You have big plans, but before your business can officially take off, you’ll need to make a bit of an investment.
And we’re not talking about renting office space or paying employees — before you sell a single product, there are startup costs associated with launching an LLC in Arizona.
Make sure that you consider all the possible costs associated with starting an LLC. To help you out, we’ve compiled the most common Arizona startup fees here.
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Overall Arizona LLC Formation Costs
LLC Name Reservation Fee
Reserving a business name isn’t mandatory in Arizona, but it’s a nice option to have. If you have a name that’s perfect for your LLC, but you’re worried that someone else will take it before you have a chance, reserve it with the Arizona Corporation Commission. When you do, the A.C.C. will place a 120-day hold on your name, giving you the exclusive rights to use it during that time. The fee to reserve an LLC name is $10, but if you need it done quickly you can pay another $35 to expedite the process or file online for a total of $45.
To clarify, most states don’t require name reservations, and they’re rarely necessary. If you’re concerned about someone else registering the name you want, you could opt to simply form your LLC instead of reserving the name.
Whether you reserve your business name or not, you should always perform an Arizona business name search to make sure the name you want is available.
Articles of Organization Fee
This is the big one, the most important (and most expensive) form that you’ll file to start your Arizona LLC. Once accepted, your Articles of Organization registers your business with the state and grants you authorization to begin doing business. Standard paper filings cost $50 with an expedited option for another $35. File online and your form will be processed as quickly as (or quicker than) an expedited form, so that fee is $85. Filing your Articles of Organization might make a dent in your bank account initially, but it’s a one-time fee, so as long as the Arizona Corporation Commission accepts it, you won’t have to worry about it again.
The Articles of Organization isn’t a particularly complicated document, but it does require some vital information about your business. You’ll need to include an indication that your business is an LLC, your LLC’s business name, the name and address of your LLC’s statutory agent, a copy of your Statutory Agent Acceptance document, your LLC’s principal business address, an indication that your LLC is managed by its members or by a manager, your name, your signature, and the date.
Before we move on, we’ll briefly mention that if you’re forming an Arizona professional LLC, you can simply use the same Articles of Organization document used by standard LLCs.
Certain types of businesses require professional licensure before they can begin conducting business in the state. Plus, cities all have their own licensing laws, so you’ll need to check with your LLC’s hometown to determine which licenses they require. And take a look at the Arizona Department of Revenue’s business licensing webpage to find out which other licenses you need to obtain. License fees vary depending on the type and location.
What are some of the most commonly required business licenses for Arizona LLCs? If your business operates in a regulated industry, you will probably need some sort of professional license to operate in compliance with state law. On the municipal level, things like alarm permits, building permits, and zoning permits are all very common.
LLC Formation Service
Starting an LLC in Arizona can be a complicated and time-consuming process. If you want to spend less time on paperwork and more time planning your business, you might opt for an LLC formation service. These services take care of the registration process for you, so you don’t have to spend time on research, paperwork, and filings.
Most of these services (like ZenBusiness and Northwest) offer basic LLC formation services like Articles of Organization filing, tax consultations, and phone/email support for a flat rate, with options to pay more for premium packages with premium services like Employer Identification Numbers, operating agreements, and expedited filing.
Statutory Agent Service
Appointing an Arizona statutory agent (also commonly referred to as a registered agent) is an important part of your LLC formation process. Your statutory agent is responsible for handling sensitive legal and tax documents and keeping your business compliant with Arizona business law. In short, you need an agent you can trust.
While you can be the statutory agent for your own LLC, this puts pressure on you to keep up with business filings and potential legal disputes. Sometimes it’s better to hand off that responsibility to a professional. A statutory agent service ensures that your forms are filed efficiently, saving you from the penalties of delinquent filings and the stress of having to do it yourself.
If you have questions or concerns about the LLC formation process or if it’s the best business structure for you, sometimes it’s best not to take chances and consult an attorney. They’re not cheap, but they can provide essential business advice, professional filing assistance, and peace of mind.
Some attorneys offer free consultations (usually 30-60 minutes) but will charge by the hour after that. On average, business attorneys charge between $150-350 per hour. Some will offer a flat rate for setting up an LLC, which can range from $500-2,000.
Cost variations depend on the experience and location of the lawyer. Because of the investment involved, it’s important to find the right fit for you, which means doing some research. The good news is that legal service databases like Avvo have done some of the work for you, compiling and organizing information on business attorneys in Arizona.
If you don’t want to go digging for your own attorney, we compiled the following list of highly rated business lawyers in Arizona. All of these attorneys are primarily focused on the business world, they all receive five-star ratings from clients, and they all have excellent Avvo ratings.
Foreign Qualification Fee
This only applies if your LLC was formed in another state and is now expanding into Arizona. If this describes your business, you’ll need to submit an “Application for Registration” before doing business in the state, which will take the place of your Articles of Organization.
All foreign business entities are required to foreign qualify in Arizona, or they could incur some pretty severe penalties. Avoid them by filing online on the A.C.C. eCorp page or downloading a paper application. Foreign qualifying in Arizona is a little more pricey than filing the Articles of Organization — $150 for paper applications and $185 for online and expedited ones — but it’s also a one-time fee, provided your application is accepted.
LLC Annual Fees
When it comes to annual reports, Arizona keeps it simple. LLCs aren’t required to file them. Just be sure to keep your statutory agent and principal office address up to date by filing a “Statement of Change” for $5 whenever you have an update. For more information on Arizona annual reports and maintenance responsibilities, check out our full guide on this topic.
The Arizona LLC tax situation is almost as easy as the annual report category. By default, LLCs are pass-through entities, so the members file income taxes, but the business itself doesn’t have to. However, if you’ve set your LLC up to be taxed as a corporation, it will need to pay the Arizona corporate income tax of 4.9%. For most LLCs though, you’ll only have to pay the state’s personal income tax, which is between 2.59% and 4.5%, depending on your tax bracket.
There are certain circumstances under which your LLC would have to pay a specific business-related tax, though. For example, LLCs with employees must pay a state employer tax and LLCs that sell merchandise are required to pay a Transaction Privilege Tax, although the amounts of these payments depend on your company’s size and taxable income.
What if I Don’t Pay?
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Looking at all these fees, you might be thinking: how can I pay less? While you might be tempted to look for loopholes or find a way around them, this could cause you bigger problems in the future.
You don’t need to worry about annual reports or fees, but there are other ways you can fall out of good standing with the Arizona Corporation Commission. Your LLC can be labeled “noncompliant” or potentially dissolved if you fail to successfully file your Articles of Organization, maintain a valid principal office address, or pay any relevant taxes.
As a dissolved entity, you can no longer legally do business in the state, and as a “noncompliant” one you can’t obtain a Certificate of Good Standing, which is necessary for foreign qualification in other states and opening or maintaining financial accounts.
Planning Your Expenses
By now, your budget spreadsheet might be looking a little crowded, but have no fear! Most of these are one-time fees that you won’t have to worry about again. Plus, with all these on the books, there won’t be any surprise costs when you register an LLC in Arizona.
Soon, you’ll have these fees behind you and you’ll be forging ahead, growing your business, and earning profits. As you do, make sure to keep up with business updates — like statutory agent information — so your business doesn’t fall out of good standing.
Key Steps for Starting an Arizona LLC
- The first step to forming an Arizona LLC is to come up with a good name for your business. You’ll want to make sure the name you want is still available and hasn’t already been claimed by another business, so you’ll need to search the state’s business database to verify its availability.
- Next, you’ll need to choose your statutory agent. While you can legally serve as your own statutory agent in Arizona, this role can actually be more of a hassle than you might expect. That’s why we always recommend hiring a reputable statutory agent service that can handle the responsibility of this position on your behalf.
- The third step involves the preparation and filing of your Articles of Organization. You’ll need to fill out the paperwork and pay a $50 or $85 fee. Once the state processes this document, your LLC will be officially open for business!
- That’s not the end of the road for the startup process though, as you’ll also need to create an operating agreement for your LLC. There is no legal requirement for Arizona LLCs to have written operating agreements, but it’s still an extremely important element of any LLC. The operating agreement is an internal document that outlines how your LLC will operate, and there are several aspects of this document that can prevent messy ownership disputes down the line.
- You will also need to acquire a federal tax ID number (also known as an EIN, or employer identification number). This is essentially a Social Security number for your business, as it is a nine-digit code used to file taxes, hire employees, open business banking accounts, and more.
- Next, you’ll need to register for any relevant taxes with the Arizona Department of Revenue, and also obtain all licenses and permits that apply to your business type. Keep in mind that, depending on the nature of your business, you might require licenses from the federal, state, county, and municipal governments.
Once you’ve finished all of these steps, you’re ready to operate a compliant business entity with the state of Arizona!
Key Steps for Maintaining an Arizona LLC
After you’ve completed all of the items in the previous section, you’ll need to focus on maintaining your LLC. The first step in this process is to open a business bank account. This will help you keep your business and personal expenses entirely separate, and it will also help immensely with your accounting and taxation responsibilities.
You should also keep detailed records of every financial transaction that takes place with your LLC. This means maintaining a file of invoices for every purchase and sale you make, along with information regarding your employees or contractors and the work they perform for your business.
As we already mentioned, annual reports are not required in this state. However, you might want to hold an annual meeting to discuss goals and priorities for your LLC, although this is an optional step.
Frequently Asked Questions
Before we wrap things up, let’s take a look at some of the most common questions we hear from readers regarding the LLC formation process in Arizona.
What are the state business tax rates in Arizona?
Most LLC owners will need to pay Arizona’s personal income taxes, which are between 2.59% and 4.5%, depending on your tax bracket. If your LLC is taxed as a corporation, you’ll need to pay the state’s corporate income tax of 4.9%. Additionally, LLCs with employees must pay a state employer tax and LLCs that sell products or services need to pay a Transaction Privilege Tax. These taxes are variable and depend on the size of your business and the volume of business you transact in Arizona.
How quickly does Arizona process LLC formations?
You can find real-time turnaround times on the Corporation Commission’s website. While these processing speeds are subject to change, at the time of this writing, the state was taking 18-20 business days to process non-expedited LLC formations and 11-13 business days for expedited or online filings.
How many small businesses are there in Arizona today?
Arizona currently has more than 550,000 small businesses. Entrepreneurs of all backgrounds and business types find that Arizona is a great place to own and operate a small business.
What are the top small business resources and websites in Arizona?
The Arizona District Office of the U.S. Small Business Administration is a great place to start, as is the Arizona chapter of the Small Business Development Center. We also think the Arizona Commerce Authority provides valuable information for small business owners, and the Arizona Small Business Association refers to itself as “the voice for small business in Arizona.”
Should I form my LLC in Arizona, or choose a state like Delaware or Wyoming?
Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.
However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.