Incorporating an LLC is the first step you take, as a small-business owner, towards setting up your business in Arkansas. An LLC or Limited Liability Company is a form of legally structuring your business to reduce or limit your liability in case of a lawsuit, thereby protecting your assets. Arkansas is a great destination to incorporate your LLC since it offers excellent tax benefits through its tax credits programs if you create more employment options for the citizens of the State.
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 one of the first steps 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.
The name of your LLC has to meet specific requirements:
The phrase ‘Limited Liability Corporation’ or a form of the abbreviation ‘LLC’ must be present in the name of your business.
The name cannot include any word(s) that could potentially cause it to be confused with a Government Agency (State Department, FBI, etc.).
Words like ‘Bank’, ‘University’, ‘Attorney’, etc., and other restricted words which require the respective licensed individual ( Lawyer, etc.) to be part of the LLC.
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.
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 Corporation/LLC.
If the Search Results show – “There were no records found”, your chosen name for your LLC is available, and you’re good to go!
Reservation of your LLC’s name
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”.
Does your business require a DBA?
DBA is the Doing Business As (“DBA”) or trade name. It is a name that consumers can publicly recognize as your brand and is different from your legal 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. You can file for a DBA online with the Secretary of State and operate under a trade name, giving you the freedom to pursue your business under a different, more suitable name. The filing fee for the application ranges from 15$ to 25$, depending on the type of business you own.
Choose a Registered Agent
Your registered agent acts as 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 or risk administrative dissolution or a loss of 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?
Your registered agent must possess an Arkansas street address. They must also receive legal notices, and other correspondences between 9 am and 5 pm, i.e., regular business hours. You can choose among the following options.
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. You could use their street address, provided they can receive correspondence during regular business hours.
Individual registered agent vs Commercial registered agent
You can also avail of the services of a Commercial Registered Agent. 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 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!
If you choose to avail the services of a commercial registered agent, the State of Arkansas requires that you file the listing of a commercial agent. You can fill out the form online by paying a fee of $50.
File the Articles of Incorporation
You have to officially register your LLC with the State of Arkansas by filing the Articles of Incorporation. The Articles of Incorporation are the documents that establish your LLC in the State Records and give 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 checking out the filing process online since it is faster and cheaper.
Create an Operating Agreement
An operating agreement is a legally binding, internal document that establishes the structure of ownership, processes, and operating procedures of your LLC.
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 the partners in your company, especially in the case of a multi-member LLC. An operating agreement lays out the roles, functions, and responsibilities of every member of your business.
There are numerous guides and free templates available online to assist you. However, depending upon the complexity of your operations and organization structure, you may want to hire a professional service to ensure that the operating agreement contains all the necessary details and does not omit anything important.
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.
Obtain an EIN
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 helps you 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, then you will have to Mail or Fax your application to the IRS.
Note: Always wait until you receive approval for your Articles of Incorporation from the Secretary of State’s Office (Arkansas) before applying for an EIN. If your LLC filing is rejected, your EIN will be attached to an LLC that does not exist.
File Annual Reports
As part of the mandatory statutory filings required from LLCs, you are usually required to file an annual report. In Arkansas, this report is called the Annual Franchise Tax Report.
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. There is no other report you have to file annually.
If you don’t file your Annual Franchise Tax Report, you will be charged a one-time penalty of $25 and then 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).
The taxes can be broadly placed under three categories: Federal, State, and Additional.
Federal Tax Liability
By default, the number of members in your LLC (owners or shareholders) determines how it is taxed in Arkansas.
In the case of a Single Member LLC, this type of LLC is, by default, considered a Disregarded Entity and is hence taxed like a sole proprietorship, provided a single individual owns the LLC.
If your business is a Multi Member LLC, the default tax status of this type of LLC is a Partnership and is taxed as such by the IRS. However, if you wish to have your LLC taxed as either a C or S Corporation, you must first apply for your LLC’s EIN and then file Form 8832 for a C-Corp or Form 2553 for an S-Corp.
In either case, we strongly recommend you consult a professional accountant as there are numerous details to consider.
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 instructions for filing Form AR-1R.
You need to pay an Annual Franchise Tax of $150 every year. In addition to this, Arkansas levies a State-wide Sales Tax of 6.5% on the sale of goods and services in Arkansas. So, the State requires your LLC to have a Sales Tax ID Number obtainable from the Department of Finance and Administration online or by calling this number – 501-682-1895.
Apart from these examples, your LLC may also incur other tax liability in Arkansas depending upon the LLC’s size and industry, such as –
- Partnership and LLC tax
- Income tax
- Motor Fuel tax
- Local taxes
- Miscellaneous taxes (farming, timber, real estate, etc.)
You can also check out the Tax Guide for New Arkansas Businesses for more details.
Arkansas offers different tax credit schemes for LLCs and Corporations that will offset your tax liability to the State. 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.
Business Licenses and Permits
Once your LLC is approved, you must ensure you obtain the necessary licenses or permits per the Arkansas State and Local Government requirements. These are dependent on your business location and the industry you operate in.
Failure to comply with these requirements can result in fines, penalties, or even being debarred from conducting business in Arkansas.
Some examples of licenses and permits you may need are –
- Building permits
- Business license/ Tax permit
- Occupational permit
- Health permit
- Liquor license
- Seller/reseller permit
- Sales and use tax permit
In Arkansas, you may need to apply for licenses and permits at the city or county level as the requirements differ from one county to another. You can contact the respective county in Arkansas to double-check.
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 account. This account helps you protect your personal assets by separating them from the LLC’s assets and also makes accounting and filing taxes more convenient.
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.
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, and if you’re still hesitant about the process, you can always use an LLC registration service that suits your needs. Enjoy your new LLC!