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Arizona’s consistent growth can be attributed to its pleasant climate, robust economy, and relatively affordable cost of living. The state’s resilient job market benefits greatly from its multitude of flourishing small businesses, which account for approximately 550,000 enterprises employing around 1 million individuals.
If you’re considering initiating an LLC in Arizona, the present moment presents an ideal opening. Fortunately, creating a Limited Liability Company (LLC) in the state is more straightforward than you may imagine. In this comprehensive guide, we will lead you through the process of establishing an LLC in Arizona, enabling you to kickstart your business.
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Why Establish an LLC in Arizona?
Arizona’s business environment is highly favorable due to its low cost of operations, minimal tax burden, and relatively relaxed government regulations.
As a result, launching an LLC in the Grand Canyon State is more cost-effective and less convoluted compared to numerous other states. It’s prudent to understand the advantages and disadvantages of an LLC before embarking on the process of establishing one in Arizona. The state mandates that businesses must opt for one of three officially recognized business entity types: corporation, non-profit corporation, or limited liability company (LLC).
How to Start an LLC in Arizona in 5 Easy Steps
Whether you’re navigating the process of obtaining an LLC in Arizona independently or utilizing an LLC formation service, having a good grasp of the LLC requirements is highly beneficial in knowing the necessary information you should be prepared with.
Step 1: Choose and Register an LLC Name for Your Arizona Business
The initial step involves selecting a name for your Arizona LLC, and it’s important to note that Arizona mandates that all company names must be distinct to avoid any confusion between different entities.
Moreover, when providing the full name for your LLC, Arizona requires the inclusion of the terms “Limited Liability Company,” “Limited Company,” or their corresponding abbreviations (e.g., “LLC,” “L.C.,” “LC,” or “L.L.C.”) in all LLC names. Additional naming guidelines include:
- Prohibition on using terms such as “association,” “corporation,” “incorporated,” or their abbreviations (“assoc.,” “corp.,” or “inc.”)
- Prohibition on using restricted terms that suggest a relationship with the state (e.g., “bank,” “university,” or “credit union”)
- Prohibition on employing phrases, words, or acronyms that could lead to confusion between your business and a government entity (e.g., “NSA” or “FDA”)
When you’re selecting a name, there are two approaches you can consider:
First, you may opt for a name that’s easy to remember and helps potential customers associate your business with the products or services you offer. For instance, a company specializing in succulents and cacti could choose to name their LLC “Little Saguaro LLC,” which is a descriptive and creative title that will immediately connect with their products in customers’ minds.
The second approach involves choosing a more formal name, such as the last names of the LLC’s founding members. Business owners involved in multiple industries often choose this option and also establish a “doing business as” (DBA) name, also known as a trade name.
For example, if a business founded by Jane Smith sells cacti and operates an ice cream truck, Jane might name the LLC “Smith’s Stuff LLC” and register DBA names like “Prickly Saguaro” and “Camelback Ice Cream” for each of the distinct businesses within the LLC.
Once you believe you’ve found the perfect name, you should conduct an LLC name search. This can be done by utilizing the Arizona Corporation Commission’s business name database to ascertain whether another business is already using your chosen name.
After performing your LLC search, it’s also advisable to check for any federal trademarks associated with the LLC name and/or DBA name(s) you intend to use. This is essential to avoid any legal complications resulting from using a name that’s already trademarked. If you plan to expand nationally and become a recognized brand, you might also want to consider trademarking your names to protect them from future use by others.
Here’s an additional tip: If a name is available, but you’re not yet prepared to submit the necessary paperwork, you can submit an application to reserve the name for your LLC. Arizona will assess whether your chosen name is acceptable and, if so, reserve it for a period of 120 days.
>> Select Your Arizona LLC Name With ZenBusiness >>
Step 2: Designate an Agent for the Service of Legal Documents
The subsequent phase in the process of initiating your Arizona LLC involves the selection of an agent. All Arizona-based businesses, including LLCs, are required to designate a person or entity capable of receiving legal and other crucial state documents on their behalf.
In Arizona, this individual is referred to as a “statutory agent.” In most other states, this role is known as a “registered agent” or “registered office.”
Your statutory agent must meet the following criteria:
- Reside within the state with a physical street address in Arizona OR
- Maintain a business office within Arizona AND
- Complete and submit a Statutory Agent Acceptance form to the Arizona Corporation Commission (ACC)
Step 3: File Articles of Organization and Publish
In the majority of states, forming an LLC requires just one filing stage. However, Arizona stands out with a two-step process. Initially, you must submit your Arizona Articles of Organization to the Arizona Corporation Commission (ACC). Subsequently, you’ll be required to publish a Notice of LLC Formation.
Articles of Organization
The Articles of Organization form is a crucial document when establishing an LLC, as it officially authorizes and registers your business with the Arizona Secretary of State. This document contains vital information necessary for the state to verify your company and establish contact with the LLC. It must encompass the following details:
- The name of your LLC
- Indication of whether the LLC is a standard LLC or a professional LLC
- Name and address of the statutory agent
- Address of the LLC’s principal office
- Specification of whether the LLC is managed by its members or an appointed manager
- Signatures of the organizer(s) of the LLC
Before proceeding with the filing process, you’ll need to make key decisions, such as determining the type of LLC you intend to create, considering the use of a virtual business address for LLC correspondence, and defining your LLC’s management structure.
LLC Types in Arizona: In Arizona, there are two distinct categories of LLCs – Standard LLCs and Professional LLCs (PLLC). A Standard LLC is established by one or more members for conducting non-professional business activities.
A PLLC, on the other hand, is composed of members who are professionals engaged in services that demand state licensing. If your LLC’s intended activities fall within the realm of professional services, you’re required to establish a PLLC. These professional services encompass, but are not limited to:
- Legal services
- Dentistry
- Medical services
- Architecture
- Engineering
- Veterinary services
Furthermore, in addition to including the appropriate designation or its abbreviation in the business name, these specialized LLCs must fulfill various other prerequisites, including the necessity to provide a description of the services that the PLLC will offer in its Articles of Organization.
Virtual Address: Given that all the details in the Articles of Organization become part of the public record upon submission, some small-scale LLCs operating from their residences may opt for a virtual address for their LLC-related matters. A virtual address is typically located in a desirable area and serves as an address for LLC correspondence. It offers an excellent solution for those who prefer not to rent physical office space but want to present a more professional address than a P.O. Box or their home address.
Management Structure: There are two primary management structures for LLCs, namely member-managed and manager-managed. For single-member LLCs or LLCs with a limited number of members, a member-managed structure often proves to be the most practical choice. It ensures that the management responsibilities are reasonably distributed among the members, preventing any overwhelming tasks.
On the other hand, LLCs with numerous members may find it advantageous to adopt a manager-managed structure. Under this arrangement, the members appoint a manager, who can be either a member or a non-member of the LLC, to handle all management duties, allowing the members to focus on smaller, specific tasks.
Once you’ve made all the essential decisions regarding your LLC, Arizona mandates the submission of the Articles of Organization and Statutory Agent Acceptance forms.
Notice of LLC Formation: Once the state has accepted the Articles of Organization, your LLC officially comes into existence. However, there is an additional step required when establishing an LLC in Arizona. The state obliges you to publish a notice of LLC formation within 60 days of the approval date of your articles. This notice must be published in a local newspaper with a general readership in the county where your LLC operates. Failure to do so may lead to the dissolution of your LLC.
The cost of publishing this notice varies depending on the county of publication, typically ranging from $30 to $300. However, if your LLC is located in Maricopa or Pima County, you can skip this step, as the Arizona Corporation Commissions in these counties publish notices for all recently formed LLCs on their websites, meeting the publication requirement.
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Step 4: Create an Operating Agreement
While certain states mandate the existence of an operating agreement to oversee your LLC, Arizona doesn’t impose such a requirement. Nevertheless, it’s strongly advisable to establish one to ensure that your personal liability is limited to the company’s assets and to define the relationships between members and the company clearly.
An LLC operating agreement serves as a formal record that delineates the rights, duties, and financial stakes of all individuals and entities connected to the LLC. Businesses in Arizona can also utilize this document to outline how the business will operate at both a broad and detailed level.
Consider the operating agreement for LLCs as a contractual agreement between you and all other members of the LLC. Even when entering into business partnerships with close friends or family members whom you trust implicitly, having legal documentation of the rules and procedures governing your business is a prudent step.
Since Arizona mandates that the LLC define its management structure, including this information in the operating agreement can help prevent disputes regarding responsibilities from emerging in the future. Some common topics that most LLCs choose to address in their operating agreements include:
- Description of the management structure
- Procedures for voting
- Guidelines for transferring ownership
- Financial accounting practices
- Day-to-day operational procedures
- The LLC’s mission statement
>> Create Your LLC Operating Agreement With ZenBusiness Today >>
Step 5: Obtain an Employer Identification Number (EIN)
An Employee Identification Number (EIN), also known as a federal tax identification number, is a 9-digit identifier issued to businesses by the Internal Revenue Service (IRS). While its primary purpose is for taxation, it also serves as a crucial means of identification necessary for various significant business functions.
An EIN is mandatory for businesses with multiple members and those employing individuals. However, applying for one is a straightforward and cost-free process through the IRS website. Upon submission, your unique EIN will be promptly assigned. Additionally, if you’re using an LLC formation service, they often offer an EIN application as an optional feature.
Even if you operate a single-member LLC, it’s advisable to obtain an EIN. Without it, you’d have to provide your Social Security number in lieu of the EIN whenever it’s required on forms, which may compromise your personal information. Having an EIN streamlines important business operations such as:
- Separating your business finances from personal finances
- Hiring and compensating employees
- Opening a dedicated business bank account
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How to Start an LLC in Arizona – Buyer’s Guide
Maintaining your LLC: Arizona
After your company has been formally registered with the Arizona Corporation Commission (ACC), you will have officially established an LLC. However, this doesn’t automatically signify that you are fully prepared to commence business activities. To ensure that your LLC is well-prepared for success, refer to the following guide.
Open a Business Account
Although you’ve successfully registered an LLC, it doesn’t automatically ensure the protection of your personal assets in the event of legal issues. Establishing a dedicated bank account for your LLC is among the most effective ways to safeguard your personal holdings.
Even though the income generated by the LLC is treated as the members’ income for tax purposes, combining business and personal income in the same accounts, a practice known as “co-mingling,” blurs the distinction between company and member finances.
Law in Action: Consider “Lil’ Cacti LLC,” a single-member LLC, which faces a lawsuit from a customer experiencing a severe allergic reaction after encountering a cactus in the store. The LLC possesses approximately $50,000 in business assets, while the member holds around $100,000 in personal assets. The member commingles the income from the store in a single bank account, where personal savings are also stored.
In the lawsuit’s outcome, with a value of $75,000, the customer seeks compensation by targeting the account housing the LLC’s income.
Since this account commingles the member’s personal income, there is no clear separation between the two, allowing the customer to claim the entire $75,000, exceeding the LLC’s available funds. Had the funds been in separate accounts, the customer would have only had access to the $50,000 account, and the member would not have suffered personal asset losses.
Inside Scoop: Before opening a bank account, it’s advisable to explore various options to secure the best deals. If you’re using an LLC formation service, check if they offer accounting services as well.
>> Ensure Asset Protection With ZenBusiness >>
Get Business Insurance
Just as you wouldn’t operate a vehicle without insurance, it’s equally important not to operate your LLC without proper business insurance. Even if your company’s activities are not inherently high-risk, unexpected accidents can occur, and it’s crucial to have safeguards in place.
You might be under the impression that insurance is only necessary when your business has a physical location where customers could potentially be injured. However, insurance serves to protect against various types of liabilities, including product liability, which guards against manufacturing defects, among other things.
If you’re uncertain about the most suitable insurance coverage for your LLC, Arizona business proprietors can consult the list compiled by the Small Business Administration to assess their options and determine the most suitable insurance for their specific company.
Hire Employees
If you intend to hire employees, it’s imperative to register your LLC with the Arizona Department of Revenue. This registration is essential for ensuring compliance with employer obligations and for facilitating online payments and document filings. The registration is a prerequisite for the following actions:
- Reporting new hires
- Maintaining employee records
- Displaying necessary notices
- Managing unemployment insurance
- Withholding income tax
- Arizona LLC Tax Filing
Regarding Arizona LLC tax obligations, to maintain your company’s active status, you must fulfill your LLC tax responsibilities. By default, LLCs operate as “pass-through” tax entities, which means that members individually pay taxes based on their respective share of the profits. Depending on the company’s income, members might consider altering the LLC’s tax classification by electing S-corp or C-corp status. Such a decision can often lead to tax savings for LLCs.
Opting for an S-corp or C-corp election allows the LLC to be treated as a corporation for tax purposes. In an S-Corp arrangement, members are regarded as employees of the LLC and are taxed solely on their “salary,” while the remaining income not allocated to employee salaries is considered dividends.
Similarly, a C-corp election involves an additional corporate-level tax before salaries are disbursed to employees and shareholders. This election process is typically complex and is usually beneficial when transitioning the LLC into a corporate entity.
Additionally, it’s important to stay informed about any local or state taxes that may apply to your business operations. For instance, the LLC may be subject to transaction privilege taxes (TPT), also known as sales tax, for the privilege of conducting business within the state. Furthermore, specific products such as liquor or tobacco may incur additional taxes. For a more detailed understanding of business taxes associated with particular activities, please refer to this guide.
>> Ensure Compliance Using ZenBusiness Resources >>
Business License
Afterward, it’s important to initiate the process of obtaining an LLC business license. Although there isn’t a universal state business license obligation for LLCs, it’s worth noting that various counties in Arizona and specific industries may necessitate licensing.
The Arizona Department of Commerce Licensing Guide is a valuable resource to assess whether your LLC necessitates any state business licenses or certifications. Additionally, it’s advisable to consult with your local city clerk regarding any specific license requirements applicable to your LLC.
>> Verify Local License Needs With ZenBusiness >>
Ways to Create an LLC in Arizona
There are three distinct pathways to launch your LLC in Arizona, and the choice you make should align with your company’s structure’s complexity.
Do-It-Yourself (DIY)
For any small business with straightforward financial and business plans, the DIY approach is a viable option. Arizona business owners opting for this route won’t incur any expenses beyond the state filing fees, but they must dedicate a significant amount of time to ensure all necessary steps are completed correctly. Filing incomplete or inaccurate forms is something to be avoided, as it can delay the registration process and potentially result in unexpected costs.
LLC Formation Service
When it comes to establishing an LLC, the optimal choice for the majority of businesses, regardless of their scale or intricacy, is to utilize an online LLC formation service. Arizona entrepreneurs can also opt to handle certain aspects themselves while leveraging a service for assistance with other tasks, such as registered agent services or the development of an operating agreement.
Here are a few well-regarded companies to consider:
ZenBusiness
ZenBusiness, an internet-based service for LLC formation, provides a variety of solutions aimed at assisting entrepreneurs and small business proprietors in launching and expanding their enterprises. They offer cost-effective and all-encompassing LLC formation bundles, encompassing registered agent services, annual report submissions, and various additional functionalities. Moreover, ZenBusiness extends continuous assistance and valuable resources to facilitate business compliance and prosperity.
Swyft Filings
Swyft Filings is a specialized LLC formation service known for its swift and uncomplicated LLC creation. They provide a broad spectrum of LLC-related services, encompassing incorporation, compliance, and registered agent provisions. Additionally, Swyft Filings offers individualized assistance to assist businesses in navigating the LLC formation procedures and adhering to both state and federal regulations.
>> Start Using Swyft Filings >>
Tailor Brands
Tailor Brands is an internet-based branding and design solution designed to assist businesses in crafting a polished and unified brand identity. They present a range of branding packages that encompass elements like logos, business cards, and social media branding. Furthermore, Tailor Brands equips businesses with design tools and valuable resources to facilitate the creation and customization of their branded materials.
Hiring an Attorney
Engaging the services of an attorney is typically essential for businesses with intricate financial arrangements or those already operating as LLCs in a different state and seeking to establish a presence in Arizona, which is referred to as a foreign LLC.
How to Start an Arizona LLC – FAQs
What Is an LLC?
An LLC combines the inherent simplicity and adaptability of a partnership or sole proprietorship structure with the added protection against risk characteristic of a corporate structure. Similar to shareholders in a corporation, the owners of an LLC, referred to as “members,” benefit from limited liability. This means their personal liability is limited to their invested capital and does not extend beyond that to cover corporate losses or debts.
By default, LLC members pay taxes based on their personal income, much like the taxation structure for owners of a sole proprietorship or general partnership, often referred to as a “pass-through” tax system. If specific criteria are met, an LLC has the option to choose taxation as a C corporation (C-corp) or an S corporation (S-corp). Many small business proprietors opt for LLCs due to their straightforwardness and adaptability.
Am I Required to File an Annual Report for My Arizona LLC?
No, there is no obligation to submit annual reports for your Arizona-based LLC.
Read more: Cost to Start an LLC
What Are the Benefits of Filing an LLC?
LLCs are a common choice for businesses due to their lower formation costs compared to corporations. In certain situations, an LLC may not necessitate extra tax filings, and it offers the ability to protect your personal assets by keeping them distinct from the assets of the LLC.
>> Launch Your Arizona LLC With ZenBusiness Now >>
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About the author
Dr. Gabriel O'Neill, Esq., a distinguished legal scholar with a business law degree and a Doctor of Juridical Science, is a leading expert in business registration and diverse business departments. Renowned for his academic excellence and practical insights, Dr. O'Neill guides businesses through legal complexities, offering invaluable expertise in compliance, corporate governance, and registration processes.
As an accomplished author, his forthcoming book is anticipated to be a comprehensive guide for navigating the dynamic intersection of law and business, providing clarity and practical wisdom for entrepreneurs and legal professionals alike. With a commitment to legal excellence, Dr. Gabriel O'Neill, Esq., is a trusted authority dedicated to empowering businesses within the ever-evolving legal landscape.