Starting a Limited Liability Company (LLC) in Arizona can be an exciting venture if done properly. Whether you're an experienced business owner or new to entrepreneurship, it's crucial to navigate the formation of an LLC effectively. This article is designed to guide you through the process of forming an LLC, from choosing a business name to understanding associated costs and benefits, to your next steps post formation.
As we dive into the details of starting a business, remember that establishing an LLC goes beyond just paperwork and filing fees, it involves creating a stable and profitable business.
How to start an LLC in Arizona in 7 steps
01. Pick your business name
Naming your LLC is the first step in starting a business in Arizona. This is not only a creative process but a legal one too. For your chosen name to comply with state laws, make sure it ends in "LLC," "L.L.C.", or "Limited Liability Company." Your company name should be distinct and neither too similar nor the same as any other name that is on file with the Arizona Secretary of State.
Also plan on making a website for your business? You can start your search for domain availability while choosing a business name, to make sure the two are the sam or at least very similar.
Tip: If you're having trouble coming up with a unique name for your business, consider using a business name generator.
02. Choose your registered agent
Every LLC in Arizona must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in Arizona.
Need help setting up your LLC? Wix has partnered with LegalZoom, the No. 1 choice for online business formation to help you start, run and grow your business.
03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally as in Arizona. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, follow these steps:
Check with local and state agencies to determine what permits you need.
Fill out all required paperwork accurately and submit them to the appropriate authorities.
Be prepared to pay any associated fees for obtaining your permits.
Let’s say you want to start a car detailing business in the state. First, you’ll need a business license from the Arizona Department of Revenue. You may also need to obtain additional licenses or permits depending on the specific services you offer. You'll also need to check with local zoning and building regulations to ensure that your chosen location is zoned for commercial use and meets all necessary safety and accessibility requirements.
Learn more: How to get a business license
04. File Articles of Organization
Articles of Organization is a critical document that officially creates your LLC in Arizona. You'll file this with the Arizona Secretary of State, either online or by mail, along with the required filing fee. You'll need details like your LLC's name, registered agent information and management structure. Then fill out Form L010i, this is the specific form used for filing an LLC's Articles of Organization in Arizona. Complete the submission process by paying the $50 filing fee.
05. Draft your LLC operating agreement
Although not required by law in Arizona, creating an operating agreement is highly recommended for outlining the ownership and operating procedures of your LLC. This internal document outlines ownership structures, member roles and operational procedures for your specific type of business.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is essential for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes amongst other important reasons. When issuing an EIN you should:
Apply online or via mail: The IRS provides free EIN registration through their website or via mail submission.
Understand your business tax obligations: Learn about state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In Arizona for an LLC owner this includes a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the Arizona Department of Revenue website.
07. Organize annual reports
In some states, annual reports are mandatory filings that keep your company's information up-to-date with the state government. If your LLC is taxed as a sole proprietorship or a partnership, it's exempt from the annual report requirement in Arizona.
How much does it cost to start an LLC in Arizona
Starting an LLC in Arizona involves various costs. It's important for you to budget accordingly when laying out your expected business startup costs. Here's a breakdown of the expenses you can expect during the formation process:
Filing fee for Articles of Organization: The state of Arizona requires a fee when you file your Articles of Organization. This is a one-time cost that's mandatory for all new LLCs. For an LLC it costs $50.
Registered agent fee: If you choose to hire a professional registered agent service, fees can range from $50 to several hundred dollars per year.
Business permits and licenses: Costs vary depending on the type and number of permits your LLC needs. It's essential to research specific fees related to your industry.
Operating agreement: While drafting an operating agreement isn't mandatory and doesn't have a state fee, you might incur costs if you hire an attorney or use a professional service.
Employer Identification Number (EIN): There is no cost to obtain an EIN from the IRS.
State tax registration: If your LLC will sell goods or services subject to sales tax, you must register with the Arizona Department of Revenue, which may involve a registration fee.
Annual compliance: Although Arizona doesn't require annual reports, there may be other ongoing compliance costs such as renewing business licenses or permits.
Additional costs may include:
Legal or financial consulting fees: If you seek professional advice during the formation process, these services will add to your startup costs.
Domain registration and website creation: Building a website is essential for your business. Potential costs include domain registration and potentially hiring a web designer or using a website builder like Wix.
Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.
Learn more: Cost to start an LLC
Who can start an LLC in Arizona
To form an LLC in Arizona, there are specific eligibility criteria that need to be met. It's crucial to understand who can start an LLC in the state before you begin the process.
You must be at least 18 years old to form an LLC in Arizona.
There's no residency requirement in Arizona, meaning you don't have to live in the state to start an LLC there. However, your LLC must have a registered agent with a physical address within the state.
You don't need to be a U.S. citizen or permanent resident to start an LLC in Arizona. Foreign nationals can also form an LLC.
Almost any type of business can be structured as an LLC, except for businesses that require a professional license, such as legal or medical practices, which may need to form a professional limited liability company (PLLC).
An LLC can be formed by one individual (a single-member LLC) or multiple individuals (a multi-member LLC). There's no maximum number of members.
Benefits of starting an LLC in Arizona
Forming an LLC in Arizona has a number of benefits that may appeal to business owners. These advantages include:
Limited liability protection
As the name suggests, an LLC provides limited liability to its members, which means your personal assets are typically protected if your business faces lawsuits or debts.
Pass-through taxation
LLCs often benefit from pass-through taxation where the business itself is not taxed. Instead, profits and losses pass through to the members' personal tax returns.
Management flexibility
Unlike corporations, LLCs have fewer formalities and can be managed by the members or appointed managers, providing flexibility in how the business is run.
Ease of formation and maintenance
Compared to other business entities, forming and maintaining an LLC is relatively straightforward with fewer formalities and paperwork.
Credibility with customers and partners
Having 'LLC' after your business name can enhance your credibility with potential customers, suppliers and financial institutions. You can then choose an .llc domain for your website to reinforce this credibility.
Possible drawbacks of starting an LLC in Arizona
Before deciding to form an LLC in Arizona, it's crucial to weigh the pros and cons. Being aware of these drawbacks will help you decide if an LLC is the right business structure for you. Here are some challenges you may encounter with an LLC in Arizona:
Self-employment taxes
Members of an LLC may be subject to self-employment taxes on their share of the profits.
Limited growth potential
An LLC cannot issue shares of stock like a corporation, which may limit your options for raising capital.
Transferability of ownership
Transferring ownership in an LLC can be more complicated than in a corporation. Often, all members must approve adding new members or altering ownership percentages.
Variable state laws
Regulations for LLCs can vary significantly from state to state, which might complicate interstate business operations.
Why start an LLC over another business entity in Arizona?
Choosing the right business structure is crucial for entrepreneurs. In Arizona, forming an LLC is
often preferred due to its unique advantages. But it's important to compare it with other types of business structures to understand why an LLC might be the best choice for your situation.
Here's how an LLC stacks up against other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
LLCs also offer these unique advantages:
Operational flexibility: Corporations are required to have a formal structure with directors and officers, while an LLC can be managed by its members or managers, providing greater operational flexibility.
Fewer record-keeping requirements: An LLC has less stringent requirements for record-keeping and reporting compared to a corporation.
Profit distribution flexibility: Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.
A limited liability company—or LLC—is a type of business entity that offers some of the benefits of a corporation with less formality. Shylene D’Addario VP, associate general counsel at LegalZoom.
You've formed your LLC in Arizona, now what?
After successfully incorporating an LLC in Arizona, the process of building and growing your firm only begins. There are important procedures you should take to ensure that your LLC runs properly and in accordance with state rules. These include
Keep your personal and business finances separate by opening a bank account specifically for your LLC. This will simplify accounting and tax filing.
Depending on your business type, you may need various insurance policies, such as general liability insurance or professional liability insurance, to protect your business.
Stay on top of your federal, state and local tax obligations. This includes paying any applicable sales tax, payroll tax and state income tax.
Additionally, focus on these areas to manage and grow your LLC:
Understand ongoing compliance requirements: Familiarize yourself with any annual filings or fees required by the state of Arizona to keep your LLC in good standing.
Develop a strong brand identity: Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
Implement a good accounting system: Good financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits and financial growth accurately.
How to start an LLC in Arizona FAQ
How long does it take to form an LLC in Arizona?
The processing time can vary, but typically, it takes about 15-20 business days if filing by mail. Online filings may be processed faster.