Many people decide to form an LLC in Arizona because it’s a government-friendly state, but keep in mind that the fees affiliated with this type of business structure are higher than we usually see.
Here’s what you should know about LLC formation.
Creating an LLC in Arizona: 7 Steps to Forming a Limited Liability Company (LLC)
If you’re thinking about forming a limited liability company (LLC) in Arizona, here’s how you should go about it.
Step One: Choose a Name
The first step in creating an LLC in Arizona is to pick a name. You cannot choose a name that is already being used by someone else.
To find out whether an LLC name is available, you can check the Arizona Corporate Commission or Small Business Registrations Division or search for the company on the internet, using the company’s business registration number as your search query.
Remember to abide by the following naming guidelines:
- The name cannot exceed 45 characters, including spaces.
- Name cannot be a vengeful, inappropriate, or vulgar word.
- Name cannot be the same as any commonly referred to word (for example, a company called “Explosive Devices” would be prohibited).
- Name can’t contain any of the following: The name of another state, a foreign government or political subdivision, a legal term or abbreviation that is not defined in Arizona law, and so on.
- The name cannot contain the name of an individual if it’s not also the name of the company.
- The name can’t be obscene.
Step Two: Choose a Statutory Agent Service
If you want to form an LLC in Arizona, you are going to need a statutory agent.
The statutory agent in Arizona is someone authorized to receive legal notices and other documents necessary for filing your LLC documents.
The statutory agent can be the same person as the registered agent.
Statutory agents can be:
- A domestic or foreign corporation, trust, estate, or partnership.
- A state-registered limited liability company (LLC) or foreign business organization.
- A natural person (a person who is not a business entity type).
Step Three: File the Articles of Organization
After choosing a business name, choosing a statute agent, and completing the articles of organization, you will then need to file them with the Arizona Corporations Division.
You can either mail or fax your articles of organization. To register your LLC in Arizona, you will need to submit Articles of Organization along with the required filing fee.
The filing fee is $25 for each person registering as a business owner or $50 for each additional owner.
Filing fees are subject to change, and some are charged per page.
Articles of Organization Contents:
All articles of organization filed under Arizona state law must contain the following information:
- The LLC’s name.
- The address of the registered office.
- The statutory agent’s name, address, and statement of their authority to act as a statute agent.
- The LLC’s purpose or reason for being.
- The names and addresses of each organizer signing the articles.
- The name, address, and signature of the filing agent.
- The Corporations Code requires all other appropriate information.
Step Four: Complete Publication Requirements (if applicable)
Once your articles of organization are filed, you must complete a number of publication requirements. They are:
- In Arizona, you must file a notice of exemption from creditors and a copy of the articles with the Secretary of State (form SB-1), or submit an electronic notice with the Secretary of State (see “How to File Notices” below). You can pay the filing fees online using your credit card or personal identification number.
- After you have completed the filing requirement, the Arizona Secretary of State will issue you a Certificate of Publication (form SB-2). You can pay the filing fees online using your credit card or personal identification number.
- Next, you must publish a notice that you are registered for tax purposes with the Arizona Department of Revenue (form SB-3) or file an electronic notification with the Arizona Department of Revenue (see “How to File Notices” below). You can pay the filing fees online using your credit card or personal identification number.
Step Five: Obtain an EIN
The next step is to obtain an Employer Identification Number (EIN). To get this, you will need to contact the IRS, and they will send you the EIN.
You must then file two copies of Form SS-4 with the Arizona Corporations Division (address above), along with your articles of organization and your Certificate of Publication (form SB-2).
To pay the filing fees, please visit our pay payment page.
Step Six: Register with the Arizona Department of Revenue (if applicable)
If you have elected to be taxed like a corporation, you must register with the Arizona Department of Revenue.
To do this, you will need to register for a Corporate Tax Account.
This account is registered at the state level by filing a Corporate Income Tax Registration Application (form CT-1R) and paying the filing fee of $290.00
The following is required on form CT-1R:
- The exact legal name of the corporation or LLC that has been filed with the Arizona Corporations Division.
- The principal address of the corporation or LLC.
- The name of the registered agent, statutory agent, or officer authorized to receive administrative process and summonses on behalf of the corporation.
- A statement that all requirements for the creation of a limited liability company (LLC) have been met and all information contained in this application is true.
Step Seven: Register your LLC with the city
If you are an LLC, you are going to need to obtain a business license.
You can do so by contacting your city or county government office (sometimes it will be the same office – the name may vary depending on the size of the city or county) and asking about what is necessary to obtain a business license.
You will also need to register your LLC with your specific city or county in Arizona within six months of filing your Articles of Organization with the Corporations Division.
Benefits of Forming an LLC in Arizona
Arizona has many LLC benefits such as:
- Limited liability – your personal assets are protected as long as the LLC maintains its legal business structure.
- Ownership protections provide certain limited rights to all owners, such as voting at meetings and voting them out of office if they do not perform.
- Limited liability, protection of personal assets, ownership rights, and the ability to operate in a more flexible manner than a sole proprietorship or single-member limited liability company (LLC).
- The flexibility of operation, especially if you plan to attract investors.
Drawbacks of an LLC
LLCs have certain drawbacks, including:
- Complexity – you will need to file articles of organization and follow additional steps when operating your business, such as opening a business bank account.
- Cost -LLC filing fees are more expensive than sole proprietorships.
- Time required – it may take longer to start and run than a sole proprietorship.
- Limited protection against outside creditors – the LLC does not have a full degree of personal liability protection.
- Personal property and real estate cannot be commingled with LLC funds, making these assets subject to claims by outside creditors.
- Restrictions on the ability to distribute profits must be distributed to owners, but they cannot be distributed in a lump sum or through dividends or salaries.
How much does it cost to start an Arizona LLC?
There is a $65 fee to file Articles of Organization (not including any additional fees, such as publication and EIN).
This is to help the government conduct background checks on all LLC applicants.
- The maximum fee that will be charged for a limited liability company (LLC) is $290. There are no state LLCs that are required to pay more than $290 in fees.
- There is a $290 annual fee to maintain an Arizona LLC (not including any additional fees, such as corporate or LLC tax). This annual fee is called the “Class D Fee.” It’s not required that you pay this annually; it’s optional.
- You will have to pay this if you are taxed as a corporation and choose to operate as a corporation in Arizona.
- You will only have to pay this fee if your LLC is classified as a Class D Corporation (not all LLCs are classified by their type of business activity). The state likes to classify LLCs by the type of business they conduct.
- If you want to elect out of the Tax on Corporate Net Income (Class D Property), then the Annual Fee is $190 ($95 if paid online).
How long does it take to start an LLC in Arizona?
Once you have filed your application, it will take 2 days before your LLC is official.
The average time for setup in Arizona is:
- 3-5 business days if the LLC is being filed by one owner. It will take 7-10 business days if additional business owners are being added.
- 4-7 business days if the LLC is being filed by attorneys.
A name reservation can be made within 5 business days, but the LLC cannot be established until the Articles of Organization have been filed with the State of Arizona Corporations Division.
If you are an LLC that is filing as a non-profit organization, you will need to file your application at least 60 days and not more than 125 days prior to when you plan to operate.
Filing Arizona LLC Documents
Arizona requires the following documents to be filed with the Arizona Corporations Division:
- Articles of Organization (form AS-1CA) – you cannot file an application without this form. The form must be filled out completely and mailed.
The fee for the filing of the Articles of Organization is $65.00, and additional fees may apply to your LLC.
Filing for an Arizona LLC can be done electronically if you have filed all your required information online and printed out and signed a confirmation page that was e-mailed to you.
- Photocopy of ID (Form AS-3) – this is the ID of the person who will act as statutory agent for your Arizona LLC.
This should be filed with the Articles of Organization (form AS-1CA). The fee for this filing is $10.
- Name Reservation Application (form AS-4) – this is the form you need to file in order to reserve a name for your Arizona LLC.
The fee for this filing is $10. If you decide not to use the name after you have reserved it, then the name will be released back into circulation, and another Arizona business can use that name.
You can file Arizona documents at the:
Arizona Corporations Division, State Records, Library & Archives, 1549 W. Washington, Ste. 3, Phoenix, AZ 85007
or online at the website: http://arizonaregistry.gov/corp/index.html
You can also use the State’s Corporation Division online service (AS-1) to file your formation documents but keep in mind that the state does not offer a live person for questions and can’t issue an Arizona LLC in just 1 business day.
Separate Your Personal and Business Assets
You should always separate your personal assets from your business assets.
You do not want to put all of your eggs in one basket.
For example, if you own a bike shop and have a house payment of $600/month, and then you purchase a new computer worth $1,500, you could be at risk if the bike shop gets into financial trouble.
Some ways to separate your personal and business assets:
- Open up a separate bank account for your LLC., but be sure to keep it separate from your personal bank account.
- Keep your business finances separate from your personal finances.
- Make sure all of your business assets are held in a third-party bank account.
- Always keep a written list of all of the business accounts and purchases that you make, along with their corresponding personal accounts.
Get Business Insurance for Your Arizona LLC
A lot of people think that just because they are a single-member LLC or multi-owner LLC, they don’t need business insurance.
This couldn’t be further from the truth. Even if you own an Arizona single-member LLC or Arizona multi-owner LLC, you will still want to purchase business insurance for your LLC.
Best businesses policies to carry:
I. Business Owners Policy
This policy will cover you in case someone gets injured on your property or if a fire occurs in your building.
II. General Liability Insurance
This business policy will cover you in case of a visitor to your business gets injured.
III. Business Income or Extra Expense Insurance
This business insurance policy will help you if you suffer a loss of income, a loss of revenue, or suffer extra expenses due to fire, flood, or natural disaster.
IV. Professional Liability Insurance
This insurance plan will protect you against lawsuits that may occur with your business activities.
Your business policy will cover you in case of lawsuits and other types of losses.
Make sure that you check with your Arizona insurance agent to help you choose the right business insurance policy for your LLC.
V. Business Protection Insurance
This plan will protect your business from computer hacking or data breaches.
It’s highly recommended for any online-based business.
VI. Business Automobile Insurance
If you use your car to run errands for your business, then this type of insurance will protect you in case of an accident.
VII. Umbrella Insurance
If you have a lot of assets from your personal and business funds, then you may want to consider purchasing an umbrella policy.
VIII. Workman’s Compensation Insurance
This type of insurance protects you if one of your employees gets injured while on the job.
It will cover medical bills that are related to the injury.
CITY OR COUNTY TAXES AND BUSINESS LICENSING
Each city or county in Arizona has its own business licensing requirements.
Below are all of the business license steps you will need to complete before you can officially be an Arizona business:
- There is a $50 non-refundable application fee.
- The state of Arizona also requires that your LLC file a quarterly report with the State Corporation Division within 30 days to report sales and income.
- All businesses in Arizona must have a liquor license for serving alcohol, so you will need to file an alcohol license for your LLC.
- There may be a tobacco license required for any business that sells tobacco.
- Some cities or counties may require a business license.
The total amount of time it will take to get a business license is flexible. The best way to stay ahead of the game is to start planning early so that you can be ready when you apply for your business license.
This is the process for businesses based in any city that have fewer than 20,000 residents.
You have to go to the city offices and file all your required paperwork (up to 25% of your company’s job sites).
Don’t forget to ask for a city business license certificate.
This is the process for businesses based in any city that have more than 20,000 residents.
You have to go to your county offices and file all your required paperwork (up to 50% of your company’s job sites).
Don’t forget to ask for a county business license certificate.
All Arizona LLCs are required to report taxes each year. Some people think that because they are a single-member LLC or multi-owner LLC, they don’t have to report all of their income and will only have to report half of it. This is a BIG mistake.
If you want your LLC to be successful, then you need to pay attention to all of your licensing and tax requirements.
Even if your LLC only has one owner, it’s still a business and therefore has to pay taxes in Arizona. If you do not follow the correct procedures, then you may end up having problems in the future.
Below are the tax numbers that we recommend for small businesses:
- Single-member LLCs – $500 for the first calendar year, $300 per subsequent calendar year (rounded up).
- Multi owner LLCs – $1,700 for the first calendar year, $700 per subsequent calendar year (rounded up).
- Married couples – $500 for the first calendar year, $300 per subsequent calendar year (rounded up).
File all of your tax reports on time, and remember to include your personal and business taxes in one check. This will make it easier to understand what your LLC is currently doing with its money.
The businesses that have the most employees are required to file an income tax return. This is a voluntary report for all other business entities.
The best way to stay ahead of the game is to start planning early so that you can be ready when you apply for your reporting.
MAKE SURE YOU FILL OUT YOUR REPORTS ON TIME
If your business in Arizona fails to file a report, then penalties will be applied to the owner. The fees are $200 ($100 for each month it’s late).
Here is an overview of the tax forms that you may need:
- If your company has employees, then you will have to file a W2 (Employer’s Quarterly Federal Tax Return). This form is often called a “transmittal of earnings or income.
- If your company has employees, then you will have to file a 1099-MISC (Miscellaneous Income Tax Return).
- If your company has any debt, then you will have to file a B2 (Bond and Securities Report). This form is often called a “Bonds and Other Securities Report.”
Don’t sell or buy anything that you cannot afford. If you do not have the money in your business account right now, then it will come back to haunt you.
The best way to be successful in the business world is to start planning in advance and ask questions.
Stay organized and do your research so you can make educated decisions that will benefit your company.
Buy insurance, pay your taxes and follow the laws. Always be honest and ethical in your business dealings.
Don’t make any business decisions that will put the long-term viability of your company at risk.