So you are looking to start your business in Arkansas? Great! The first step would be for you to decide on the structure of your business. An LLC or Limited Liability Company might be an ideal choice for the business you are trying to form. It protects your personal assets from legal liability and, at the same time, gives you great operational flexibility.
Arkansas is a great destination to incorporate your LLC, and it offers excellent tax benefits through its tax credits programs. However, the procedure can often seem daunting. In this guide, we will walk you through every step in the process of your LLC’s formation in Arkansas.
Name your LLC
Choosing an appropriate name for your business is the first step to forming your LLC. The name of your LLC will appear on websites, advertisements, legal documents, business cards, invoices, etc. So, the name you choose must convey your brand’s defining features, represent your company’s core services and resonate with your customers.
The more unique and memorable your LLC’s name, the greater the chance of being recognized and attracting new customers. While naming your LLC, you must follow all the naming guidelines the State of Arkansas has laid down.
The name of your business should have the words “limited liability company” or one of its abbreviations (LLC or L.L.C.).
The name cannot include any word(s) that could potentially cause it to be confused with a Government Agency. Therefore, you cannot use terms like “F.B.I.” or “Treasury.”
Similarly, 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.
Your LLC’s name must be distinguishable from other businesses (Corporation, Company, etc.) registered in Arkansas. Minor differences in grammar, punctuation, special characters, plurals, articles, etc., are not enough to ensure that your LLC’s name is distinguishable.
Does your business require a DBA?
DBA is the Doing Business As (“DBA”). It is also known as a trade name. If your LLC chooses to enter a new market or change its marketing strategy, your LLC’s registered name may no longer be appropriate. In such cases, it would be better for you to operate under a new name that is more apt for your new product line or business area.
A trade name is best used for branding purposes. But remember that the trade name alone does not protect your personal assets. To avail of the protection of limited liability, you need to form an LLC.
Doing a Name Search and Name Reservation
Before finalizing a name for your LLC, you must ensure that the name you selected is not similar to an existing business. You can use the Business Entity Search on the Arkansas Secretary of State website to ensure that your name is available and not already taken by an existing entity.
If the Search Results show – “There were no records found,” your chosen name for your LLC is available, and you’re good to go!
If you like a particular name but still have to complete some paperwork before setting up your LLC, you can reserve the name for 120 days by filling out the “Application for Reservation of Corporate Name.”
Registering Your Business Domain
With the ever-increasing popularity of the internet and online business, your LLC must have an online presence. Your business’s website address needs to match your LLC’s name.
The address of your website is how customers find you online. 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 Registered Agent in Arkansas
Your registered agent is a liaison between the State of Arkansas and your business. An agent is an individual or a business entity who receives legal documents, tax notices, lawsuits, and any other government correspondence on your behalf.
Appointing an agent is mandatory under the Arkansas Model Registered Agents Act. All businesses must have a registered agent, risk administrative dissolution, or lose good standing.
Registered Agents ensure that your business can receive documents when you are away from home, out of the office, or if your business is registered outside Arkansas.
You can appoint a registered agent by mentioning the agent’s name and address on your Articles of Organization. Once the Articles of Organization have been filed, this information becomes part of your LLC’s public record.
Who can be a Registered Agent?
The State of Arkansas provides specific requirements that your registered agent must comply with. The agent you select for your LLC must be:
- An individual State resident (above 18 years)or
- A business entity that has obtained authorization to conduct business in the State.
The registered agent should be available during business hours on all working days. You can be your own LLC’s registered agent, provided you have an Arkansas street address (home/ office) and are available during regular business hours. If you do not possess an Arkansas street address, your friend or family member could also be your Registered Agent.
Individual v. Registered Agent Service
You can also avail of the services of a Registered Agent Service. This option is preferable if you lack a physical address in Arkansas or want another company to take this responsibility.
In addition, having a professional registered agent service ensures you don’t miss any important communication regarding your LLC. This means you can go on vacation and be confident that the commercial agent will keep track of any correspondence!
A professional registered agent service ensures that you don’t fail to duly respond to any notice or other communication that may be sent to your LLC. They remind you when your returns and other filings are due and help ensure you don’t miss any deadlines.
If you choose to avail of a registered agent service, the State of Arkansas requires that you file the listing of a commercial agent. You can fill out the form online by paying $50.
Filing the Certificate of Organization with Arkansas
A Certificate of Organization is a legal document needed to officially form and legally incorporate your LLC. You have to officially register your LLC with the State of Arkansas by filing this document.
The Certificate of Incorporation establishes your LLC in the State records and gives your business entity its legal status. You must fill out the LL-01 form and file it with the Arkansas Secretary of State online or via mail to register your business. We recommend filing it online since it is faster and more convenient.
As of now, the State does not have any provisions pertaining to expedient processing of your Certificate of Organization.
Public Notice of Formation
As of now, the State does not have any provisions pertaining to a mandatory public notice of formation for your LLC.
Create an Operating Agreement for your Arkansas LLC
An operating agreement is a legally binding, internal document that establishes the structure of ownership, processes, and operating procedures of your LLC. 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.
Although creating an operating agreement is not mandatory, the State of Arkansas recommends that all the members of an LLC enter into a written operating agreement. It prevents conflict among your company’s partners, especially in a multi-member LLC case. An operating agreement lays out every business member’s roles, functions, and responsibilities.
There are no prescribed templates for an operating agreement, and you may draft one according to the needs of your business. However, 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
There are numerous guides and free templates available online to assist you. However, depending upon the complexity of your operations and organization structure, hire a professional service to ensure that the operating agreement contains all the necessary details and does not omit anything important. Experts in the laws of Arkansas, these attorneys or professionals will help you draft an operating agreement that suits the needs specific to your business model.
Limits of Operating Agreement
The operating agreement cannot vary any mandatory requirements set out under the law, such as the requirements of filing annual reports and appointing a registered agent. You also cannot include anything prohibited by Federal laws or the laws of Arkansas into your operating agreement.
Obtaining an EIN for your Arkansas LLC
An EIN or Employer Identification Number is a nine-digit number assigned by the Internal Revenue Service (IRS) to identify a business for tax and filing purposes. An EIN is also called a Federal Tax Identification Number (FTIN) or Taxpayer Identification Number (TIN)
You are required by law to obtain an EIN if you fall under any of the following categories:
- Your LLC has a business structure as a partnership or a corporation.
- Your LLC has employees.
- Your LLC withholds taxes for non-wage income paid to a non-resident alien.
- Your LLC files excise taxes.
We recommend you obtain an EIN since it is needed for you to open a business bank account in your LLC’s name, apply for certain business loans, obtain licenses and manage employee-related matters.
Applying online is the easiest and fastest way to apply for an EIN. Click on the link below between 7 am and 10 pm EST (Monday – Friday) and fill in the required details. A valid SSN or TIN is needed to apply online. If you do not have either, you will have to Mail or Fax your application to the IRS.
File Annual Franchise Tax Reports in Arkansas
Every LLC is required to file an annual report annually as part of the mandatory statutory filings required by the State. In Arkansas, this report is called the Annual Franchise Tax Report. The tax amount is $150. An LLC will have to pay this amount to the State, even if it has not conducted any business in a particular. This amount will have to be paid annually till your entity is dissolved.
All LLCs must file this report as per Section 26-54-104 of the Arkansas Corporate Franchise Tax Act by the 1st of May every year.
If you don’t file your Annual Franchise Tax Report, you will be charged a one-time penalty of $25 and a 10 % interest per annum on the total outstanding balance for late filing.
If you continue failing to file the report, your LLC will receive a “Notice of Subject to Forfeiture” from the State as a final warning. If your LLC still does not file the report, the State will revoke your LLC’s corporate charter, thereby stripping your company of its rights and powers ( Section 26 -54-111).
Tax Liability for your Arkansas LLC
The taxes can be broadly placed under two categories: Federal and State. The way your LLC will be taxed depends upon the number of members in your LLC. 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
By default, the number of members in your LLC determines how it is taxed.
A Single Member LLC, by default, is considered a Disregarded Entity and is taxed like a sole proprietorship. The LLC has to report its activities under Schedule C, Schedule E and/or Schedule F of Form 1040.
If your business is a Multi Member LLC, the default tax status will be that of a Partnership. In this case, apart from filing Form 1040, you’ll have to file your partnership return in Form 1065 and provide information in the K-1 of each partner.
You must pay Federal self-employment tax (presently 15.3%) on the profits you take from your LLC. You are eligible for certain deductions in the nature of business expenses. You are also liable to pay Federal Income Tax.
State Tax Liability
Arkansas requires that you first register with the Arkansas Department of Finance and Administration. You can register online through the Arkansas Taxpayer Access Point (ATAP) website or by mail using the Combined Registration Form AR – 1R. Do check out the instructions for filing Form AR-1R.
You need to pay an Annual Franchise Tax of $150 every year. In addition, Arkansas levies a State-wide Sales Tax of 6.5% on the sale of specified goods or services. So, the State requires your LLC to have a Sales Tax ID Number from the Department of Finance and Administration online or by calling this number – 501-682-1895.
For more details, you can also check out the Tax Guide for New Arkansas Businesses.
Business Licenses and Permits
Once your LLC is approved, you must ensure you obtain the necessary licenses or permits needed to run your business. These are dependent on your business location and the industry you operate in.
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.
Failure to comply with these requirements can result in fines, penalties, or even being debarred from conducting business in Arkansas.
At the State level, your LLC should get a seller’s permit if it sells specific physical products or services to which sales tax applies. You can apply for a seller’s permit using the Arkansas Taxpayer Access Point. Additionally, certain specified businesses need additional permits from the State. You may refer to the Arkansas Division of Workforce Services to understand the licensing requirement of your LLC.
Depending on where you operate your business, you may also be required to get the local government’s license and permit. In Little Rock, businesses require a general business license. To know more about local licensing requirements, get in touch with the office of your local government.
For more information regarding;
- Federal Permits and License
- Arkansas Division of Workforce Services
- Arkansas’s Professional Licensing website.
Additionally, you may also look through the FAQ section of the Arkansas government website for more information on your LLC’s permit and license requirements.
Business Bank Account & Phone Number
After receiving your EIN, you may also set up a business bank account for your LLC, separate from your personal bank account. Having a different account helps you to avoid mix-ups and helps ensure that your personal assets are not affected in case of insolvency or lawsuits.
Establishing a separate phone number for your LLC ensures that your customers have direct access to your business for any questions or concerns. It also makes communication more accessible and more efficient.
Arkansas is an excellent choice for you to start your business journey. The State offers different tax credit schemes for LLCs. For example, under the Advantage Arkansas Income Tax credit scheme, if you sign an agreement with the Arkansas Economic Development Commission and create jobs in the State, you can receive tax credits that can offset up to 50% of your Income-tax liability to the State. Contact your local county or city government office to determine if your LLC is eligible for such schemes.
With the last step, you will complete all the procedures required to form an LLC in Arkansas. Double-check all the documents and information before you file your application. If you’re still hesitant about the process, you can always use an LLC registration service that suits your needs. Enjoy your new LLC!