If you're based in Arizona and thinking about starting your own business, one of the best options is to form a limited liability company (LLC).
An LLC provides owners with more protection than a sole proprietorship or partnership while providing more flexibility and fewer formalities than forming a corporation.
In this article, I'll discuss the steps you need to take to start an LLC in Arizona. I will also outline some key considerations and requirements for forming your business in this state.
Why Your Arizona LLC Needs An Operating Agreement
When you form an LLC in Arizona, you must file Articles of Organization. This document outlines the basics of your business structure but needs to provide a comprehensive outline of how your business will operate.
That's where an operating agreement comes in. The operating agreement serves as a contract between the members of the LLC that states what each member will contribute to the business and outlines how profits will be distributed. This agreement can prevent potential disputes from arising if there is disagreement regarding finances or other matters within the LLC. Without written documentation, these disagreements can quickly become legal battles that could be costly and time-consuming.
The operating agreement also serves as legal protection for the members of your LLC by providing indemnification clauses and liability protection against specific events or claims made against them personally or against the business itself.
It also helps protect personal assets from creditors and lawsuits should something happen to your business. If you don't have an operating agreement in place, then any such issues would be determined by state law rather than by what is best for all parties involved with your LLC.
The operating agreement should include critical components such as:
Having all these components outlined in a readily available document is beneficial when setting up, in day-to-day operations, and during any future disputes that may arise within your LLC.
Arizona LLC Publication Requirements
Specific publication requirements must be met when you form an LLC in Arizona. All other LLCs in Arizona must publish a Notice of Formation in an approved newspaper for three consecutive weeks.
The notice must include the LLC's name, the statutory agent's name and address, the principal business address, the management type (manager-managed or member-managed), and the name and address of the manager or each member of the LLC. This information is essential because it allows members of the public to know who owns the company and is responsible for managing it.
It also provides them with contact information to reach out if necessary. Additionally, publishing this information helps protect your rights as a business owner since it makes it clear that your LLC exists and is legally recognized by the state of Arizona.
Note that LLCs formed in Maricopa or Pima counties are not required to meet publication requirements. The state implemented this exemption because these two counties already have established records offices that make all relevant LLC information available to the public.
However, if you have an LLC in any other county throughout Arizona, you must meet all publication requirements as outlined by law.
Obtaining An Employer Identification Number (EIN) For Your LLC
Obtaining an Employer Identification Number (EIN), a nine-digit number provided by the Internal Revenue Service (IRS) is essential for any Limited Liability Company to properly identify itself. It is essential to obtain an EIN to file taxes at the federal and state levels, open a business bank account, and hire employees.
First and foremost, you must determine if you need an EIN. If you are the sole owner of your LLC, then you do not need one; however, if there is more than one member in your LLC, you must obtain an EIN. The next step is to apply for an EIN with the IRS. You can do so by mail or online; however, using online is much faster and easier.
To apply for an EIN online with the IRS website, you must provide certain information such as your name, address, LLC type and purpose, etc. Once all the required information has been delivered correctly and submitted successfully, the IRS will generate your new EIN immediately. Please keep this number safe, as it is needed when filing taxes or opening a business bank account.
When filing taxes at state and federal levels or opening a business bank account with any financial institution, you must use your newly acquired EIN. You must also use this number when filing for unemployment insurance benefits or making payments for your business.
Your EIN should also be used when hiring employees, as they must provide their employer's tax ID number on their W-4 form to deduct taxes from their paychecks each pay period.
What Else Is Required For Registering An LLC In Arizona?
Before registering your business as an LLC, you'll also need to appoint a statutory agent. This is an entity responsible for accepting legal documents on behalf of your company. Finally, depending on your industry and type of business structure, you may need to submit additional documents or forms before your registration is complete.
Arizona Transaction Privilege Tax Application
When starting a limited liability company (LLC) in Arizona, there are various forms and documents you need to complete. One of those documents is the Arizona Transaction Privilege Tax Application, also known as Form 5000.
The Transaction Privilege Tax (TPT) is a state-level sales tax that applies to most businesses operating within Arizona. Depending on your business type and location, you may be required to collect TPT from your customers and remit it directly to the Arizona Department of Revenue (ADOR). The ADOR website provides detailed information about which types of businesses must register for TPT and instructions for completing the application form.
Suppose you need help understanding how the TPT works or what other paperwork needs to be completed when registering an LLC in Arizona. In that case, you can find helpful resources on the Arizona Commerce Authority Small Business Services website.
It's important to note that while the Arizona Corporation Commission can guide the process of forming an LLC in Arizona, they cannot advise on whether or not you are liable for transaction privilege tax.
You'll have to contact ADOR for this information.
Obtain Required Permits & Licenses
In addition to registering your business with the city or county, other permits and licenses may be required for your specific type of business. For example, if you plan on serving alcohol at your establishment, you will need to obtain an Arizona Department of Liquor License.
It's also important to note that some permits and licenses must be renewed annually or bi-annually, depending on the state regulations they are subject to.An excellent resource for finding out what permits and licenses may be required is the Arizona Commerce Authority Small Business Services, which links various informative sites concerning taxes and licensing.
What Insurance Do You Need When Opening An LLC in Arizona?
When you start a limited liability company (LLC) in Arizona, you must meet specific insurance requirements.
Let's look at some of the essential types.
Workers' Compensation Insurance
In Arizona, workers' compensation is required for all employers with four or more employees. This type of coverage pays medical expenses and lost wages to employees injured or ill due to their work activities.
It also provides death benefits to dependents of workers who die due to a work-related injury or illness. Employees with fewer than four employees may elect to purchase this coverage voluntarily.
If your business relies on vehicles—cars, trucks, vans, trailers, or something else—you need separate insurance for them, even if you already have personal auto insurance coverage.
This policy covers damages caused by business-related incidents. It can help protect your business from financial loss due to accidents or other unexpected events related to your vehicles.
Liability insurance is an essential form of protection for any business owner as it provides financial protection against lawsuits due to negligence or damage caused by the company's operations.
In other words, it helps protect your company's assets if someone sues it because of something related to its operations (e.g., negligence). While not required by law in Arizona, many businesses purchase liability coverage as it can provide peace of mind and help keep their finances secure if a lawsuit arises.
Commercial Property Insurance
Commercial property insurance protects businesses against loss or damage caused by fire, theft, vandalism, floods, and earthquakes (depending on the policy). It helps cover buildings and equipment used in daily operations so businesses can repair or replace them without taking a significant financial hit should something unexpected happen.
Most banks require this coverage before approving loans; however, it is only mandatory in Arizona if specified by law (such as with rental properties).
Starting an LLC in Arizona requires some legal steps and careful research into taxes and registration requirements; however, it can be manageable if you use the right resources and follow best practices from experts in the field.
With some preparation and guidance from knowledgeable professionals, you can quickly become a proud small business owner.
Further reading on MikeVestil.com: When it comes to specific startup costs, knowing the best state to start an LLC can help you save money.
Moreover, here's information on opening a bank account for LLC.
Here's some information on states-specific costs:
Finally, if you want to use a third-party service to help form your LLC, here's a guide on Legalzoom LLC's cost.