Definition

What is an LLC?

A limited liability company, simply LLC, in Arkansas is a business structure that merges the features of a corporation with those of a solitary proprietorship or a partnership. In such a setup, which may be owned and operated by one or more members, the owners are protected from any debts or liabilities of the business. Thus, not only do you get a lack of liabilities, but also an overall flexible business structure.

Even though LLCs do not specifically fall under the category of either of the business mentioned above structures, you still have the freedom to decide if you wish to pay the LLC’s taxes under either of those categories or even other business models.

Owning and operating an LLC in Arkansas comes with its benefits. Registering your company as LLC is smart if you want flexibility, greater authority over your business, and protection against business liabilities.

Advantages

Advantages Of an LLC In Arkansas

Arkansas is an ideal location for those wanting to start a business. In fact, starting LLCs in Arkansas is probably the easiest way to incorporate a business in the state. This is the case for all types of businesses, even small and medium-sized ones, thanks to the relaxed regulations for businesses in the state and the decent incentives and credit opportunities that eligible companies can take advantage of. These incentives let you enjoy all the benefits of any other corporation in the state.

Arkansas is a state dedicated to economic growth, allowing several scaling opportunities for LLCs. Here are some advantages of setting up a limited liability company in Arkansas:

Disadvantages

Disadvantages Of an LLC In Arkansas

If you’re thinking about establishing an LLC in Arkansas, the positive news is that there aren’t any major drawbacks to this decision. However, it’s important to be aware that the franchise tax in the state is somewhat higher compared to other states, which can be a significant concern for small and medium-sized businesses.

Therefore, it’s crucial to carefully research and calculate the potential annual franchise tax payments for your newly registered LLC in order to prevent any unexpected financial burdens. In general, the benefits of creating an LLC in Arkansas outweigh the disadvantages.

LLC Formation

How to Form an LLC in Arkansas

Setting up an LLC in Arkansas is a fairly simple process, given that you are fully aware of each step and carefully follow them all. It is suggested to take help from a legal expert or other professional to avoid making any mistakes. However, this is not compulsory, and the procedure may also be completed independently.

Following are the steps you need to take to start an Arkansas LLC:

1. Choose a unique name for your business
2. Choose a registered agent in Arkansas
3. File your Arkansas LLC articles of organization
4. Draft an operating agreement
5. Obtain an EIN
6. Maintain your LLC

Choose a unique name for your business

This is the first and one of the most significant steps in the process. The LLC needs to have a unique name that any other registered company in the state is not using. There are several free tools and paid services available that you can use to check whether your preferred LLC name is up for use. An example of such a service is the official business name database of the Arkansas Secretary of State. 

If you find an available name but are unsure whether you want to stick with it, you can file an application for the reservation of that name. This way, you can reserve a specific name for 120 days.

Another requirement for the name of a limited liability company is that it should indicate the company is an LLC in some way. You can use words like Limited Liability Company, LLC, L.L.C., LC, L.C, Limited Company, et cetera. The word “limited” can be shortened to “Ltd.” while “Company” can be shortened to “Co.” It would be best if you also were careful not to include any members’ identities in the name. An exception, however, is the name of a deceased member.

Like some other states, Arkansas allows business owners to use Trade Names. These names are different from your company’s legal, registered name, allowing you to do business under a different identity than your corporate one. Such a name is called a fictitious name, an assumed name, or DBA, which is short for “doing business as.” It is very easy to file an application for a fictitious business name with the Arkansas Secretary of State, which can be done online or through the post.

Another issue you may come across is if, even if you found an available name, it may be trademarked by someone else. You can only avoid this by researching extensively beforehand and looking through state and federal-level trademark databases. This is often time-consuming since there is no central database you can use. In fact, some companies may have used specialized trademark lawyers. Therefore, you will have to spend quite some time browsing through online data.

Choose a registered agent in Arkansas

This is a mandatory requirement of the state for all businesses applying for registration. A registered agent is a body that handles legal documents on behalf of its associated business. They are also responsible for receiving legal papers on behalf of the LLC if it is ever sued or in legal trouble. The registered agent can be any business entity operating within a state. Alternatively, it can be a permanent resident of Arkansas. Mostly, registered agents are paid on an annual basis. You can choose to be a registered agent if you are a permanent resident of Arkansas and have a street address in the state.

Members should try to find an experienced agent to avoid any unwanted legal situations in the future. However, you can change your registered agent later after the registration of the LLC.

File your Certificate Of Organization

The Certificate of Organization is the official paperwork filed that seals the registration process of an LLC. The form can be filled out and submitted online or downloaded from the Secretary’s website, filled out, and mailed. While completing the form, you will require details like the LLC’s name, the address of its initial office, the address, and name of your registered agent, the organizer’s signature, and whether a manager will operate the LLC.

Draft an Operating Agreement

Although the Arkansas LLC operating agreement is not a mandatory requirement, it is highly recommended to draft it. This is because this document serves as the constitution of any LLC and includes all the rules, regulations, and conditions that would help you operate your company properly. This agreement is drafted among the members and includes the rights and responsibilities of each member after thorough discussion and negotiation. 

If you and your fellow members do not formulate an operating document, the LLC will be operated, governed, and managed according to the laws of the state. It is suggested to draft a detailed operating agreement so that there are no discrepancies among the members on future issues such as revenue distribution.

Obtain an EIN

The Employee Identification Number, or EIN, is a mandatory requirement of the state, and you have to obtain it for the LLC regardless of whether you presently have employees. In the case of a single-member LLC, you are only required to obtain the EIN if you plan on hiring employees or if you wish the LLC to be charged taxes as a corporation and not a solitary proprietorship. The EIN can be attained by completing an online application for free.

Maintain your LLC

Although setting up an Arkansas LLC is simple, and the state provides numerous benefits and security to LLCs, its maintenance is another story. Keeping up carefully with tax regulations is crucial in any state, but some LLCs fail to do so. As a result, thousands of LLCs in Arkansas are either dissolved or fined every year due to failure to abide by tax laws. Therefore, you will have to ensure that you are punctual while filing reports, such as the annual tax report, federal income reports, and franchise tax, to maintain a good reputation with the state and avoid being penalized.

Types of LLC

Which type of LLC is ideal for me?

In Arkansas, there are several types of Limited Liability Companies (LLCs) available for you to form, depending on your specific needs and requirements.

Before you decide on the type of LLC that best suits your needs, it’s always a good idea to consult with a legal or tax professional to ensure you’re making the most informed decision.

1. Domestic LLC: This is the most common type of LLC in Arkansas. A domestic LLC is formed by individuals or businesses that are based within the state. It provides limited liability protection for its members, meaning their personal assets are separate from the company’s liabilities. To form a domestic LLC in Arkansas, you need to file Articles of Organization with the Arkansas Secretary of State and pay the required filing fee.
2. Foreign LLC: If you have an existing LLC outside of Arkansas and want to do business in the state, you will need to register as a foreign LLC. This allows your out-of-state LLC to legally conduct business in Arkansas. To register, you’ll need to file an Application for a Certificate of Authority with the Arkansas Secretary of State and pay the filing fee. Keep in mind that you must also maintain a registered agent in Arkansas.
3. Series LLC: A series LLC is a unique type of LLC structure that allows for the creation of separate “series” or “cells” within the main company. Each series can have its own assets, liabilities, and members, while still benefiting from the overall limited liability protection of the parent LLC. This structure is useful for businesses that have multiple operations or investment properties. Arkansas does allow for the formation of series LLCs, and you’ll need to specify the series structure in your Articles of Organization.
4. Professional LLC (PLLC): A PLLC is a specific type of LLC designed for licensed professionals such as doctors, lawyers, accountants, and architects. This structure provides limited liability protection while still allowing these professionals to offer their services. To form a PLLC in Arkansas, you must meet the state’s specific requirements and file Articles of Organization for a Professional Limited Liability Company with the Arkansas Secretary of State.
5. Single-Member LLC: This type of LLC is owned by just one person, known as a single member. The single-member LLC offers the same limited liability protection and tax flexibility as a traditional LLC. The process for forming a single-member LLC in Arkansas is the same as forming a domestic LLC.
6. Multi-Member LLC: A multi-member LLC is owned by two or more people, known as members. Like single-member LLCs, multi-member LLCs provide limited liability protection and tax flexibility. The formation process is the same as for a domestic LLC, but you’ll need to specify the number of members in the Articles of Organization.

LLC Taxes

Applicable LLC Taxes In Arkansas

The list below presents the main taxes applicable to an LLC operating in Arkansas. However, depending on the nature of your business and location, there may be additional taxes or fees to consider.

1. Federal Income Tax: By default, LLCs are considered “pass-through” entities for tax purposes, which means that the profits and losses are passed through to the individual members’ tax returns. Single-member LLCs are taxed as sole proprietorships, and multi-member LLCs are taxed as partnerships. In both cases, members report their share of the LLC’s income on their personal tax returns (IRS Form 1040) and pay the applicable federal income tax rates.
2. Self-Employment Tax: Since LLC members are considered self-employed, they must pay self-employment taxes on their share of the LLC’s income. This tax covers Social Security and Medicare contributions. As of 2021, the self-employment tax rate is 15.3%, with 12.4% going to Social Security and 2.9% going to Medicare. You’ll report self-employment tax on Schedule SE when filing your federal income tax return.
3. Arkansas State Income Tax: In addition to federal income taxes, LLC members must pay Arkansas state income taxes on their share of the company’s income. Arkansas has a progressive income tax system, with rates ranging from 2% to 6.6%, depending on your income level. You’ll need to report your share of the LLC’s income on your Arkansas state income tax return (Form AR1000).
4. Sales Tax: If your Arkansas LLC sells goods or certain services, you may need to collect, report, and remit sales tax to the Arkansas Department of Finance and Administration. The state sales tax rate is 6.5%, but local jurisdictions may impose additional sales taxes, which can bring the total rate up to 11.5%. To collect sales tax, you’ll need to register for an Arkansas Sales and Use Tax Permit and file regular sales tax returns.
5. Franchise Tax: Arkansas LLCs are required to pay an annual franchise tax, which is based on the company’s total authorized capital (the total value of shares that the company is allowed to issue). The minimum franchise tax is $150, and it’s due by May 1st each year. You’ll need to file an Annual Franchise Tax Report with the Arkansas Secretary of State.
6. Payroll Taxes: If your LLC has employees, you’ll need to withhold federal and state income taxes, Social Security, and Medicare from their wages. You’ll also need to pay federal and state unemployment taxes. To manage payroll taxes, you must register for an Employer Identification Number (EIN) with the IRS and an Arkansas Withholding Account Number with the Arkansas Department of Finance and Administration.

Costs

Cost Of Forming an LLC In Arkansas

The basic filing fee for the registration of an LLC in Arkansas is quite low compared to other states. However, there are always several expenses to be covered in this procedure. Again, you will have to conduct ample research and feasibility planning beforehand to know how much you will be investing financially during the registration process. Arkansas also offers you the freedom to choose the category under which you want your LLC to pay taxes, making it even easier for you to manage your finances the way you and other members want. 

Below are the costs you will have to bear while starting LLC in Arkansas:

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 Arkansas

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