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When starting a business in the States, one of the most important decisions you will make is to choose which type of business structure best fits your company. Historically, the options were limited to a sole proprietorship, partnership, or corporation (from the simplest to the most complex). Another option that emerged from these and became quite popular is a limited liability company, also known as LLC.
An LLC is similar in many ways to both a partnership and a corporation, but it’s a legally distinct entity owned by “members.” Individuals, partnerships, corporations, trusts, and other legal or commercial entities may all be members of an LLC. Although the specifics vary between states, an LLC is usually easier to create and operate than a corporation while still providing many of the same advantages that a corporation offers.
As the name implies, a common reason to form an LLC is that it provides “limited liability” to the members of the LLC. In other words, a member’s personal liability for debts or losses of the business may be limited when the business is an LLC, which helps protecting your personal assets. LLCs are also more flexible management-wise and when it comes to how you’re going to be taxed on your profits from it.
In this post, we’ll dive into why Arizona may be the right state for you to register your LLC, and how to do it step-by-step.
In addition to the benefits of starting an LLC vs. other business types, there are several reasons why specifically Arizona is a good alternative to consider for registering an LLC, especially for small businesses. These benefits include:
How to Start an LLC in Arizona in 7 Steps
We’ll cover these steps in-depth in this guide, to help you understand how to get an LLC in AZ:
Below, you’ll find a detailed explanation to walk you through each step.
Once you have decided to form an LLC, you need to decide on a name for your company. As you can further read below, you’ll need to verify that the name is available in the state and comply with the rest of Arizona’s requirements for naming LLCs.
Aside from choosing your LLC name, you might need to reserve it before officially setting up the LLC, register a trade name if it’s relevant to your business, and register your name for trademark if you want to protect it. Another thing to keep in mind in this respect is choosing a domain name, so if it’s relevant for you make sure to check the availability of the business names you consider and register it early on.
Arizona requires the name of an LLC to contain the words “Limited Liability Company” or the abbreviations “LLC,” “L.L.C,” “L.C.,” or “LC.”. If the entity is a professional LLC, the name must contain the words “professional limited liability company” or the abbreviations “P.L.L.C.,” “P.L.C.,” “PLLC,” or “PLC.”
Arizona law also requires a name to be distinguishable on the records of the Commission or the Secretary of State from any of the following:
You will also need to make sure that your chosen name is available. To determine if a name is available, visit the Arizona Corporation Commission (ACC) website and conduct a name availability search by typing in the name you wish to use in the “entity name” box and clicking on “name availability search” at the bottom of the page. When you have settled on an available name, you can move with your LLC formation, or reserve it if you’re not ready yet.
In the case that you come up with a name you like and fits all of the state’s requirements but are not ready to move on with the LLC registration just yet, you should reserve it immediately in order to ensure that you will be able to use your chosen name. Note that reserving a name does not create your LLC, it only holds the name you selected to allow you time to officially register the LLC.
The name reservation is only good for up to 120 days, and cannot be renewed by the person in whose name it was recorded in the records A.C.C. However, it can be transferred into someone else’s name during the 120-day period by filing a Transfer of Name Reservation with the A.C.C.
Reserving your name can be accomplished by:
Some companies prefer to operate under a business name that is different from the company’s official name, which is called a trade name in Arizona. This is often referred to as a “Doing Business As” name (DBA), fictitious name or assumed name.
Similarly to the process of coming up with your LLC name, You’ll need to make sure the name is in accordance with the state’s requirement (see in the state’s Trade Name Handbook under distinguishable standards), and check that it’s available in the state.
Unlike the name reservation that is done through the ACC, the registration of a trade name in Arizona is handled by the Secretary of State. The filing process is strictly online and includes a $15 filing fee (you may request expedited service for an additional $25 fee). The trade name registration is active for a period of 5 years.
A trademark or service mark is a logo, name, or slogan that you wish to be used exclusively by your business. This is something to consider as forming an LLC does not protect it. To make sure your trademark or service mark is available, check the Arizona Secretary of State (AZSOS) “Entity Search” page. If available, you can register it on the state level by filing a Trademark Application (also used to register a service mark) with the AZSOS. For a trademark or service mark application, you will also be required to submit drawings and additional documentation for review.
The proposed trademark or service mark must be distinctive and distinguishable from others already registered with the state. The proposed name is reviewed for potential conflicts with existing registered trade names, trademarks, and business entity names at the Arizona Corporation Commission. If your trade name, trademark, or service mark is approved, you will receive a “Certificate of Registration” by email. Trademark and service mark registrations are active for 10 years.
If the state of Arizona approves your submission, it only protects against authorized use within the state. In order to protect your mark outside of Arizona, you should consider filing a similar application at the federal level with the Trademark Section of the United States Patent and Trademark Office (USPTO).
An LLC in Arizona must designate a “statutory agent,” commonly known as a “registered agent” in other states. The statutory agent is an individual or a business entity that has agreed to accept service of legal documents and notices on behalf of the LLC.
The statutory agent must have a physical address (street address) in Arizona and must formally accept the appointment as stator agent in writing by executing a Statutory Agent Acceptance form. The statutory agent can be:
You can also hire a registered agent service which has some benefits, like giving you peace of mind, allowing you to focus on the business and not worry about these specific duties, and helping you protect your private info.
Statutory agent registration is no charge unless you need expedited processing, which includes a $35 fee. Along with the articles of organization, you will need to submit a statutory agent acceptance form signed by the registered agent (read more in the next step).
Form an LLC in Arizona, Hassle-Free
The formal act of creating an LLC and registering it in Arizona is done by filing the articles of organization with the ACC. You need to comply with the state requirements and pay a $50 filing fee, which is one of the lowest LLC filing fees in the states.
The articles of organization filed may include additional information, but at a bare minimum they must include:
LLC members: The formation of an Arizona LLC requires one or more members. A member is not required to be an Arizona resident nor is there an age requirement. A member may be an individual, business corporation, partnership and many other types of entities as defined in more detail in Chapter 7 of the Arizona Limited Liability Company Act.
Professional LLCs: An Arizona professional limited liability company (PLLC), defined in A.R.S. Section 29-4101.4 is “a limited liability company organized under this chapter for purposes that include rendering one or more categories of professional services.” “Professional service” is defined as “a service that may be lawfully rendered only by a person licensed or otherwise authorized by a licensing authority in this state to render the service.”
Foreign LLCs: Arizona also recognizes foreign limited liability companies, defined as “an unincorporated entity that is formed under the law of a jurisdiction other than this state and that would be a limited liability company if the unincorporated entity were formed under the law of this state and includes a foreign series for the purposes of this article. With limited exceptions, the law of the jurisdiction of formation of a foreign LLC governs both internal affairs of the company and the liability of a member as a member and a manager as a manager for a debt, obligation, or other liability of the company.
Creating an Arizona LLC will require payment of several mandatory fees. The required fees will vary depending on how many documents and/or services are involved. All filing fees are nonrefundable, and cash is only accepted at the Phoenix office for in-person submissions.
Common fees involved in forming an Arizona LLC include:
The articles of organization for your LLC may be filed online through the Arizona Corporation Commission website as well as in person or by mail at the Arizona Corporation Commission, 1300 West Washington Street, Phoenix, Arizona 85007.
Expect documents filed by mail or in person to take approximately 14 to 16 business days from the time they are received to process. If you pay the expedited fee, that time frame shortens to 7 to 9 days. Documents filed online take, on average, 14 business days to process. If you pay the expedited fee your documents may be processed in as little as one day.
An Arizona LLC must designate a “statutory agent,” commonly known as a “registered agent” in other states. The statutory agent is an individual or business entity that has agreed to accept service of legal documents and notices on behalf of the LLC. The statutory agent can be an individual who is a permanent, full-time Arizona resident, a domestic corporation or an LLC, or a foreign corporation or an LLC authorized to do business in Arizona. The statutory agent must have a physical street address in Arizona and must formally accept the appointment as stator agent in writing by executing a Statutory Agent Acceptance form.
If we help you create your limited liability company, we can take care of filing your statutory agent acceptance form for you.
There is an exception to the publication rule which applies if you are in Maricopa or Pima County, in which case the ACC posts notice of your LLC’s formation on the Arizona Corporation Commission’s Public Notice Database.
The cost of publication depends on the newspaper in which the notice is published.
The next step, which is not mandatory yet very recommended to complete early on when forming an LLC, is to create an operating agreement for your LLC. An operating agreement helps define how the LLC will operate, further liability protection for the members, and decreases the likelihood of disputes.
Arizona does not require an operating agreement. However, if you choose to create one, once signed it becomes a legally binding contract between the LLC members and, subject to A.R.S. Section 29-3105 that states an operating agreement governs:
Additional aspects to include in an operating agreement:
Arizona law allows the members of an LLC to allocate both ownership and profits equally or in any other way they wish. The operating agreement is where ownership and profit allocation will be explained in writing to avoid future disputes.
The terms and provisions of an operating agreement should also address the issue of financial responsibility for debts and other liabilities of the LLC. Those terms and provisions should outline the “limited liability” protection intended to be provided to members. In the absence of an operating agreement with language intended to confer protection from liability, it may be easier for individual members to be held legally liable for the debts and liabilities of the LLC.
Why an operating agreement is so important?
The more complex your LLC structure and members are, the more important it is to have an operating agreement from a management perspective. Not only does an operating agreement set forth in writing all verbal agreements between the members, but it also makes clear the type of management structure to be used to run the company. Arizona law allows both member-managed and manager-managed LLCs. In a member-managed LLC, management authority is equally shared among all members. In a manager-managed LLC, a separate manager or group of managers is designated to manage the company. A manager can also be a member but is not required to be a member of the LLC.
The Internal Revenue Service (IRS) identifies individuals with a Social Security Number (SSN). An Employer Identification Number (EIN), also referred to as a Federal Tax Identification Number, is the business equivalent of a Social Security Number. It is issued by the IRS and used to distinguish business entities for tax and other related reasons.
Along with tax filing purposes, your LLC will likely need an EIN to apply for federal/state/local permits and licenses as well as open bank accounts and apply for financing (read in more detail below).
Applying for an EIN can easily be accomplished online through the IRS website, for LLCs whose principal place of business is located in the U.S. and any of its territories. You will need a valid Taxpayer Identification Number (SSN, ITIN, EIN).
Like most business entities, an Arizona LLC will be subject to both federal tax laws and applicable state tax laws. Understanding how your LLC will be taxed by the State of Arizona is crucial to ensuring that your business complies with all tax laws and filing requirements.
In addition, it’s important to understand the different types of taxes your LLC may be liable for, the main of which we will cover in this section.
Unlike a traditional corporation, an LLC is not usually subject to “double-taxation” for the purpose of federal tax liability. Instead, “pass-through” taxation applies, meaning that the profits of the business are passed through to the members and are taxed on each of the member’s personal income tax returns. Note that an LLC can elect to be taxed as a corporation, in which case profits are reported both at the corporate and individual levels.
It is always wise to have an in-depth consultation with a certified public accountant, tax attorney, and/or financial advisor before you start operating your new Arizona LLC. Tax and financial strategies for a business are often different from those for an individual because of the numerous complex tax credits, state and federal tax incentives, and tax obligations that apply to a business. To make sure your business is successful, you need to implement financial and operational strategies aimed at minimizing taxes and maximizing profits.
However, before you dive into that, here are the main taxes you should be familiar with if you’re forming an LLC in Arizona:
Unless you elect for your LLC to be treated as a corporation by filing IRS Form 8832, it will be treated as either a partnership (for multi-member LLCs) or a “disregarded entity” (for single-member LLCs) for federal income tax purposes. A “disregarded entity” is not viewed as a separate entity from its owner(s).
Whether treated as a partnership or a disregarded entity, members must claim the income on their federal income tax returns according to the profit-sharing allocation agreed upon in the operating agreement.
Members are also responsible for claiming income from an LLC on their Arizona state tax return filed with the Arizona Department of Revenue each year.
Another important tax obligation of which you should be aware is the “transaction privilege tax” commonly known as “sales tax.” The Arizona transaction privilege tax (TPT) is a tax on a vendor for the privilege of doing business in the state.
If a business is selling a product or engaging in a service subject to TPT, a license from the Arizona Department of Revenue (ADOR) would likely be needed as well as a transaction privilege tax or business/occupational license from each city in which the business is based or in which the business operates. The TPT rate varies by city and/or county and is paid to the ADOR.
How to apply for the TPT?
A single application, known as the “Arizona Joint Tax Application (JT-1),” can be used to apply for transaction privilege tax and use tax as well as Employer Withholding and Unemployment Insurance. The application can be completed either online or by mail:
If your LLC shows a profit that is passed on to you as a member, you will probably need to report that as self-employment income on your personal income tax return each year. That income is subject to self-employment taxes by the federal government. When you are an employee, your employer typically withholds these Social Security and Medicare taxes and pays them to the U.S. government on your behalf. When you are self-employed or have any self-employment income for the year, you are responsible for paying those taxes yourself in the form of a self-employment tax.
Who is subject to self-employment tax in Arizona?
If you have net earnings of $400 or more from self-employment, you are subject to self-employment taxes. For 2022, the first $147,000 of your combined wages, tips, and net earnings is subject to the Social Security portion.
Self-employment taxes are calculated using Schedule SE (Form 1040 or 1040-SR). The self-employment tax rate is 15.3%, which represents 12.4% for Social Security and 2.9% for Medicare.
As an Arizona LLC, you may also be responsible for withholding payroll taxes (representing Social Security and Medicare taxes) from the paychecks of employees. An employer must withhold Arizona income tax from employees whose compensation is for services performed within Arizona. The amount required to be withheld is a percentage of the employee’s gross taxable wages. All employees are required to submit an Arizona Form A-4, Arizona Withholding Percentage Election, within five days of being hired.
Calculating, withholding, and paying social security and medicare taxes to the federal government can be complicated. Start by referring to the IRS “Employer’s Tax Guide” for more information.
Unemployment Insurance taxes may also need to be paid to the State of Arizona. Your LLC must register with the Arizona Department of Economic Security (DES) and Arizona Department of Revenue (DOR), both of which can be accomplished using the Arizona Joint Tax Application filed for sales taxes. The DES will provide an Arizona unemployment insurance employer account number if you are liable for paying unemployment insurance (UI) taxes and a “Determination of Unemployment Insurance Liability” form will be mailed to your LLC.
Additional taxes may be owed to the state of Arizona for specialized businesses. For example, if your LLC operates a business that sells alcohol, tobacco, or marijuana, you may need to pay additional taxes. The Arizona License Compliance Program can help you determine if any additional state taxes obligations apply to your business.
Though not a tax, you are required by law to carry workers’ compensation insurance coverage as an Arizona employer. The workers’ compensation insurance system is governed by the Industrial Commission of Arizona. For questions about your obligations and options, read through the “Employers’ Frequently Asked Questions” published by the Industrial Commission.
After you finish setting up and registering your LLC in Arizona, there are still some important things to take care of as a new business owner. Making the business official and registering it with the state is an important step towards establishing the business as a separate entity and protecting your personal assets, but there are still additional steps to consider, and you also need to make sure that you’re in good standing with the state.
That includes understanding if and which licenses or permits your business might need to operate properly in Arizona (and obtaining them), and opening a separate bank account for your business which is considered best practice.
A general business license is not required by the state of Arizona. Certain types of businesses, however, are required to be licensed by the state. Contractors, for example, must register with the Arizona Registrar of Contractors. In addition, individual cities or towns may require you to be licensed if you plan to do business within the city/town limits. Check the Arizona Commerce Authority website to see if your LLC needs to obtain a license and/or register with a particular city or town.
One of the reasons you likely formed an LLC was to create a legal entity separate and apart from yourself. As a separate legal entity, your LLC needs its own bank account. Keeping financial transactions related to the LLC distinct from those of the members is crucial to maintaining the limited liability protection afforded by an LLC. Moreover, having a business bank account adds a level of professionalism to your LLC that can be important when transacting business.
Creating an Arizona LLC will require payment of several mandatory fees. The required fees will vary depending on how many documents and/or services are involved. The main cost is the filing fee for articles or organization, which is:
See more detailed information on the additional potential costs in this post.
Unlike many other states, Arizona currently does not require a Limited Liability Company to file an annual report with the state.
However, you may be required to file reports with other state and/or federal agencies, and it’s best to remain in good standing with the state to learn if there are any changes to the requirements.
Currently, there seem to be no annual fees directly related to the existence of your LLC.
member of an AZ LLC may be an individual, business corporation, partnership and many other types of entities as defined in more detail in Chapter 7 of the Arizona Limited Liability Company Act.
Arizona does not require an operating agreement. However, if you choose to create one, once signed it becomes a legally binding contract between the LLC members.
A general business license is not required by the state of Arizona. However, certain types of businesses, are required to be licensed by the state, as you can read on the Arizona Commerce Authority.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.
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