state income tax from their wages, as well as pay a matching amount of social security and Medicare taxes.
Arkansas LLC FAQs
How Much Does an LLC Cost in Arkansas?
The cost of starting an LLC in Arkansas is $50 to file LC Articles of Organization with the Secretary of State.
There are some additional costs, but they are usually not required until the company starts earning money.
When starting an LLC in Arkansas, the more important costs are insurance, filing fees, and additional state taxes.
How Long Does It Take To Get a Limited Liability Company in Arkansas?
It depends. Up to 3 business days to complete online LLC legal documents and two weeks for mailed filings in Arkansas. Expedited services are also available for a charge.
Is General Liability Insurance Required in Arkansas?
General liability insurance is only one type of business insurance you might need.
Your business insurance needs will depend on the type of work you do and your local laws.
However, a general liability policy can be a good idea when carrying out any sort of commercial activity in Arkansas.
It protects against third-party claims for bodily injury or property damage that could arise from an accident at your workplace, such as slipping and falling.
Does Arkansas Allow Professional LLCs?
You can set up a professional limited liability company in Arkansas, but you have to make sure that you can perform professional services with an appropriate business license.
Does Arkansas Recognize Single-Member LLC?
Yes, Arkansas recognizes single-member LLCs.
To register a single-member LLC, you will need to file the Arkansas Limited Liability Company Formation Application with the Arkansas Secretary of State and create an operating Agreement even though you are the only LLC member.
Does Arkansas Allow Foreign LLC?
Yes, Arkansas allows the formation of foreign LLCs. To form a foreign LLC, you must file an Application for Certificate of Authority. Arkansas is one of the most lenient states when it comes to allowing out-of-state LLCs so long as they are in compliance with your state's filing requirements.
What Happens if You Don’t Pay Franchise Tax in Arkansas?
Every LLC must file an annual franchise tax report, or else it risks dissolution and potential fines.
Can I Be My Own Registered Agent in Arkansas?
Yes. You can be your registered agent in Arkansas, or you can appoint a registered agent.
It is not required that you have a registered agent service, but it can be helpful if the IRS or bank needs to contact the business owner for any reason, although they might be busy at the moment.
How Do I Pay Arkansas Franchise Tax?
You can fill in the franchise tax form online or file it by mail. You can find both forms on the Arkansas Department of Finance and Administration website.
Do You Have to Renew Your LLC Every Year in Arkansas?
Although Arkansas LLC doesn't file an annual report, they still have to file a yearly franchise tax report.
The annual franchise report is $150, and it's payable to the Arkansas Secretary of State.
How Do You Find Out Who Owns a Limited Liability Company in Arkansas?
Go to the Secretary of State's website to look up a business entity in Arkansas. You may search for a company by name, type, registered agent name, or city.
Setting up your LLC in Arkansas is a straightforward process. However, if you are new to the business world and this seems overwhelming, it may be best for you to seek legal advice from an attorney or accountant with experience in forming companies. It becomes handy, especially with the operating agreement and other vital documents.