If you’re reading this article, you’ve probably already decided to form an LLC in Arizona.
Congratulations! It’s always exciting to take the first step by either creating a new business or starting a business in a different state.
I’ll tell you everything you need to know about forming an LLC in Arizona, but first I’m going to explain what a Limited Liability Company (LLC) is and the benefits and advantages of forming an LLC.
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is An Arizona LLC?
An Arizona LLC is a Limited Liability Company formed in the state of Arizona that is governed by the laws, regulations and statutes of the state of Arizona.
Why choose An LLC?
Here are the main reasons that you should choose a Limited Liability Company (LLC) over any other business structure like a sole proprietorship, a partnership, an S Corporation or C Corporation.
1. Limited Liability And Asset Protection
One of the biggest advantages to forming an LLC in Arizona is that as an LLC owner, you can’t be held personally responsible for the liabilities or debts of your Arizona LLC.
So if your Limited Liability Company (LLC) goes bankrupt or is sued, the creditors of your Arizona LLC can’t come after your personal assets like your house and car. The only financial recourse they can seek is limited to the assets and liabilities of your LLC.
Everyone in the country was made aware that an unexpected event like a worldwide viral pandemic can topple even the most prepared and successful of businesses. So any bit of personal protection is welcomed by small business owners who put a lot of stock into the hard work it took to build their Arizona LLC from the ground up.
The second advantage to choosing to start an LLC in Arizona rather than another business structure is you can protect your personal information.
In the past decade or so, internet crooks and hackers have become highly adept at what they do. They now can steal your identity or amass thousands of dollars worth of debt in your name using the most seemingly insignificant bits of information, like your name and address.
When you choose a business structure such as a sole proprietorship, partnership or sole trader, you’ll be forced to register your name and address with the Arizona Secretary of State and the Arizona Corporation Commission and then your details will be listed on the Corporation Commission’s website which is open to the public.
But you can protect your personal information when you form an LLC. If you use an Arizona LLC formation service, they will list their name and address on the Arizona Corporation Commission website instead of yours, but you still maintain control of your Limited Liability Company (LLC). This means that your information won’t be on the public record and will be kept safe from people who would use it for criminal acts.
The last benefit to choosing to form an LLC that I’ll discuss here is the taxation benefits that LLCs receive.
If you choose to run your business as a corporation, you’ll experience a phenomenon known as “double taxation”.
The reason it’s called “double taxation” is that all of the profits made by the corporation are taxed at corporate rates, then the leftovers are distributed amongst shareholders as dividends which are also taxed.
As an Arizona LLC, your business will entirely avoid “double taxation”.
The profits made by your LLC in Arizona will be taxed using company tax rates, not corporate tax rates and then they’re distributed to LLC members as personal income, not dividends. This way you’ll avoid having to pay a tax on your LLC income twice.
There are even more tax benefits for LLCs. The Tax Cuts and Jobs Act of 2017 created a type of tax benefit specifically for LLCs called Qualified Business Income Deduction (QBID). This benefit gives LLCs a 20% tax break which is not offered to any other business type.
How To Start An LLC In Arizona
Now you should have a proper understanding of what an LLC is and what sort of benefits you can enjoy when you start an LLC in Arizona. If you feel like you’d benefit from an LLC formation service to assist you through the sea of red tape required to form an LLC in the state of Arizona, you can read my guide on the best LLC formation service here: Best LLC service.
If you’re still considering this structure for your business in Arizona, here are the five steps you’ll need to complete to form an LLC.
1. Obtain An Articles Of Organization Form
The first step you’ll need to complete in the LLC formation process is obtaining an Articles of Organization form from the Arizona Corporation Commission.
You can get your Arizona Articles of Organization form here.
The form is a PDF that you can submit online along with a payment for the filing fee.
Because the Articles of Organization form is the main form that you’ll need to file in order to form an LLC in Arizona, the rest of the steps in this section will refer back to the Articles of Organization form.
2. Choose Your Business Name
So you’ve got your Articles of Organization form. Now the first thing you’ll have to list on it is your LLC’s name.
Unfortunately, you can’t just write down the first business name you think of in this section. Every business in Arizona is required by state law to have a business name that is unique to it. This means that you can’t use the LLC name you want if it’s already in use by another business.
Fortunately, it’s pretty easy to check whether another business has already reserved the LLC name you want to use. Just check the entity search engine on the Arizona Corporation Commission website.
If the LLC name that you want is already taken, don’t fret. You can attach suffixes to your LLC’s name like “Limited Liability”, “LLC”, “L.L.C.”, “Ltd.” or “Co.”. This is a bit like adding numbers to the end of your screen name when you find out that the screen name you want is unavailable. Once you’ve come up with something that works, you’ll need to file a Name Reservation form.
If you’ve added suffixes or you just generally don’t like the sound of your LLC’s name you could always fill out an application for a trade name or DBA (Doing Business As) name. This is the name your LLC in Arizona will present to the world through business signs, advertisements and other media. Here’s the form you’ll need to register a Trade Name for your Arizona in LLC with the Secretary of State online.
3. Choose An Arizona Registered Agent Or Statutory Agent
One of the requirements of the Arizona Corporation Commission is that each LLC in Arizona must have a registered agent or statutory agent in Arizona.
A registered agent or statutory agent is available to receive mail and legal documents from official state offices (like the Arizona Corporation Commission or the Arizona Department of Revenue) during business hours.
You can assume the role of statutory agent for your LLC in Arizona yourself or you can appoint a registered agent or statutory agent service.
If you decide to take on the role of statutory agent for your Limited Liability Company yourself, your name and address will be listed on the public record as your LLC’s business address. This puts you at risk of hackers and scam artists using your information for nefarious reasons.
Another problem you’ll encounter is that you’ll have to make yourself available during normal business hours to accept mail and legal documents if you choose to be the registered agent or statutory agent for your LLC in Arizona. Most LLCs also operate during normal business hours and you can’t be in two places at once. This means that you could miss important notices which could lead to lawsuits that you can’t even defend yourself from because you missed a Service of Process.
The only real bright side to taking on the role of registered agent or statutory agent for your Arizona LLC is that you won’t have to pay a statutory agent’s fees.
If you choose to hire a statutory agent in Arizona, they will keep your personal information safe by registering the statutory agent’s name and address as your LLC’s business address. A statutory agent service will also make sure that your LLC will receive all of the mail and documents sent to it from government agencies. The only drawback is that you’ll typically have to pay a fee between $99-$299 per year for statutory agent service.
But this is a small price to pay when you consider that the statutory agent service could keep you from being sued or losing your entire business. I recommend using a registered agent service for every new LLC in Arizona.
If you’d like to learn more about registered agent services, then check out my guide on the best Arizona registered agent
No matter whether you’ve decided to be a statutory agent for your Arizona LLC or if you’ve decided to appoint a registered agent service, you’ll need to fill out a Statutory Agent Acceptance form and submit it along with your Articles of Organization. You can get your Statutory Agent Acceptance form here.
4. Choose Your LLC Address
Your LLC name isn’t the only important bit of information you’ll need to attach to the Articles of Organization form to be made available on the public record. LLCs in Arizona are required to list a business address for their LLC as well.
If you aren’t using a registered agent service or LLC formation service you can use the street address of your business. But if your business doesn’t have a physical street address you’ll need to register either your home address or your home office address. This is information that you don’t want to put on the public record because it can fall into the wrong hands.
If you do use an LLC formation service or registered agent service, they’ll register their information with the Arizona Corporation Commission instead of your own, which will keep your personal information safe.
5. Sign And File Your Articles Of Organization
Once you’ve completed the form and you’ve triple-checked all of the information for accuracy, it’s time to file Articles of Organization along with a cover sheet.
One more important thing that you’ll need to do before filing is decide whether your Arizona LLC will be member-managed or manager-managed. A member-managed LLC is run by LLC members, while a manager-managed LLC is run by either one member, a handful of appointed members or outsiders chosen to run the business. Choosing whether to have a member-managed or manager-managed LLC is really a decision about whether you want all of the members to be in charge (which would be a member-managed LLC) or if you want one member or a group of members to be in charge (which would be a manager-managed LLC).
Once you’ve made that decision you’ll need to gather each form that you need to file along with your Articles of Organization. You’ll need your cover sheet, Articles of Organization, Member Structure Attachment or Manager Structure Attachment, your Statutory Agent Acceptance and the filing fee payment when you file.
You can sign and file the form yourself if you’re comfortable with your information being put on the public record. But if you’re using an Arizona LLC formation service, they’ll sign and file the documents on behalf of your LLC so that your information remains secure.
To file your Articles of Organization you send them by mail to the Arizona Corporation Commission.
Here is their address:
Arizona Corporation Commission
Corporations Division- Examination Section
1300 W. Washington St.
Phoenix, AZ, 85007
Once you’ve filed your Articles, the Secretary of State will contact you after they’ve processed your forms. It typically takes them 15-17 days to process Articles of Organization. But if you want expedited processing, many LLC formation services offer this and so does the Arizona Corporation Commission.
Other LLC Activities
Once you’ve formed your LLC, you’ll have to perform several activities that aren’t related to LLC formation.
Unlike many states, Arizona state LLCs don’t have to file an annual report. But there are still plenty of activities that you’ll have to take part in to make sure that your LLC in Arizona remains in good standing.
You’ll need to publish a notice of LLC formation in a newspaper in your county within 60 days of your LLC’s formation (unless you’re in Prima or Maricopa counties who don’t require LLCs to publish a notice of LLC formation in newspapers but publish online instead.) The notice has to be published in three consecutive publications (So it has to be printed in the paper three days in a row).
You may need to file for certain business licenses to operate as an LLC in Arizona. Here’s a list of Arizona state business licenses from the Arizona Department of Commerce. LLCs in Arizona may need to check with their city to find out if they need to get local licenses as well.
There are a few instances (like collecting sales tax or transaction privilege tax) when LLCs in Arizona will need to register with the Arizona Department of Revenue. If your LLC hires employees or collects transaction privilege tax (sales tax) then you’ll most likely need to register. Luckily you can register your LLC with the Arizona Department of Revenue online for a Transaction Privilege Tax here.
Although Arizona LLCs aren’t required to file an annual report, you will still need to acquire a Certificate of Good Standing as well as pay any state, federal tax or LLC tax that applies to your business, and obtain an EIN (more on that later) to make sure that your LLC in Arizona is still able to legally do business in the state of Arizona.
This may all seem like a lot of things to remember to keep track of and it kind of is. But if you would like some help to take over part of the paperwork and registration burden you could consider hiring an Arizona PEO, as well as using an online legal service for your business.
Arizona LLC Fee Summary
One of the questions that small business owners ask the most is “How much does it cost to start an LLC?”. It doesn’t matter whether you decide to tackle LLC formation on your own or whether you use an LLC or business formation service, you must pay a state filing fee for several things. Here’s a list of some of the fees you can expect to encounter when you form your LLC:
Articles of Organization state filing fee: $50 (an additional $35 for expedited processing)
Name Reservation state filing fee: $45 online and $10 by mail
Registered Agent/ Statutory Agent Fee: $99-$299 per year
State Personal Income Tax rate: 2.59%-4.5%
State Corporate Income Tax rate: 4.9%
After Starting Your Arizona LLC
So you’ve done all of the hard work of forming an LLC in Arizona;you’ve filled out and filed your Articles of Organization, published a notice of LLC formation for three consecutive days in a newspaper in your county, registered with the Arizona Department of Revenue and acquired all the necessary local and state business licenses required for your LLC to legally do business in the state. Congratulations!
Starting an LLC is a major step that requires a lot of hard work, so celebrate this victory because you’ve earned it! Go out on the town, have a decadent and indulgent meal, enjoy a glass of wine or champagne, or even go on a weekend trip. But you can’t relax for too long because there are still a few things that you’ll need to do so that your LLC has the proper foundations to function properly as a business entity.
Step 1. Create An Operating Agreement
LLCs in the state of Arizona aren’t required to create an LLC Operating Agreement, but it’s highly recommended that you consider drafting and filing one anyway. I’ll tell you everything you need to know about Operating Agreements in this section and exactly why an LLC Operating Agreement is so important.
If you compare your business to an animal, the LLC would be its skin or the outer shell of the creature while the Operating Agreement would be the organism’s central nervous system, telling it how to function and react to things.
Your Operating Agreement is not only a contract between LLC members but it’s also a set of detailed instructions about how the business should be run. Operating Agreements should list each of the LLC members before proceeding to establish all of the managerial, financial, structural and operational aspects of your business.
The Operating Agreement for your Limited Liability Company should declare which LLC members will make high-level decisions for the company, as well as explain in detail the ownership percentages and the percentages of profits and losses each member should receive. It’s important that Operating Agreements also explain the roles in the business that each member will play and how different members or departments will interact with each other. This ensures that each member will know what their job is, who they should be working most closely with and who should be handling each task and also prevent squabbling and infighting.
One thing that a lot of people don’t think to put in the Operating Agreement for their business is instructions for what should happen if a member leaves or joins the LLC. However, if you design your Operating Agreement this way, your business will have the instructions it needs if there is a falling out or disagreement between LLC members, which is massively helpful.
The Operating Agreement is one of the most important documents that you will be drafting and filing during the early months of your LLC. It not only tells LLC members what their job is but provides a detailed explanation about how the whole business will be run.
It should be pretty clear by now according to the explanation of the LLC Operating Agreements in this section that your business must be run according to the parameters set forth in your Operating Agreement, so if you draft it poorly it can potentially hinder business growth. It’s quite easy to botch the Operating Agreement for your business simply by not allowing room in the instructions for things like change and innovation. But if your Operating Agreement is properly drafted, you’ll see your company prosper and grow without the constrictions of faulty operation instructions.
If you’re inexperienced with drafting and filing an Operating Agreement and you’re worried about getting it right for your business (which is a logical concern), you have a few options available to you.
Northwest Registered Agent provides a free Operating Agreement template on their site for LLCs to use. If you decide that you don’t want to draft the Articles entirely on your own, there are lots of online legal services that will happily guide you through the process. And if you want no part in drafting the Articles, many LLC formation services will help by drafting and filing the Articles of Organization for your business on your behalf.
You can download a free and editable operating agreement on Northwest Registered Agent’s website here:
Free Operating Agreement Template
Step 2. Apply For An Employer Identification Number
If you plan on hiring employees for your business or opening a bank account for it, you’ll need to obtain an EIN. An Employer Identification Number qualifies your company for certain licenses and permits that you can’t get without an EIN. Of course, you aren’t required to hire employees to acquire an EIN for your company – it’s just an identification number for LLCs.
An EIN functions to identify LLCs much the same way that a Social Security Number is used to identify individual people. You can apply for an EIN through the IRS (Internal Revenue Service), which is easier than you would think.
Many LLC formation services will apply for an EIN on behalf of your LLC, which is convenient. You can also apply for an EIN yourself. All you have to do is go to the IRS’s website and fill out the application for an EIN between 7 am -10 pm Monday-Friday.
Step 3. Open A Business Bank Account
The last step for LLCs to complete to make sure they have the proper business foundations is to open a bank account specifically for their business.
Many business owners forget or overlook this step but it’s an important one that you won’t want to skip. A lot of people use their own personal bank accounts for both business and personal transactions and then try to determine the difference between the two later for federal tax purposes. Of course, it seems simpler to use one bank account for everything but there are two important reasons not to do this.
The first is that it’s much simpler to determine which transactions are business transactions when you have a bank account dedicated specifically to your LLC, then you know for sure that all of the transactions on this account are business transactions. You may think that you’ll be able to tell which are business transactions and which are personal transactions but believe me, it’s a lot harder to remember the personal transactions from the business ones months later when tax season comes around. So for LLCs, having a dedicated bank account for business transactions is important for tax purposes because it will make filing taxes a lot easier.
The second reason to get a business bank account for your LLC is, if you use your personal account for business transactions, you open yourself up to lawsuits and your personal assets won’t be protected even though you formed an LLC to get asset protection. Of course, if you do business transactions for your LLC through your personal bank account, creditors of your LLC can claim funds in your personal bank account as financial recourse.
So if you want to keep your personal assets safe and make tax season a breeze, just use a separate bank account for your LLC and your personal finances.
To open a bank account for your LLC you’ll need what is known as a “bank kit”. This includes documents like your Articles of Organization, Certificate of Good Standing, Certificate of Publication and your EIN. Basically, you’ll need most of the documents you’ve been filing to form and establish your LLC.
Many LLC formation services include bank kit preparation among their services.
You’ve taken a major step towards taking control of the future of your business by forming your Arizona LLC.
If you’ve chosen to use one of the many Arizona LLC formation services, you’ll likely have to pay a fee as low as $0 plus state filing fees and they take a lot of the guesswork out of filing all of the forms you need to file to form an LLC in Arizona.
If you’ve decided to form your Arizona LLC on your own, here are the five steps you’ll need to complete to form your LLC in Arizona:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
It can be a mind-boggling experience to navigate through all of the red tape and legal jargon involved with forming an LLC in Arizona. But nothing compares to the sense of accomplishment you will get from forgoing an LLC formation service, filing all of the forms and filling out all the applications yourself and forming your LLC on your own.
Hopefully, this is just one step along a long and successful business journey for you. Congratulations on forming an LLC in Arizona and best of luck with your future business ambitions!