Arizona may not have the highest overall score when it comes to states best suitable for business, it’s still considered to be one of the top-three fastest-growing states. It also holds an impressive 7th place for small business-friendliness in the entire country.
Several major Arizona cities are known for their economic environment highly conducive to business development. For instance, Phoenix is considered to be the best city for a fresh startup launch, while Tucson is one of the cheapest startup hubs.
Arizona’s rapid growth makes it incredibly attractive for new entrepreneurs and anyone that wishes to expand. But if you wish to start a fresh LLC business in Arizona, you will need to understand how the state handles the formation process. Our aim is to help you learn the basics of Arizona LLC formation, including:
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Every new LLC venture starts with an idea, but it’s the name that gives it a more concrete form. While Arizona naming regulations are relatively lenient, you will still need to follow the rules to ensure your LLC name is fully compliant.
According to the Arizona Revised Statutes section 29-3112, every business that wishes to be registered as a limited liability company must include its formal structure designation in the name itself. For Arizona LLC names this means including one of the following:
In subsection B of the same section, you will also find the key rule in regards to Arizona LLC names—uniqueness. Unless you have explicit permission or certification to do otherwise, you must ensure that your Arizona LLC name is clearly distinguishable from other business names in the state database, including Arizona LLCs, corporations, and other structures.
You want to start a limousine business called “Tucson Limousine Service, LLC” but after checking with the Arizona Corporation Commission’s (ACC) database, you find out there is a close match—another company registered under the name “Tucson Limousines Service, Inc.”
Although the business in question is a corporation and their name features the plural form of the word limousine, it will still be considered deceptively similar. To go around this issue, you will need to add more words or alter the LLC name altogether. For instance, “Tucson Car & Limo, LLC” will likely be considered distinguishable enough. You can also change the original word order if it makes grammatical sense in your case.
There is more to LLC naming regulations than just uniqueness, however. As per subsection E of Section 29-3112, Arizona LLCs must take great care in avoiding the usage of forbidden and restricted words, including:
These and many other words and abbreviations are forbidden as they could indicate that the LLC is connected to government agencies, posing as a corporation, or conducting activities it is not authorized to do such as banking or managing trusts unless the LLC has obtained explicit permission to do so from the Arizona Department of Financial Institutions or another relevant agency.
Arizona LLCs that require a license or permit to operate in the state might fall, double-check with the ACC to make sure your company name complies with the law.
After narrowing down your options, it’s time to run each LLC name through the Arizona Corporation Commission's database. You can do it entirely for free by using the ACC search engine that allows you to look up Arizona-registered businesses by name, statutory agent, or record number.
Even if you are unable to land your preferred Arizona LLC name, the state offers you an out of sorts in the form of trade names commonly known as DBAs (“doing business as”) in other states.
By registering a DBA to your LLC, you will be able to conduct business transactions under your preferred trade name instead of the LLC’s legal name which may not be reflective of the services you provide.
This is why DBAs are commonly used for business expansion, as well as for skirting the issues of LLC name unavailability during the initial entity registration.
Under the Arizona Revised Statutes section 44-1460, any individual or formal structure has the right to register a trade name, title, or designation to conduct certain operations. For instance, when an LLC wants to register a DBA, its trade name application must contain:
This filing has a rather modest fee of $10 per document. You can register a DBA on the Arizona Secretary of State’s website.
To operate in the state of Arizona, every LLC must appoint a statutory agent which is registered agent in Arizona. If you’re unfamiliar with the term, it is technically identical to the registered agent whose duty is to handle the LLC’s correspondence and legal mail.
Under the Arizona Revised Statutes section 29-3115, the main responsibility of the statutory agent is that of receiving service of process, notices, and demands on behalf of the LLC and forwarding them to the company.
The concept of the service of process refers to the action of serving legal summons and notices to an individual or entity, in this case, an LLC. A statutory agent is someone who accepts these documents on the behalf of their LLC as stated by Rule 4.1 of the Arizona Rules of Civil Procedure.
Statutory agents must make their contact information and physical address public to be able to receive lawsuit notices in due time. If you don’t have an agent, you won’t be able to respond to the lawsuit in time or even miss it completely, in which case the state will have to impose a default judgment. A ruling like that never works in favor of the LLC.
Section 29-3115 also gives the qualifications for the statutory agent. As such, your LLC’s agent can be:
The main issue here comes in the form of payment. Many entrepreneurs wish to reduce formation and maintenance costs by appointing their friends or themselves as their own statutory agents.
This method has its perks, the cost-efficiency being the main one, but it can lead to more trouble than it’s worth.
It’s fairly evident that any cost-benefits of being your own agent may be undermined by this method’s inflexibility, not to mention the risk of having to pay hundreds in fines. On the other hand, hiring a professional registered agent service in Arizona will only cost about $100 per year. Additionally, some LLC formation services throw in the first year for free and offer various discounts.
If you don’t know how to find a good statutory agent service, make sure to look through our Best Registered Agent ranking list that details the pros and cons of the top providers in the industry.
The articles of organization are the key formation document that makes a company official. When the articles are approved by the ACC, the LLC legally becomes a registered Arizona entity authorized to do business in the state.
The articles of organization in Arizona are one of the key filings handled by professional LLC formation services. If you want to let more experienced people handle it, consider hiring a provider. You can find out more about your options in our Best LLC formation services article.
The Arizona Revised Statutes 29-3201 provides a list of items required for LLC articles of organization. They include:
Other items may be included, but remember that every provision must be compliant with Arizona law. If you want to use a template and make the drafting more efficient, you can use the ACC”s fill-in-the-blank form for the articles of organization.
You can look up all LLC filing fees on the ACC’s fee schedule list. The filing of the articles of organization with standard processing is $50.
The ACC provides relevant information regarding state processing times for LLC and corporate filings. Arizona’s standard review time for new filings is 13-15 business days.
Alternatively, you can use one of the state’s expedited options. Their expedited processing costs only $35 and reduces the wait to only 5-7 days. For even faster review times, you can use one of their same-day/next day services:
Arizona is one of the few states that makes publication a mandatory step of the LLC formation process. The requirement itself is simple—when you form an LLC, you must publish a notice announcing your formation in a local periodical within 60 days of formation.
This rule was originally imposed to help inform the public of new enterprises, but now it is largely used for monitoring fraudulent LLC formations. As such, you won’t be able to form a business to conceal your assets from creditors, partners, spouses, etc.
According to the Arizona Revised Statutes section 29-3201(G), the exact process for completing this step is conditional:
The publication fees vary based on the newspaper. As such, the total for three consecutive runs may be anywhere between $30 and $300. Naturally, you won’t need to pay any fees if the ACC covers this step for you.
An operating agreement is a written or verbal contract between LLC members outlining the conduct of each member, as well as the company itself.
While an operating agreement is not a mandatory step in Arizona to form an LLC, it’s still highly advisable for you to draft one in order to support your LLC’s status and keep its internal operations in order.
Unlike articles of organization or other formal filings, there is no uniform template for the operating agreement. Every LLC must analyze its needs and how they relate to its business purpose and draft an operating agreement that covers the most relevant provisions.
That said, the Arizona Revised Statutes section 29-3105 does offer a few general items for a standard LLC operating agreement:
In addition to these items, a typical operating agreement may also include other key provisions relating to the LLC’s operation and membership as long as it does not go against the law, for instance:
Remember that the operating agreement does not need to be filed with the state or ACC or any other agency. Unlike the articles of organization or annual reports, the operating agreement is not a formal filing. Its purpose is strictly internal.
The main financial obligation of every employed individual is to file income taxes. But while you do your individual taxes with your SSN, an LLC and other formal entities must use the Employer Identification Number or EIN. To obtain this unique nine-digit code, an LLC must apply for the EIN with the IRS.
While it’s true that some LLCs might not need it, the majority of the companies that plan to engage in standard business practices will likely require an EIN. If you aren’t sure whether your company falls into this category, check if any of the following applies to your company:
A single-member LLC can handle tax filings through the owner’s SSN, but an LLC with multiple members might need to report company taxes by using the EIN. Moreover, an EIN might also be a requirement for opening a business bank account.
Unlike some documents, an EIN is a very simple filing. Its issue is almost immediate for online applications, and it’s also completely free. You can obtain your EIN online or by mailing/faxing the printout of the IRS form SS-4.
This is why you should tread carefully with LLC formation services who charge anything at all for EIN acquisition, presenting this service as some sort of exclusive feature. At the end of the day, you can obtain the EIN on your own for free, and it will take you only five minutes.
When you complete the formation itself, there is still work to be done to secure your LLC’s long-term success. The main steps towards better conpany maintenance chiefly involve financial management and business insurance.
An LLC should have its own bank account that’s legally separate from the company’s owners. This is vital for maintaining the various privileges awarded by the LLC as a formal structure. The key reasons for opening a business bank account include:
While all three items are important, it’s the third one that’s essential to the integrity of your LLC. The limited liability company structure employs a corporate concept known as the corporate veil.
This means that the company and the individuals running it are legally separate, which is supported by maintaining separate bank accounts.
If your business is tied to your personal bank account and you can’t prove that you and the company are separate entities, the corporate veil can be “pierced,” and you will lose the personal asset protection. This puts your securities at risk of litigation from creditors.
The only way to keep the LLC’s asset protection privileges is to separate your personal financial activities from those of the company.
Just as you might need to protect your health, property, and other assets as an individual, your LLC might require the same level of security.
To establish this security net for your company, you will likely need to purchase one or more insurance policies.
Some of the most common types of business insurance include:
Although there is no state business license, LLCs might require other types of business licensing based on their activity and location. The main state licenses are the Sales Tax or TPT license, local business license, and regulatory licenses for professionals.
The TPT license applies to LLCs that plan to sell goods and services. The business license you will definitely need to obtain is a local one, though it’s usually more than one. To get them, you must contact your county and city officials and register with relevant agencies.
Regulatory licenses apply to specialists and heavily-regulated industries. You can find more about Arizona professional licenses on the state website.
Given that LLCs are classified as pass-throughs, they are not subject to income tax as separate entities. Each member files income tax as it relates to their share of the profits using personal tax report forms.
That is unless your LLC elects a corporate tax system, in which case it will be subject to income tax (6.968%). Arizona also sets the minimum amount for income tax at $50.
Other taxes may also apply based on how your LLC conducts business. If the company employs workers, you will need to register your business as an employer and withhold taxes from paychecks.
As mentioned in our licensing section, LLCs that sell goods and services are also subject to the transaction privilege tax known as sales tax.
In the eyes of the federal government, LLCs fall into the pass-through category, which is similar to their state status. This means the company itself is not required to pay federal income tax. Instead, LLC members report all business income (profits + losses) on their personal forms on Schedule C.
Curiously, Arizona does not impose the annual report requirement, which is standard practice for most states. That said, the state still needs to keep your information up to date which can only be done through timely amendments on your part.
If any vital information about your LLC changes (such as the principal address, managers, statutory agent), you must notify the ACC. This can be done by filing statements of change. Each filing costs only $5, so it can be done at any time.
A limited liability company is a welcoming legal structure for many businesses. Start an LLC is easy. Select your state to start.