Definition

What is an LLC?

Short for Limited Liability Company, LLC is a small business entity distinguished from an ordinary partnership or corporation because of its hybrid structure. LLCs in Arizona are easy to create and have many advantages because of their flexibility to provide personal liability protection in case a lawsuit is filed. So, even if your business is sued, you can be assured that your personal assets will still be secured.

At the same time, LLCs have no formalities and are privy to tax efficiencies, which makes them similar to partnerships. This pass-through taxation allows profits to escape the double-taxation system because profits are not taxed unless they pass as income to the members. The owners can be individuals, trusts, corporations, or other legal bodies, but all are termed ‘members’ in an LLC.

With a business and tax-friendly environment, Arizona offers a better chance for startups. Entrepreneurs can make the most of an LLC in Arizona because it comes with lesser expenses, minimal paperwork, and wider availability of resources. Based on recent surveys, Arizona has escalated in economic performance due to its labor market, skillful workforce, low-cost businesses, limited regulations, and easy-going policies.

 Being one of the fastest-growing states in the US, paired with the low tax brackets, makes it a haven for starting a small business. Within such settings, forming an LLC in Arizona will yield the benefits of larger corporations and ensure protection against lawsuits and additional tax filings.

Advantages

Advantages Of an LLC In Arizona

Arizona appears as a welcoming opportunity for entrepreneurs striving to legalize their businesses. The state offers many incentive programs that are an attraction to many. But it’s not simply that; the entire process is pretty simplified and straightforward, along with the benefits Arizona offers to LLC owners. A few of them are discussed here.

Disadvantages

Disadvantages of an LLC in Arizona

While all the advantages make LLCs seem the best option, it is important to be fully aware of the drawbacks in order to make an informed decision. Understanding the potential negatives can help you make the right choice to decide if an LLC in Arizona is something that would help scale your business. Here are a few disadvantages of starting an LLC in Arizona.

LLC Formation

How to Form an LLC in Arizona

While forming an LLC might seem overwhelming, the right guidance can make it a breeze. We have prepared this complete section to inform you of all the steps to make your business a legal LLC entity in Arizona. Here’s a step-by-step guideline for everything you need to know.

1. Choose a unique name
2. Appointing a statutory agent
3. Arizona LLC articles of organization
4. Arizona LLC operating agreement
5. Employer identification number (EIN) for an LLC

Choose a unique name

The first step to filing an LLC is having a suitable name for your business. The name should be short, memorable, and represent what your business stands for. It is also important to keep 2 or 3 alternative names just in case another business already has the name you decide on. You can hit a google search or look up the Arizona Corporation Commission to see if a different LLC or corporation already uses the name. It’s best to go for a unique name that is not confusingly similar to avoid legal complications.

Naming Criteria

The name must adhere to Arizona’s LLC requirements which include that the LLC’s name must contain the exact words ‘Limited Liability Company, ‘Limited Company,’ or the abbreviations like LCC, L.C.C, LC, LC. Or LLC. Under Arizona’s law, it is completely restricted to use any words or abbreviations that can give a false impression of a different business entity, e.g., Inc., Corp., professional LLC, LP, etc.

Reservation of Name

Once you form the name, it can be reserved for 120 days by an application and filing fee through the Arizona Corporation Commission. The filing fee amounts to $10 through the mail and $45 through an online payment. This should give you ample time to work on other documents while still holding the name. We also recommend checking the URL if you plan to open a website for your business.

Trade Name

While your legal name is registered in the Articles of Organization, it is not compulsory to use it all the time. Instead, you can use a trading name or a DBA (doing business as) to identify your business. While it is not compulsory, we recommend registering the trade name with a $10 fee to prevent others from using it in Arizona.

Appointing a statutory agent

As per the Arizona LLC Act, you need to have a ‘statutory person’ who will receive and accept government notices, tax forms, lawsuit notices, legal papers, and court documents on behalf of the LLC. The statutory agent can be yourself, a friend, or a family member, but make sure to know that your name and address will be public knowledge. You can even hire a registered agent service if you want to maintain the privacy of your address. The following criteria are essential for the statutory agent:

• The agent must own a physical street address in Arizona
• The agent must be physically available at all times to accept documents.
• The agent must sign the Statutory Agent Acceptance form to agree to this role in writing.

Arizona LLC articles of organization

This single document lays the foundation of your LLC with all the basic information. The Articles of Organization is a form that needs to be filled out and either submitted online with Arizona eCorp or sent through the mail to the Arizona Corporation Commission. If you mail it, you must include additional documents, including the AZCC cover sheet, Statutory Agent Acceptance, and Membership attachment. The form must include the following checklist;

• LLC name and business address
• Tick the box indicating whether it’s a regular LLC or professional LLC
• Statutory agent’s name and address
• Whether LLC is single or multi-membered
• Whether LLC is member-managed or manager-managed
• Signature of the LLC organizer

Membership attachment

Decide who will run the LLC in Arizona, either the members or electing a manager. Member-managed LLCs are better if only one or two parties own them because they are equally involved in making decisions and running the business. However, if members only wish to be investors in the LLC, it is suitable to hire a manager. The manager can be someone from outside, or you can appoint one from the members. The manager is responsible for making decisions on behalf of all the members of the LLC.

Filing fee

The standard fee is $50, for which the approval time is 14-16 business days. However, if you need fast processing, you can pay an additional $35, which amounts to $85, to hear back in 7-9 business days. On approval, you will receive an approval letter and notice of publication.

Arizona LLC operating agreement

The state of Arizona does not include this as a legal requirement, but we highly emphasize having an Operating Agreement to decide how your LLC will be managed. An Operating Agreement will indicate the ownership, management, and organization duties to ensure that all members are on the same page.

It is an internal document, meaning the state does not require it; you must keep a copy with yourself and all the members. An Operating Agreement is particularly useful if you ever end up in court because it proves that the business is a separate legal entity from the owners and thus helps in personal asset protection. The Operating Agreement can also include details about the following:

• LLC’s name and address
• Statutory agent details
• Purpose of the LLC
• Members and their roles and contribution
• Distribution of profits and losses
• Procedure for including new members
• Management of the LLC
• Liability issues
• Dissolution clauses

5. Arizona Newspaper Publication

Maricopa and Pima counties are exempted from this step. However, for LLCs based in other counties, it is compulsory to publish a Notice of LLC Formation within 60 days after approval of the Articles of Organization. This notice should be published in a newspaper in Arizona for three consecutive publications. It will list the LLC’s name, the statutory agent’s name and address, the LLC’s business address, management type, and the name and address of each member involved. Failure to publish in the newspaper may result in the dissolution of the LLC.

Employer identification number (EIN) for an LLC

Also referred to as Federal Tax Identification Number (FTIN) or Federal Employer Identification Number (FEIN), the EIN is a nine-digit security number unique to every business. The IRS of Arizona assigns this after the LLC is approved. It has no filing fee. After you get your approval from the Arizona Corporation Commission, you can apply for an EIN online or through Form SS-4. The EIN helps open a bank account, hire employees and manage tax payments.

While LLC in Arizona does not require annual reports, you may need to check in for a business license based on your location. You can look it up in the Arizona Commerce Authority; Licensing Guide for more information on local and state business licenses. Also, if you’re collecting sales tax and selling goods through your business, you must register with the Arizona Department of Revenues to pay the state income taxes.

Types of LLC

Which type of LLC is ideal for me?

In Arizona, the main type of Limited Liability Company (LLC) is a domestic LLC. There are different kinds of LLCs based on the business and its management, like single-member LLCs and multi-member LLCs.

1. Single-member LLC: This LLC has one owner or member. It’s popular for small businesses and freelancers who want a simple LLC setup.
2. Multi-member LLC: This LLC has two or more members. They can manage the LLC themselves (member-managed) or have appointed managers (manager-managed).

Other types of LLCs may include:

3. Professional LLC (PLLC): This LLC is for licensed professionals like doctors and lawyers. Arizona might have special rules for PLLCs, so it’s important to check with the Arizona Corporation Commission or a legal expert.
4. Foreign LLC: If an LLC is formed in another state and wants to do business in Arizona, it must register as a foreign LLC with the Arizona Corporation Commission.

Keep in mind that rules for LLCs can change between states. To get the most accurate and current information, talk to a legal expert or the Arizona Corporation Commission about forming an LLC in Arizona.

LLC Taxes

Applicable LLC taxes in Arizona

Based on the variation of the businesses, there are many options for the taxation system in Arizona. While forming an LLC is simple and easy, the tax system can be confusing. Moreover, each local county has its requirements, rates, and fees, so you must consult your county for additional information. It is a good option to speak with a few accountants to understand the taxation system for your type of LLC in Arizona. For your ease, we’ve summarized it in a comprehensible fashion.

Firstly, you need to understand the types of taxes applicable to LLCs in Arizona. They include the following;

• State income tax: 2.59% to 4.50% to be paid by a member through their earnings.
• State sales tax: 5.6% based on selling goods and services.
• Transaction privilege tax: 5.6% on personal property used for storage or consumption of goods
• Federal self-employment tax: 15.3% applicable to all the earnings of every member or manager on the profit of the LLC.
• Federal income tax: similar to state income tax, based on the industry of LLC and the earnings
• Employee and employer tax: applicable for LLCs in Arizona with employees on the payroll.

Next, the taxes in Arizona vary based on the type of LLC. If it is a single-member LLC, it is considered a disregarded entity, so you will have to file the taxes like a sole proprietorship. The taxing system will resemble a general partnership for multi-member LLCs in Arizona.

Arizona also offers LLCs a choice to change their tax status to either S-Corp or C-Corp. Small businesses most commonly use s-Corp because they maintain their liability protection. They are exempted from Federal Tax but are subjected to corporate taxes, and the members have to pay Federal Self Income Tax on their individual earnings. If an LLC chooses to be taxed through C-Corporation, it loses its ‘pass-through’ taxation, and the shareholders would have to pay the taxes (corporate tax and income tax) twice on their profits.

Costs

Costs Of Forming A Michigan LLC

Arizona is exceptionally cost-friendly as compared to other states for starting an LLC. This makes it an excellent option for emerging businesses. Consulting an accountant is a good option, but we’ve discussed some general costs of forming an LLC in Arizona.

Initial costs to form an LLC are $50 for the Article of Organization, which can be $85 if you require expedited filing. If you want a separate Trade Name, that would be an additional $10. Consider including $10 for reserving your business name beforehand. 

Almost all counties in Arizona have stated it compulsory to publish a Notice of Formation in the newspaper. This publication price varies within each county and may lie anywhere between $30 to $300. If you get document copies through the Arizona Corporation Commission, you will be charged $5 + $0.5 per page, but certified copies will be slightly expensive, up to $15 + $0.5 per page. Since there are no annual charges for LLCs in Arizona, you will be spared the burden of additional expenses.

Other additional costs you must be apprised of include the charges for hiring a Registered Agent as a statutory agent. This can be around $125 a year; however, if you are the statutory agent yourself or elect a family member, you will be exempted from this too. Over time, most businesses require a ‘Certificate of Compliance’ to state that the business has met all requirements and is operating as per the state’s laws. This certificate costs $10, but if you need it urgently, you’ll have to pay $35.

Always make sure to keep an open eye to consider all costs and expenses that might arise in the course of your business. Depending on your location, you might also require federal or local business permits/licenses for an LLC. Remember your taxes, which will be applicable based on your business type and how much profit you accumulate. Foreign LLCs cost $150 if you have an LLC in another state and wish to expand it into Arizona.

Comparisons

Is LLC The Best Entity For Me?

Maybe, LLC isn’t the right entity for you. Maybe it is a C-Corp. Only way to find out is to directly compare them all.

FAQ

Frequently Asked Questions About Starting An LLC In Michigan

Here are the most commonly asked questions about forming an LLC business in the state of Michigan: