Benefits of an LLC in Arizona
The main advantage of a Arizona LLC is that it offers limited liability protection like a corporation. But, unlike a corporation, LLCs are simple to run and maintain.
Other benefits of an LLC vs other business structures are:
- Pass-through taxation
- Tax options
- Ownership flexibility
- Increased credibility
- Name registration
Limited Liability Protection
When a business owner has limited liability protection, they can't be held personally responsible if the business suffers a loss. This means personal assets (car, house, and bank account) are protected.
In order to have limited liablity protection, the LLC must maintain its corporate veil.
An Arizona LLC’s profits go directly to its owners, who then report their share of the profits on their individual tax returns. The business is not taxed directly and profits are only taxed once. This is known as pass-through taxation.
In a Arizona C corporation, profits are subject to "double taxation". This means profits are taxed before being distributed to owners and taxed again when owners report their share of profits on their individual tax returns.
An Arizona limited liability company can choose among three different ways of paying income tax. One option is to be taxed as an S corporation. Technically an S corp is a tax designation, not its own type of business entity.
You can learn more about choosing the S corporation tax designation in our LLC vs S Corp guide.
Limited liability companies are relatively easy to form and maintain with little paperwork or expense. Unlike C corporations, Arizona LLCs aren’t required to assign formal officer roles, hold annual meetings, create bylaws, or record company minutes and resolutions.
Visit our Cost to Form an LLC in Arizona guide to learn more about the expenses for setting up and maintaining an LLC.
In Arizona, there are very few restrictions on how you can structure the ownership and management of an LLC:
- Your LLC can be single-member or multi-member
- A Multi-member LLC can be managed by its members, termed as member-managed
- A Multi-member LLC can be managed by a manager that is appointed by its members, termed as manager-managed
Learn more about LLC management in our member-managed vs manager-managed LLC guide.
Including LLC in your business name lets customers and partners know that you are a credible business.
When you form an LLC, you’ll choose a unique name that will be registered when the LLC is formed. By registering your name, no other businesses in Arizona will be able to use the name while your business is active.
A sole proprietorship or partnership must use the names of the owner(s) as the business name. A sole proprietor or partnership would need to register a doing business as name (DBA) in order to use something besides their personal name.
Disadvantages of Starting an LLC in Arizona
LLCs offer many benefits but there are some cases where it might make sense to form a Arizona corporation or sole proprietorship:
- Because LLCs are pass-through entities like a sole proprietorship, LLC owners are responsible for paying taxes on their share of the LLC's net profit, whether or not they receive a disbursement.
- Businesses that need to carry large amounts of profit from tax year to tax year should consider a corporation. Learn more in our LLC vs Corporation guide.
- If your business is more of a hobby, and carries zero risk, running a sole proprietorship might be less expensive.
How To Start An LLC in Arizona
Five Basic Steps to Start an LLC in Arizona
Step 1: Name Your LLC
You will need to give your business a unique name that is distinguishable from all registered names in Arizona when you file your Articles of Organization.
Step 2: Choose a Registered Agent
Your Arizona registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your Articles of Organization.
Step 3: File the Articles of Organization
The Articles of Organization is the document you will file to officially register an LLC with the Corporation Commission.
Step 4: Create an Operating Agreement
An Arizona operating agreement is a legal document that outlines the ownership and member duties of your LLC.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN
An Employer Identification Number (EIN) is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS. For more information about whether your LLC is required to obtain an EIN, visit our EIN for LLCs guide.