Are you looking to form a limited liability company (LLC) in the state of Arizona, but you’re not sure how the formation process works? There are several important steps when it comes to creating an Arizona LLC that is compliant and able to do business in the state.
To do this, please see our 6-step guide below or hire an affordable online LLC formation service.
Why an Arizona LLC?
The Arizona LLC is one of the most popular business structures in state. It’s a more casual and flexible type of business than a corporation, but includes personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Arizona have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Start an LLC in Arizona in Few Steps
1-Name Your Arizona LLC
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In the state of Arizona, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
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2-Choose a Registered Agent in Arizona
Every LLC in Arizona is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
Without a registered agent, you could lose your good standing with the state of Arizona, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
3-File Formation Documents with State
Once you are ready to form your Arizona limited liability company, you will fill out the articles of organization.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
Arizona does not currently offer online filing; you’ll need to print off this form and deliver it by mail or in person to the following address: Arizona Corporation Commission Corporations Division 1300 W. Washington St. Phoenix, Arizona 85007
Cost to Form an LLC: The state of Arizona charges a $50 fee to form an LLC.
Processing Time: Processing time varies in Arizona, depending on the time of year. This period is on average 15 working days. You can reduce this time if you use a boost service.
4-Create Your Alaska LLC Operating Agreement
After you register an LLC in Arizona, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements here, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
5-Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
Sole Proprietor LLCs do not pay income taxes; instead, those taxes, called pass-through taxes, are reported on of the LLC’s proprietor on Schedule C of their personal income tax statement. Partnership LLCs also employ pass-through taxes; how much each member of the partnership is determined by filing Form 165 with the state. The exceptions are LLCs which elect to be taxed as a corporation; those LLCs are subject to the Corporate Income Tax of Arizona, which currently stands at 4.9%.
Arizona’s “sales tax” is technically the Transaction Privilege Tax (TPT), which is levied on vendors in certain industries including restaurants, hotels, retail sales, mining, and more. Businesses responsible for the Transaction Privilege Tax can learn more about the requirements and apply here.
In contrast, the use tax is levied on businesses when they purchase out-of-state goods for use in their business (not items for resale). The use tax is reported on the same form as TPT. Additionally, there are some luxury taxes on alcohol and tobacco. For a full listing of taxes and filing instructions, consult Arizona’s taxation basics guide.
Depending on where in Arizona your business is located, you could also need to pay some local taxes. The most common local taxes include property taxes, which are evaluated by each county’s property assessor. Find your county’s property assessor to get started.
6-Obtain Business Licenses and Permits
Arizona does not require a general business license, but any LLCs selling products or services that would be subject to the Transaction Privilege Tax (see Step 5), will need to apply for a TPT license. This licensure allows you to sell products or services in good standing with the state.
Other than that, Arizona upholds any federal, local, or industry-specific licensing requirements. So if you’re a construction contractor, hairdresser, plumber, or an LLC in a similarly regulated industry, you’ll need to obtain the appropriate license from your industry. You can find out more about Arizona’s license requirements here.
What is Next
What to do After Creating an Aricona LLC?
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance
Every LLC with employers must have workers compensation insurance to protect employees in the event of an accident. Arizona operates on a “no-fault” compensation model, so the compensation benefits are extended regardless of what party causes the accident. See these frequently asked questions to better understand Arizona’s requirements for workers’ compensation insurance. Additionally, Arizona requires that every vehicle in the state be insured; if you’ll be using a business-specific vehicle as part of operating your business, you may want to get a commercial vehicle insurance policy. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. For Arizona, you’ll essentially file this report when you pay your Transaction Privilege Tax as mentioned above. LLCs with only one physical location can file by mail with this form. LLCs with multiple locations must file electronically here.
Understand annual reporting
Arizona requires an annual report from corporations; however, unlike many states, LLCs are exempt from this reporting requirement.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.