Arizona is a good choice for starting an LLC because it has a reasonable filing fee, no annual report fees, and does not impose income taxes on the company.
If you are considering starting an LLC, it is important that you talk with an attorney about the local laws in Arizona.
There are some areas of law that are more restrictive than others, such as practicing law without a license, or being a member of a “trade union.” There are also requirements for how much capital or financial backing you need to start an LLC in Arizona.
Ten Steps to Starting a Business in Arizona
The following ten steps will help you make sure that your venture is properly planned and organized.
1. CHOOSE A NAME
One of the first decisions you will need to make is how your firm will be named. Some attorneys will recommend that you use your own name as the word “Limited,” and some will recommend using only a word that describes the activities that you specialize in (“Marketing,” “Consulting,” etc.).
You should feel free to choose any entity name that you want, as long as it is not confusingly similar to the name of an existing business.
The name must:
- Not be confusingly similar to a word in any other state’s legal code.
- Use only one word (unless multiple words are necessary to describe the nature of your business) and must be easily understood by the general public.
- Be clearly distinguishable from any other business names registered with the Arizona Secretary of State.
- Not be “Deceptive in any manner.”
- Not be an “illegal business name.”
2. PURCHASE A DOMAIN NAME OR SEE NUMBERS 3, 4, AND 5 BELOW
If you have already gotten approval from the state of Arizona to start an LLC, then you don’t need to worry about obtaining a business license. You must still file a Statement of Information with the Corporation Commission. This can be done online at https://ssi.azcc.gov/
If you don’t have approval and are starting a new LLC, then you will need to obtain a business license. This can be done by visiting the Arizona Department of Revenue website at http://azdor.gov/. You can also call the Arizona Chamber of Commerce’s Business Licensing Information Line at (800) 272-2316.
3. CHOOSE A BUSINESS ENTITY TYPE
In Arizona, you can choose from three types of entity status for your LLC:
- Domestic Profit Corporation (DPC)
- Domestic Nonprofit Corporation (DNC)
- Foreign Nonprofit Corporation (FNC).
Domestic Profit Corporation (DPC)
The DPC has the most flexibility of the three options. It is also the most common type of company used by small businesses in Arizona.
Domestic Nonprofit Corporation (DNC)
A DNC is a not-for-profit organization. They are commonly formed by churches, charitable organizations, and civic leagues.
Foreign Nonprofit Corporation (FNC)
An FNC is a corporation formed to operate outside of Arizona. It can be formed to operate in another state or country, or even internationally. The FNC must appoint a statutory agent in Arizona to accept service of process from Arizona courts.
You should discuss your options with an attorney. In some cases, it would be better to start a corporation instead of an LLC. For example, a corporation would be better if you have income that needs to be reported on your individual tax returns.
4. CHECK COMPANY NAME AVAILABILITY WITH THE ARIZONA CORPORATION COMMISSION
To do business in Arizona, you must have a certificate of existence from the Corporation Commission. You can check to make sure that your proposed business name is not already in use by going to the Corporation Commission’s website at http://www.azcc.gov/
You can also call the Arizona Corporation Commission’s registration department at (602) 542-5709.
5. SECURE THE NAME OR FORM THE ENTITY – YOU CHOOSE
If you decide to form a corporation, you can do it yourself and file the paperwork with the Arizona Secretary of State’s office.
At the Corporation Commission, you can choose between a 75-word or 100-word limited liability company (LLC) name. You will need to supply these words in the “Delineation of Terms” section of your new certificate.
You can also use our services at ArizonaProLegal and choose from one of our many LLC name combinations. You will need to supply the words in the “Delineation of Terms” section of your certificate.
6. FILE WITH THE ARIZONA CORPORATION COMMISSION CORPORATIONS DIVISION
All Arizona corporations must file an Application for Certificate of Registration, Arizona Articles of Organization, and List of Officers and Directors.
You can file the application with the Arizona Corporation Commission in person, by mail, or online at https://ssi.azcc.gov/. The filing fee is $100 with a minimum filing fee of $50.
If your corporation will have two or more members, you need to file an additional form called “Membership Certificate.” This certificate will show whether your corporation is a domestic, foreign, or nonresident alien.
If you are creating a corporation to do business in another state, then you will also need to file an “Application for Authority” with the Arizona Corporation Commission.
7. ARIZONA DEPARTMENT OF REVENUE
Arizona corporations are required to register with the Arizona Department of Revenue. This can be done by going to the website at http://azdor.gov/.
The filing fee is $5 per year, and you can file online. You will need to provide your business name and Taxpayer Identification Number (TIN). If you have an EIN, then you should use that for the TIN.
8. CITY OR COUNTY TAXES AND BUSINESS LICENSING
In Arizona, LLCs are not required to pay taxes or file annual reports.
The Arizona Corporation Commission is responsible for verifying that all corporations doing business in Arizona are properly registered and up-to-date on their annual reports.
If you fail to file an annual report with the Corporation Commission, then your entity could be treated as a foreign corporation and prohibited from doing business in the state. Fines of $500 per month can be imposed for overdue reports.
Licenses and permits you may need:
- Online address verification
- A business license or permit
- Liquor license (if you will be selling alcohol)
- Marijuana license (if you will be selling marijuana)
- Auto dealer’s license
- Vehicle dealer’s license
- Professional counselor license
- Driver’s license (for drivers)
- Photographers’ business licenses, etc.
9. FEDERAL EIN OR TIN – Internal Revenue Service
If you are a foreign corporation, you will need to obtain an EIN or TIN from the Internal Revenue Service. The EIN or TIN is used to identify your corporation in all federal tax statements and other official formation documents.
You will receive an EIN once your business has been approved by the IRS. If you already have an EIN and your business is in Arizona, then you should use that number instead.
10. BUSINESS BANK ACCOUNT
You will need to open a business bank account for your business. Be sure to check with your bank to make sure that your business can open an account. You should also decide how the money from the company will be deposited, withdrawn, and disbursed to you personally.
The forms necessary for opening a business bank account may vary from one bank to another.
Typically, you will need a completed application form, an ID card for each owner or officer of the LLC, and all of their signatures along with yours on the application.
Creating an Arizona LLC Operating Agreement
There are many different types of operating agreements for LLCs in Arizona. Each of these agreements is designed to meet the needs of a particular business.
For example, the operating agreement for a business that conducts scientific research may require more restrictions than one for a small home-based business. But almost every LLC will have one sort of document in some form or another.
Advantages and Disadvantages of Forming an Arizona LLC
The advantages of forming an Arizona LLC are:
- Freedom to pursue your dreams of starting a business
- The ability to do business without registering with the Arizona Corporation Commission (unless you operate domestic, foreign, or nonresident alien corporations)
- You can do business as much as you want within the state without registering with the Arizona Corporation Commission Corporate filings.
- Protection from personal creditors and lawsuits
- You can write off business losses on your tax returns
The disadvantages of forming an Arizona LLC are:
- The cost to form your LLC and file the annual report (around $400)
- You can only have one member if you form a single-member LLC
- There are restrictions on what type of businesses you can operate within the state.
All LLC members are protected from personal liability for the company’s debts and obligations. If an Arizona LLC has only one member, then that member is the only one who is liable for the debts of the company.
Although an Arizona LLC does not have to pay taxes, it will still need to file an annual report with the Arizona Corporate Commission.
The minimum filing fee is $50. There are also additional fees that you may be required to pay depending on your type of business organization structure and how you choose to report your income.
How much does it cost to form an LLC in Arizona?
The cost of forming an Arizona LLC varies depending on your business structure. The basic LLC fee is $300 and includes all of the documents needed to file with the Arizona Corporation Commission, a request for a Certificate of Status, and an informational packet regarding LLCs.
Additionally, you will want to consider paying a lawyer to help you with your organizational documents (incorporation) and filing fees (annual report). The attorney’s fees can range from $100-$1000 depending on how much work they assist you with.
How long do you have to form your Arizona LLC?
It typically takes 4-6 weeks to form an Arizona LLC. However, it can take longer if you are forming the business with outside investors.
If you are just starting out, then it will also take time to create a business plan and decide how much money you will need, how the company will be structured, and who the shareholders will be (if there is more than one person).
Arizona LLC Insurance
An Arizona LLC needs to have an insurance policy in place. This is not only to protect the business owners and investors but also to protect the company’s assets and business interests.
Depending on the type of business you operate, you will need to determine what types of liability coverages are necessary.
1. General liability insurance
This type of insurance is recommended for any business. The General Liability policy will protect the business owner, investors, and employees from personal injury and property damage claims.
The basic coverage for general liability may include:
- – Bodily Injury and Property Damage Liability – This policy will cover you in the event an employee injures a third party or an employee causes some property damage (like breaking a dishwasher). It also covers any lawsuits that may occur because of these incidents.
- – Asbestos – This covers your business if you are exposed to asbestos.
2. Directors and officers liability insurance
This type of insurance will protect the owners, investors, and employees from any lawsuits that may occur because of their mistakes or actions while running the company.
The basic coverage for Directors and Officers liability may include:
- – Coverage for a lawsuit filed against a director or owner of an LLC, or any other liable officer
- – Coverage for the defense of any lawsuit brought against the officer or director
3. Cyber liability insurance policies
As technology advances, cyber liability has become an important part of small businesses.
This policy will protect you if you are sued because your customers’ information has been hacked or breached.
4. Contractors’ all-risk insurance policies
This type of policy will protect your business from physical damages, such as fires and hail storms.
It will also cover some liability issues if a subcontractor is injured on the job while working for you.
5. Workers’ compensation insurance
This type of policy provides benefits to workers who are injured on the job in some way and forced to miss work because of their injury.
In some states, businesses are required to provide this coverage for their employees.
There are many insurance companies that offer coverage for any small business needs. The most important thing is to make sure that you have the proper amount of insurance in place and that it is covering the appropriate types of damages.
Arizona LLC Tax Filing Requirements
An Arizona LLC can choose to file as a corporation or as a partnership. The filing state fees and annual report fees are the same for both.
- If your business will be filing tax returns, then it will need to have an EIN or TIN. You should also check with your state’s Department of Revenue to make sure that you are properly registered with the state. If you need help with this, then you can hire a CPA to help you prepare your taxes and file your business state’s annual report.
- If you plan to sell your products or services interstate, then you will need to make sure that your LLC is registered in every state where it may do business. If there are multiple members of your LLC, then the LLC can allocate what percentage of the profits should be allocated to each member.
- If you and your shareholders have decided how an Arizona LLC’s profits are distributed among the shareholders, then you will need to prepare a written statement that details these distribution percentages.
Arizona Sales Tax
The business operating within Arizona is required to pay a sales tax on most of its goods and services. Typical sales taxes charged by the state include:
- Arizona Tax. The Arizona Tax is an 8.9% flat tax on all purchases, including:
- Individual personal income
- Trusts and Estates of the decedent or settlor (death)
- Corporations and unincorporated business entities.
- Professional fees for services rendered
- Real property
- Products other than articles of tangible personal property
The Arizona Tax is collected by the Arizona Department of Revenue. There are two different types of exemptions from the tax:
- Corporation Excise Tax Exemptions (corporate income)
- Sales and Use Tax Exemptions (individuals)
The Arizona Department of Revenue has developed a list of products that are subject to a different tax rate. This list includes:
- Motor vehicles and trailers
- Commodities other than real property, machinery, or equipment
- Property for personal, family, or household use if rented to tenants with similar living quarters
Arizona Employer Taxes
The standard rate of Arizona employer withholding tax is 6.9% on gross wages paid to employees. However, there are certain employers that may be exempt from paying the state’s payroll tax.
- These exemptions apply to both resident and nonresident aliens who are employed within the state
- The federal government also has laws that affect the employer. The employer will need to withhold federal personal income tax (withholding) and social security and Medicare taxes (federal unemployment tax). The amount of these taxes is determined by how much the employee earns for the year
- If you want to take advantage of any of these exemptions, then you will need to complete IRS Form WH-4. This form can be completed at any time during the tax year and must be filed with your employer before your first paycheck is issued. If you do not complete this form properly, then you may owe additional taxes and penalties.
- To help individuals understand their tax situation, the U.S. Department of the Treasury has developed a publication called Publication 531 which explains how to pay your taxes and file your tax returns correctly. This publication can also be purchased from any IRS service center or over the phone by calling the IRS at 1-800-829-3676. The publication is also available in Spanish and has been translated into over 65 languages.
- If you do not understand the way that your federal income tax is calculated, then you may be susceptible to paying more taxes than necessary. If this is the case, then you can complete IRS Form 8960 which will help clarify your situation. You should also check with a professional to make sure that you are filing your taxes correctly because there are many situations that can cause an individual’s tax liability to be higher than it needs to be.
Register for Arizona State Taxes
Most people do not realize that they are responsible for paying state taxes on their income and capital gains.
- If you are required to pay state taxes, then you must register with the Arizona Department of Revenue (DOR) before your first day of employment or payment of wages.
- The Arizona DOR will mail a registration form to your employer. Once this form is received by your employer, then you will need to complete it and return it to the DOR within 10 days of starting work or receiving compensation. The form must be completed and returned even if you are not required to pay taxes.
- The Arizona DOR will then send you a confirmation of registration that includes:
a) Your employer identification number (EIN)
b) The types of income that are taxable in the state of Arizona.
- If your employer is already registered with the DOR, then it may receive your return information electronically from the DOR. This is much more convenient for your employer and will help reduce paperwork during tax time.
- If you receive a tax refund, then you must complete Form G-12 which allows the government to verify that the return is accurate. Since the DOR will not allow an individual to receive a refund without completing this form, it is essential that this form be completed and returned to your employer or financial institution.
Federal LLC Tax Filing Requirements
Limited liability companies are required to file a federal informational tax return.
- This form can be completed by your LLC’s member or a professional. If you choose to complete the form yourself, then you can find the form and any other information that is needed on the IRS website or by calling 1-800-829-3676.
- The federal informational tax form that will need to be filed is Form 1065. This form can be completed by any member of the LLC.
- If you are not required to pay taxes on your income, then you are not required to file this form. However, you will still need to provide the information requested as your LLC files its taxes with the IRS.
- You must keep records of all payments made by the LLC and can later use these records when completing this form. This document will need to be signed by all LLC members and a professional who will then file this information with the IRS.
The federal informational tax form is also required when the LLC has paid out more than $975 in distributions after the year has ended. You must send an email notifying the IRS of these payments and they will then calculate your tax liability.
If you need any assistance or have any questions about filing your LLC’s taxes, then you can contact your accountant or take advantage of the free resources that are available on the IRS website.
Arizona Personal Income Tax Rates
You may be surprised to learn that Arizona has both individual and corporate income tax rates.
- As an individual, you will need to account for these rates when filing your personal income tax.
- As a business owner, you will need to calculate how much money you owe in state taxes by keeping records of your income.
It is important to note that these rates only apply to individuals who file their taxes as self-employed. If you work for an employer or receive other forms of compensation from the Arizona government, then you are not responsible for paying state and federal taxes separately.
As a resident, the maximum income tax rate that can be applied is 6.9%. This rate will be applied to all non-itemized income which includes wages, salaries, social security, pensions, rental income, and interest payments.
You will also be required to pay a 4% tax on non-itemized investment income. If you are not a resident of Arizona and do not live in the state for more than 183 days in a year, then you must use the federal standard deduction. If you are still required to file an Arizona income tax return, then you must include the federal standard deduction instead of itemizing your deductions.
When hiring new employees, you must withhold federal taxes from their wages. You will then pay the appropriate amount of state taxes using Form 1040-A which can be completed by your accountant or a professional who deals with taxpayer’s tax issues.
The Arizona Department of Revenue (DOR) will send this form to the Arizona Commerce Authority to calculate how much your company owes in state and federal taxes. The DOR will then send you a notarized copy of this form so that you can file your income tax return.
How to Obtain a Certificate of Good Standing in Arizona
As a business owner, you may be required to obtain a Certificate of Good Standing from the Arizona Corporation Commission.
This certificate will confirm the corporation’s compliance with all legal requirements within the state of Arizona as well as any other state where you do business.
Ways to obtain a Certificate of Good Standing:
I. The most common is when filing annual financial statements. If you decide to use this method, then it is important that you file your annual financial statement and the business license application on the same day.
If you do not file within 30 days after your annual financial statement is due to be filed, then you will be deemed to be in default and will need to pay an assessment fee of $250 plus 10% of any amount that remains unpaid when your initial assessment period ends. If you do not pay these fees, then your Certificate of Good Standing may be revoked.
II. If you choose to file electronically, then your Certificate of Good Standing will be sent to the LLC within 15 days. You will be notified by mail when this certificate has been sent to the business and this notification will include a filing receipt number.
If your Certificate of Good Standing is requested by a third party, then it may take up to 90 days for the certificate to be issued.
Is it necessary to have a registered agent?
At its most basic level, the registered agent process is a mechanism for a business to have access to the proper channels for communicating with the government and other legal bodies. As a business owner, you will need to have completed this form for your LLC before any official communication with the state government can be sent, such as when applying for tax status or doing any other significant business transaction.
The registered agent must be:
- an individual who resides in Arizona and has a valid business listing with the Arizona Secretary of State.
- if you choose to use a professional, then they should be a registered agent service and not a licensed attorney.
If you have already filed your LLC’s documents, then you will need to provide the information that is requested on Form D-100. This form can be filled out by an individual who is a resident of Arizona or by any professional if the organization does business in the state.
This guide should have provided the information that you need to do your own LLC incorporation in Arizona.
In addition, you should now know how to avoid common mistakes when forming an LLC and making sure you complete all necessary steps when filing for your business license.
If you have any questions about what you have read then be sure to contact the Arizona Corporation Commission. A professional will be able to answer any tax or legal-related questions that you may have. Furthermore, they will be able to help you if you have struggled with the process and need additional assistance.
The state of Arizona should be proud of how it has created a business-friendly environment for new businesses and those who are looking to expand their operations.