Starting A Business In Arizona: Business Formation Options
When we opened our doors, we mainly worked with people starting a business in Arizona. But things grew. Today, not only do we help Arizona’s entrepreneurs, we also assist startups and individuals across the United States, Canada, Asia, Australia and the UK.
But even though the firm has grown beyond Arizona’s borders, we don’t neglect our roots. So, in that spirit, here’s an introductory guide to “starting a business in Arizona.” We hope you find it helpful.
STARTING A BUSINESS IN ARIZONA: BUSINESS FORMATION OPTIONS
The success of a business is rooted in its foundation, and like a tree, a business is only as strong as its roots. So in order to firmly supplant your business in its niche, pick the right company structure.
ARIZONA BUSINESS FORMATION OPTIONS
- Sole proprietorship
- Limited Liability Companies (LLC)
- General Partnerships
- Limited Liability Partnerships (LLP)
- C-Corporations (C-Corp)
- S-Corporation (S-Corp)
Each of these entities have their advantages and disadvantages. Let’s take a look.
Technical Note: A sole proprietorship is the most basic structure under which you can operate a business, but it isn’t a legal entity; it’s simply the label used when business owners personally take responsibility for a company’s debts.
STARTING A BUSINESS IN ARIZONA: LIMITED LIABILITY COMPANIES (LLC)
A Limited Liability Company, or an LLC, is a type of business that is “separate and apart” from its owners (also known as members). An LLC shields owners from a degree of personal liability, but retains operational simplicity and flexibility.
Limiting personal liability is one of the most enticing factors for choosing an LLC, as it can shield the personal assets of an owner if creditors ever try to collect on the debts of the business.
The flexibility of forming an LLC is also alluring, as there are no annual report requirements, annual fees, or secretarial requirements, like board meeting minutes. It’s also easier to distribute profits and management duties under an LLC.
Tax Tip: Limited liability corporations are exempt from federal taxes imposed separately on an LLC, thus eliminating double taxation problem.
STARTING A BUSINESS IN ARIZONA: GENERAL PARTNERSHIPS
A general partnership is made up of two or more parties who are responsible for the business. Each partner shares the assets, liabilities, and management responsibilities. Unlike a corporation, it doesn’t require any formal filing or registration to exist. It merely takes two or more persons joining together to own and operate a business.
The risk: it can end just as easily as it began. The death of any of the partners, or the desire to force dissolution by any partner, can end the business.
STARTING A BUSINESS IN ARIZONA: LIMITED LIABILITY PARTNERSHIP
Limited Liability Partnerships, or LLPs, combine elements of corporations and partnerships. An LLP provides some protection to its partners from personal liability. Unlike a general partnership, formal requirements and annual reports must be formally filed. Profits from the LLP are distributed among the partners for tax purposes.
Limited Partnerships (LP’s) are similar to LLPs, except the partners are generally not liable for company debts, so long as certain managerial standards are met. In effect, a Limited Partner provides capital and receives a share of the profits, but doesn’t participate in direct management of the business.
STARTING A BUSINESS IN ARIZONA: C-CORPORATION
A C Corporation (“C-Corp”) is what many of us think of when we hear the word “corporation”. A C-Corp is made up of an unlimited number of shareholders, and there are no restrictions on the types of owners. The C-Corp is managed by its officers, who report to the C-Corp Board of Directors. Generally, shareholders are not personally liable for the obligations of the corporation.
C-Corps are formal structures requiring annual shareholder and directors meetings. C-Corps are also subject to double taxation and significant governmental regulation.
STARTING A BUSINESS IN ARIZONA: S-CORPORATION
An S-Corp is an entity taxed under sub-chapter S of the Internal Revenue Code. Like a C-Corp, it’s a legal entity with shareholders. Unlike a C-Corp, however, an S-Corp can’t have more than 100 U.S. shareholders; nor can it be owned by other C-Corps, trusts, LLCs, or partnerships. Under most circumstances, an S-Corp pays no income taxes and the corporations income or loss is passed through to the stockholder.
One of the biggest disadvantages to an S-Corp, similar to a C-Corp, is that it is very formal. An S-Corp must be approved by the IRS, and it must hold annual meetings of shareholders and directors.
NEED HELP? GET IN TOUCH.
When contemplating starting a business in Arizona, seek the advice of a competent business formation attorneys, like Daniel Warner and Aaron Kelly, who can guide you through the process. They’re friendly, discreet and can give you the best business advice on how to best structure your business for the best profit opportunities.