How To Form A Business In Arizona
Max Thinks Forming A Business In Arizona Is A Great Idea
Now, Max just needs to learn how to form a business in Arizona.
Choosing A Business Entity
First, he’ll need to choose what type of business he will operate. The structure he uses may affect his taxes, licenses and registrations, formation documents needed, and annual reports that may need to be filed.
In Arizona, business operators can choose from the following business entities:
Sole Proprietorship
The business owner has complete control over the business. However, the business typically ends when the owner passes away.
As for liability, the owner is personally liable. Unlike other business types, there’s no limited liability.
Sole proprietors pay taxes, of course. However, they avoid the double taxation issues that other business owners may face.
It’s fairly easy to start a sole proprietorship. Arizona imposes no state filing requirements, which simplifies the whole start up process.
Partnerships
As implied by its name, a partnership consists of partners. At least two people or entities are needed to form a partnership.
Like sole proprietors, partners are personally liable for issues related to the partnership.
Partners will pay taxes. However, they are not doubly taxed.
It’s a little more difficult to start a partnership than a sole proprietorship. Typically, partners enter into a partnership agreement. (This is a great time to address business succession issues!)
Limited Liability Companies
This business type combines some of the benefits of a partnership with benefits of a corporation. As implied by the name, members enjoy some limited personal liability. However, they may become liable if they don’t keep adequate records, conduct annual meetings, and send regular updates to the Arizona Corporation Commission.
The members of a limited liability company (LLC) are not doubly taxed.
Starting an LLC is a little more complex that the other two business entities we’ve looked at. For example, an LLC typically is formed using Articles of Organization and an Operating Agreement. It’s recommended that members of an LLC also execute a Buy-Sell Agreement. Keep in mind that your Articles of Organization need to be filed with the Arizona Corporation Commission.
A Professional Limited Liability Company (PLLC) is a certain type of LLC but with some significant differences. The members of a PLLC must be licensed or certified in their field (like lawyers or doctors). PLLCs only operate in the field their members are licensed in. So, a PLLC formed by real estate agents would not also be conducting business as a nail salon. These are just two of the differences between a PLLC and an LLC.
Corporations
This business entity is treated as being separate and distinct from its owners, the stockholders. In a corporation, management is handled by the board of directors. People often refer to “S corporations” or “C corporations.” These names refer to federal taxes, not the type of business entity. When forming a corporation under Arizona law, you have two choices: for profit corporations and nonprofit corporations.
The shareholders and directors of a corporation receive individual liability protection.
Corporations are formed using Articles of Incorporation, Bylaws, and Shareholders Agreements. The Articles of Incorporation must be filed with, and approved by, the Arizona Corporation Commission.
When it comes to taxes, corporations are doubly taxed.
Max’s Decision
He decides to go with the sole proprietorship for now. He is concerned about liability. However, he likes the ease of startup. He probably can convert the company if he later takes on partners or feels an LLC or corporation would better suit his purposes.
What Registrations & Licenses Are Needed
Business entities are required to register with the state or get licenses, but it varies from business to business. One thing is sure: the business will need a name.
New business owners will check the Arizona Corporation Commission’s website to see if the name they want is available. If so, they can file a name reservation or register the name as a trade name on the Arizona Secretary of State’s website.
Registrations Needed – Taxes
As a small business operating in the state of Arizona, you’ll need to register for state taxes. Arizona collects a state income tax. Most businesses, then, will collect standard withholding taxes fo