Do you have a business idea? Are you ready to establish a new company? Forming a limited liability company ( “LLC”) in Arizona will help protect your personal assets from any potential lawsuits or judgments that could be filed against your business but it is not absolute liability protection. An LLC is a legal entity that separates your business from your personal assets. If you choose NOT to form an LLC, you could be held personally liable for certain debts and lawsuits incurred by the company. The process takes a little time and some know-how. A qualified business attorney is experienced in getting new businesses off on the right foot. It is important you consult with a qualified business attorney to be fully informed about the advantages, limitations and disadvantages of forming an LLC. Here are some steps to consider if you are seriously thinking of forming a new company.
In Forming a New Company, How Much Will I Have to Pay?
Costs around forming a new LLC are nominal but it pays to be aware of what they are. For example, you may have to publish notice in a newspaper unless the place of business is in an Arizona county with a population of at least 800,000 persons. A.R.S. 10-203 & 10-130. This publication must happen after you file your formation papers. The cost of publishing the articles of organization, if publication is required, will vary depending on the length of the articles of organization. The filing fee for an Arizona Limited Liability Company is $50, payable to the Arizona Corporation Commission and accompanies your Articles of Organization. If you are in a hurry, you can pay fee to expedite ($35).
An LLC, does not have to file an annual report with the Arizona Corporation Commission.
Another Arizona requirement for your LLC is to have at least one member. This person, likely you, will be listed in the Articles of Organization. You can form your company at any age in Arizona as there are no age requirements except being at least 18 years of age.
How Should I Choose a Name When Forming a New Company?
Among the first steps of forming your Arizona LLC is determining your company name. There are guidelines of how to choose your company’s name. Here are a few of the most important for you to know:
- Your name must not be “confusingly similar” to any other business name. Because the interpretation of this lies squarely with the judge should you end up in court to defend your company’s name, it is best to steer clear to avoid any potential issues. Two of the most important determination criteria are first, how similar is the name to another business’s name and second, is that other business located in your same market.
- Check with the Arizona Corporation Commission (“ACC”) to verify your potential name will be accepted and not rejected by the ACC when you file your articles of organization.
- Put your name to the test by searching the Arizona Secretary of State page for business records.
- Secure your business name by also searching domain names and securing your domain of the same name or one that makes sense with your business. If you are not ready for a website, get the domain now anyway. It only costs about $10 a year to hold onto it.
Another step is to determine a Statutory Agent. Every state requires LLCs to be registered with a designated agent, sometimes called a resident agent as outlined in A.R.S. §§ 10-501, 10-504, 10-1507, 10-1510, 10-3501, 10-3504, 29-604, 29-606. This agent must occupy a physical location in Arizona and must be able to receive documents on behalf of the company, such as tax forms or notices of lawsuits. You may choose to be your own registered agent and receive your documents under your business or home address.
Filing with the Federal Government
Up to this point, you would be dealing with the state of Arizona. It is now time to secure an EIN Number from the Federal Government. The Employee Identification Number (EIN) or Federal Tax Identification Number (FEIN) is used to identify a business entity. In other words, it is like having a social security number for your company.
You will need this number for opening a business bank account, for paying state and federal taxes and also for any payroll taxes for employees paid by your company. However, if you are a “single member” LLC, you may be able to use your Social Security number rather than obtaining a FEIN (if you have no employees). In determining whether you should use your Social Security number if you are a single member LLC, you should discuss this issue with an accountant who is familiar with tax reporting requirements for an LLC. The accountant can help you determine whether your Social Security number or a FEIN is required or preferable. This step can wait until after your company name is approved by the state.
To apply for an EIN number, visit the IRS site.
Are There Local Government Requirements for Forming a New Business?
Getting permission to operate in Arizona is not the same as a business license. Most businesses are required to get a local business license. These are usually inexpensive and can be obtained from your local city hall or county office, depending on where you are located in Arizona. The fines for NOT having a business license can be far more costly than obtaining the license. You may also need a state sales tax license and city sales tax license depending on the type of business you will be operating. And, if sales tax licenses are required, you must collect sales taxes from your customers and forward the taxes to the state and/or city as applicable.
What Are the Pitfalls of Doing This Myself?
There are many ways you can cost yourself big—financially and otherwise—when forming a new company. Here are just a few:
- If you fail to form an LLC for your business, you could pay. This is a litigious society and putting your livelihood and personal assets at risk is very dangerous.
- If you fail to keep your LLC compliant, you could be slammed with fines. If you are sued and it is determined you did not keep your LLC compliant, you could risk everything.
- If you do not keep your company’s finances separated from your personal money, it could cost you if you are audited.
- If you are required to collect sales taxes and forward them to the applicable governmental entity and do not do so, you could be subject to personal liability for those taxes.
Our firm can help you get on the right foot with your new business idea. Call us today to find out how we can help.