Looking to introduce your business idea into the market in Arizona? The very first step would be for you to decide your business structure.
A Limited Liability Company, or an LLC, may be the ideal choice for your business. It opens the door for tax savings, protects your personal assets from business liabilities, and provides excellent operational flexibility.
Arizona has its own rules and regulations for forming an LLC; for example, it is mandatory to publish a notice of formation in Arizona, and your LLC has no requirement to file annual reports.
Any mistake in the process of forming your LLC could lead to you having to repeat the whole process. We are here to break it down and guide you through each step involved in the process.
Name Your Arizona LLC
Naming your LLC is the first step in your journey to set up your company in Arizona. The name you choose will be the very identity of your business. A good name will help your LLC to have brand value in the market. It will also help the customers quickly identify your business from among the competition. Make sure that you have a unique name that captivates your customers.
Arizona has specific regulations that should be followed while selecting a name for your LLC.
The LLC’s name should include the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
If you want to start a professional limited liability company, the name should include the words “professional limited liability company,” “professional limited company,” or the abbreviated “PLLC” or “PLC.” However, the name cannot contain the words “incorporated,” “association,” or any of their abbreviations.
The usage of certain words, like “Bank” or “University,” is restricted and involves obtaining the written consent of concerned authorities and additional paperwork and compliance requirements.
The name you select for your LLC should not give the impression that your entity is a government agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.”
The name of the LLC should be unique and must not resemble the name of any existing entity that has been permitted to conduct business in the State. There are certain exceptions where an LLC can use an existing name. Notably, it involves permission from the owner of the existing name or in case of a merger or acquisition.
Does Your Business Require a DBA?
A Doing Business As Certificate, or DBA, is a document that allows your LLC to operate under a different name.
Your LLC may be entering a new market or revamping its marketing strategy, for which its registered name may no longer be suitable. A DBA allows the LLC to carry on with its business under another name. A DBA is also known as a ‘trade name’ in Arizona.
Arizona currently only accepts online applications.
Apply for a DBA OnlineApply Online
Doing a Name Search and Name Reservation
To ensure that the name you have selected is not already in use, you can search for the name in the Arizona Business Entity Database.
Reserving your LLC’s name before registration in Arizona is not mandatory. You can reserve the name with the State if you are apprehensive that it’ll get taken by your competitors.
You can reserve that name with Arizona for 120 days. Keep in mind that the same person cannot renew a name reservation.
Registering Your Business Domain
Having a digital presence is becoming crucial for new businesses day by day. Registering a domain name is an excellent way to ensure that your LLC can have an aptly named website, helping you grow your brand and attract new visitors online. Even if you don’t wish to start a website immediately, it’s always good to have an aptly named domain for your LLC registered and ready.
So before you select a name for your LLC, it is recommended that you ensure that the domain name you need is also available.
You can check currently available domain names.
Choose a Statutory Agent in Arizona
Appointing a statutory agent is a requirement under the law in Arizona. A Statutory Agent is an individual or another business entity responsible for receiving all official communication on behalf of the LLC.
The statutory agent shall also receive any process service concerning a lawsuit against your company. You must select a statutory agent before your company can start functioning.
Who Can Be a Statutory Agent?
A statutory agent in Arizona must meet specific requirements:
- Must be above the age of 18 (in the case of an individual)
- Must have obtained authorization to conduct business in the State (in case of another entity)
- A statutory agent must have a street address in Arizona.
An LLC cannot be its own statutory agent. You can appoint yourself, family, friends, or other members of your LLC, provided they have a permanent address in Arizona and are above 18. The statutory agent should be available during business hours on all working days.
The appointment of a statutory agent is only valid if they have signed the document of appointment and the same has been delivered to and taken on record by the Arizona Commission.
Individual Statutory Agent v. Statutory Agent Service
While you can appoint yourself as the registered agent, it may not be advisable for all businesses. You should hire a professional statutory agent service as it has many advantages.
A commercial statutory agent would provide expertise and be able to provide their services in multiple States if you wish to expand in the future.
Professional help lets you focus your energy and time on core business areas. If you are your own agent, you risk receiving sensitive documents like notice of a lawsuit in front of your employees or clients.
Having a statutory agent service helps you handle the situation discreetly. They receive such sensitive documents at their address and deliver them separately.
File the Articles of Organization with Arizona
The Articles of Organization is a document required by the State of Arizona in order to register your LLC on its records. It is to be filed with the office of the Secretary of State. Once this is completed, your LLC is registered and is recognized in the eyes of the law.
The Articles of Organization need to be filed in Form L010. This document contains the following important information:
- Nature of the entity: LLC or PLLC.
- Name of the Entity.
- Name and address of the statutory agent.
- The principal address of the entity.
- Nature of management.
Along with Form L010, you will also need to file form Form M002 showing the consent of the statutory agent appointed by you. Also, make sure to file Form L040 (in case your LLC is manager-managed) or Form L041 (in case your LLC is member-managed). A dully filled Cover Sheet should also accompany your application. It usually takes Arizona 15-17 business days to process your Articles of Organization.
If you want to expedite your LLC’s formation, you have a few options that will cost you an additional fee. There’s expedited processing which requires an additional $35 and gets processed within 8-10 business days.
A next-day service requires an additional $100 and gets processed by 5:00 PM MST on the next business day, given that the application is received by 5:00 PM MST. The same-day service requires an additional $200 and gets processed by 5:00 PM MST, given that you apply at 10:00 AM MST.
There’s also a two-hour service which requires an additional $400 and gets processed within two hours of submission, given that the application is received by 3:00 PM MST.
Publish a Notice of LLC Formation
Once your application for the LLC is approved, the next requirement is the Publication of a Notice of LLC formation.
This is to ensure that the information of the LLC is in the public domain. It also allows the public to raise any legitimate objections against the formation of the LLC.
It is a mandatory requirement, and non-compliance would result in dissolution. If the business address is located in Maricopa or Pima county, the publication requirement does not apply. You will have to choose from a list of approved newspapers.
Create an Operating Agreement for Your Arizona LLC
An operating agreement is a legal document. It lays down the rules of your LLC’s internal operation and functioning. It also provides a framework concerning the duties of members of the LLC and its managers.
Even though the laws in the State do not mandate an operating agreement, you should have one. It helps avoid any conflict that may arise in the future due to misunderstandings regarding ownership, management, distribution of profits, etc.
Irrespective of the nature of your business, it shall be advisable for your operating agreement to cover the following matters:
- Organization Details
- Duties of Members and Managers
- Management and Voting
- Capital Contributions
- Division of Profit and Losses
- Bookkeeping Procedures
- Procedure for adding new members
- Requirements concerning Meetings and Procedures thereof
Writing the Operating Agreement Yourself v. Hiring a Service
Your LLC’s operating agreement will dictate the day-to-day operations of your LLC. Beyond that, it will also outline and limit the responsibilities and liabilities of your LLC’s members and employees.
You can draft your operating agreement or engage a commercial service to draft it for you. Most commercial statutory agents also provide drafting services for your LLC’s operating agreement. Experts in the laws of Arizona, these professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of the Operating Agreement
The operating agreement outlines the roles and responsibilities of the members, making it easier for your business to operate. However, it cannot restrict liability beyond the scope of Arizona’s laws, such as personal taxation and crimes.
The terms of your operating agreement are limited to the law. You cannot include something prohibited by the laws of Arizona.
Obtain an EIN for your Arizona LLC
EIN stands for Employer Identification Number. It is a 9-digit number allotted by the Internal Revenue Service and used for taxing companies. An EIN is also needed to open a bank account, obtain credit cards, and avail of business loans and other business licenses in the company’s name. It is also required for legally hiring employees. The IRS issues an EIN, and you can apply for it online or through the mail.
File Annual Reports
An annual report is a document used by the authorities to get the latest and updated information about all the business entities operating in the State. However, unlike other States that ask for annual or biennial report filing along with specific fees to keep their records up-to-date, Arizona has no such provision.
Tax Liability For Your Arizona LLC
Your LLC will have to pay State and federal taxes, depending on a few factors. The filing process and the amount of tax payable depend on your LLC business and how you represent it to the IRS.
There are four ways in which LLC will be taxed:
- Sole proprietorship: a business owned by a single person
- Partnership: a business owned by multiple people
- C – Corporation: income is split or segregated for taxation
- S – Corporation: tax liability is split between the business and its owners
Federal Tax Liability
Your LLC will, by default, be treated as a sole proprietorship if it has a single member and a partnership if it has multiple members. The members will directly be liable to pay federal taxes on the income they earn from the LLC.
The members must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions like business expenses. You are also liable to pay Federal Income Tax.
The income tax you have to pay will vary depending on your income, filing status, deductions, etc. However, federal corporate taxes must be paid if you treat your LLC as a corporation for tax purposes.
State Tax Liability
Suppose your LLC is involved in selling certain physical products or specified services that are subject to sales tax. In that case, it must obtain an Arizona Transaction Privilege Tax License or TPT. This sales tax is levied on you for being allowed to do business in Arizona. Remember that the amount of sales tax differs in each county.
If your LLC plans on employing people, the State of Arizona mandates that you register for Unemployment Tax and Employee Withholding Tax.
Permits & Licenses
You might require different licenses and permits based on the kind of business your LLC is engaged in and the place it is formed. Accordingly, your business will be subject to three licensing jurisdictions: Federal, State, and Local.
Federal Licensing requirements will depend on the business activity carried on by your LLC. If your company is engaged in any area of business regulated by the Federal Government, you will be required to obtain relevant Federal Licenses and Permits.
Some business activities requiring Federal Licenses and Permits are Agriculture, Alcoholic beverages, Aviation, Firearms, ammunition and explosives, Fish and Wildlife, Commercial fisheries, Maritime transportation, Mining and drilling, Nuclear energy, Radio and television broadcasting, and Transportation and logistics.
At the State level, your LLC will be required to obtain a transaction privilege tax (TPT) license if, through your company, you are selling a product or providing a service to which TPT applies. You can visit the Department of Revenue website to obtain this license. Additionally, certain businesses are required to get specific State permits. You can visit the Arizona Commerce Authority’s business licensing page to understand the licensing requirements for your LLC.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. To know more about local licensing requirements, get in touch with the office of your local county or city government.
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Business Bank Account & Phone Number
Opening a business bank account for your LLC is essential for safeguarding your personal assets by separating them from the LLC’s assets. Moreover, having a separate bank account helps record keeping and tax assessment. The bank will require your LLC’s EIN, along with other documents.
Using your phone number for your LLC can prove to be very inconvenient. Therefore, it is best either get a separate phone number for your business or hire a phone answering service. Doing this would protect your privacy, look professional and reduce the risk of missing important calls. Having a separate phone number for your LLC is an excellent way for you to maintain your privacy. Various network carriers offer enterprise/business plans and would require certain documents regarding your LLC.
Arizona is an excellent choice for your business. The State offers many incentive programs such as the Angel Investment Tax Credit Program that are aimed at helping small and medium enterprises. Contact your local county or city government office to determine if your LLC is eligible for any of the State’s incentive programs.
Double-check all the information you’ve gathered, along with the respective forms. Arizona does not mandate your LLC to file annual reports. However, it does mandate that you publish a notice of your LLC’s formation. We wish you and your LLC the very best!