Starting A Business In Arizona

1. Pick a Business Structure

The legal structure you choose for your business will impact how you run your business, the taxes you pay, and the asset protection you can expect. Unless you form an entity like an Arizona LLC or corporation, your default entity will be a sole proprietorship if you’re the only business owner. If your business has more than one owner, you’re a partnership. In both of these scenarios, your business will be an extension of yourself and your partners. This means that all of your business’s liabilities are your own.

If you’re not into risking your home, your car, your 401k or other assets, you’ll want liability protection. To get liability protection you need to separate your business from yourself by forming a business entity. Arizona LLCs and corporations are popular business structures because they do just that.

• Arizona Limited Liability Company (LLC). A limited liability company (LLC) combines the asset protection of a corporation with the pass-through taxation of being a sole proprietor or partnership. LLCs are a popular choice for small business owners because they offer flexible management options and are are relatively easy to maintain.

  Starting an Arizona LLC requires submitting Articles of Organization with Arizona’s Corporations Commission (ACC) and paying a $50 filing fee.

• Arizona corporation. Corporations are the granddaddy of business entities. Like LLCs, corporations offer liability protection for their owners in case of a lawsuit or other business debt. Owned by their shareholders, and managed by their officers and directors, corporations are a popular choice for businesses that are seeking to raise money and grow.

  Forming an Arizona corporation requires you to file Articles of Incorporation with the ACC, and pay a $60 fee.

Can an LLC be just one person?

Yes! A one-person LLC is called a single-member LLC. Single-member LLCs are one of the most common kinds of businesses in the country. For the most part, single-member LLCs are just like multi-member LLCs, but there are some slight differences in how they file taxes and protect personal assets.

Read all about Single-Member LLCs.

What about Arizona nonprofits?

An Arizona nonprofit corporation is an organization whose basic purpose is to benefit the wider community through charitable contributions or actions. While most corporations exist to make money and enrich their shareholders, nonprofits use their income and assets to pursue the greater good.

To start an Arizona nonprofit corporation, you’ll need to file Articles of Incorporation with the ACC. The filing fee is $40.

Want to learn more? Check out our Nonprofit Guide.

2. Name Your Business

In general you can name your business anything you want, as long as it meets Arizona’s Corporation Commission Naming Standards. For LLCs and corporations, this means your business name must:

• Be unique among other business names in Arizona.
• Include an identifier, like “LLC” for a limited liability company or “Corp.” for a corporation.
• Not use the names of state agencies, such as “Police,” which might confuse the public.
• Not use words like “nonprofit” or “foundation” if your business is not either of those.
• Not use words that falsely suggest your business offers a professional service, like “dentist” or “engineer.”

Search the Arizona Corporation Commission database to see if your business name is available.

Can I reserve a business name in Arizona?

Yes you can. Maybe you’ve got the perfect name for your landscaping business but you’re just not ready to file formation paperwork. To make sure that no one else can use The Lawn Ranger, LLC, you’ll need to reserve the name with the Arizona Corporations Commission.

You can file online for $45 and reserve the name immediately. Mailed filings only cost $10, but you’ll need to print out and mail an LLC or corporation name reservation application. It should be noted that a name reservation simply holds your name for up to 120 days, and it is not renewable. So chop chop, you’ve got some lawns to mow.

What is a DBA?

A DBA, which stands for “doing business as,” is any name used by a business other than the name by which is was legally registered. Sole proprietors in Arizona are stuck using their own names, unless they register a DBA in Arizona. For LLCs and corporations, DBAs are often used when the business expands operations, offers new services, or changes branding.

Your first step to getting a DBA in Arizona is to perform a business name search to make sure the DBA isn’t already in use. If another Arizona business is already using the name, your application will be rejected. Once you’ve got a name nailed down, you’ll need to complete and submit an online Trade Name Application with Arizona’s Secretary of State. The application costs $10 and will need to be renewed every five years.

What about trademarked names?

It’s a good idea to check with the US Patent and Trademark Office (USPTO) to make sure your business name hasn’t been trademarked by someone else. If it has, and you use it anyway, there’s a chance that the business could come after you for infringement.

3. File Formation Paperwork

LLCs and corporations need to file entity formation paperwork with Arizona’s Corporation Commission. If you’re a sole proprietor or part of a general partnership, you skip this step, though you will need to get an Arizona business license.

The process to start an Arizona LLC or corporation requires you to file official state paperwork with the ACC. The filing of your formation documents is what makes your business a separate legal entity, which protects your personal assets.

• To form an Arizona LLC, file Arizona Articles of Organization.
• To start an Arizona corporation, file Arizona Articles of Incorporation.

Note: The information on these forms becomes part of Arizona’s public record, meaning that the names and addresses you include will be visible in Arizona’s online Business Entity Records.

Arizona Publishing Requirements

Want some slightly annoying news? Arizona has a publication requirement for businesses. This means that the state requires LLCs and corporations, including nonprofits, to publish a notification of formation in a local newspaper for three consecutive issues. Publication fees can cost as much as $300.

The good news is that Pima and Maricopa Counties don’t have a publication requirement (they publish a notice for you). Even better news is that Northwest has an office in Pima County, so if you hire us, you won’t have to bother with this costly step.

What is a statutory agent?

An Arizona statutory agent (also called a registered agent) is the person or business responsible for accepting legal mail (like a lawsuit) and state mail on behalf of your business. Your Arizona statutory agent can be you, someone else, or a company (we know a bit about being a Arizona statutory agent). Your agent needs an Arizona street address where they are available to accept mail during regular business hours.

How can I keep my information off the public record?

Names and addresses provided on all of your business documents that are filed with the ACC are public record. A professional registered agent service will let you use their address on all public documents allowable, which helps to keep your private information off public record.

4. Draft Internal Records

So far in this guide, we’ve dealt with public forms that you’ve had to file with the Arizona Corporation Commission. Now, it’s time to organize your internal records. These are the documents your business will keep on record within your company.

Though these documents are internal, you’ll likely need to show them to third parties like the bank or—if you start a nonprofit—the IRS.

Here are the major internal documents you need to organize for LLCs and corporations:

Arizona LLC Operating Agreement

This is your LLC’s rule book. It defines how your LLC will do things like make decisions, distribute money, manage operations, and appoint officers. Your operating agreement plans for every big picture scenario your LLC is likely (or unlikely) to face, including dissolution.

Drafting an operating agreement is hard, and the internet is full of shabby templates that have been copy and pasted from who knows where. So we had our attorneys draft an Arizona LLC Operating Agreement template that you can use as a solid foundation.

Arizona Corporate Bylaws

Bylaws are the rules your corporation will adopt and follow internally. Bylaws detail how your corporation will appoint directors and officers, hold shareholder and board meetings, and handle emergencies, among other things. Unlike operating agreements, corporate bylaws are required by law in Arizona (AZ Rev Stat § 10-206 ).

As with operating agreements, you can find plenty of bylaws templates online. But bylaws are pretty serious, so you don’t want to just use the first template you come across. Our attorneys drafted an Arizona Corporate Bylaws template you can use to get started.

Starting a nonprofit? Learn about Arizona nonprofit bylaws.

5. Get Arizona Business Licenses

Most Arizona businesses will be required to have at least one business license. The type of business license you’ll need is dependent on what kind of business you engage in. Barbers need licenses to cut hair. Landscaping companies need licenses to cut grass. If your business operates in multiple Arizona cities, it’s likely you’ll need to apply for a separate business license in each city.

• Arizona Transaction Privilege Tax License. If your business sells a product or is otherwise involved in providing services to customers in Arizona, it will most likely be subject to Arizona’s 5.6% Transaction Privilege Tax License (TPT). The TPT is a license for the privilege of doing business in the state. Most business owners pass the 5.6% fee onto the customers, essentially making the TPT a license and a sales tax.
• Professional Business Licenses. If your business engages in activities with customers that require specialized training or education, you’ll need a professional business license in accordance with AZ Revised Statute § 32-122-01. In most cases, you need a professional license for your business and your employees will need to be licensed.
• Local Business Licenses. Arizona leaves business licensing up to the city or county where the business resides. For instance, if you’re a mobile food vendor in Scottsdale, be prepared to fork over $250 for a business license.

Learn more about How to Get a Business License.

How much does an Arizona Transaction Privilege Tax License cost?

For the privilege of doing business in Arizona, the state will charge your business a 5.6% fee for every sale your business makes. Sell a $100 pair of shoes, you owe the state $5.60. The state also imposes a $12 license fee per business per year. If you have multiple locations, you’ll be paying a fee of $12 per location. However, if the ownership of each location is the same, the locations can be consolidated under one TPT license number to allow the business owner to file a single return.

Arizona cities and towns also levy their own business privilege taxes. Kingman, Arizona, for example, has a local TPT tax of 2.5% for most businesses. Combined with the state business license tax, a business owner in Kingman is looking at an effective sales tax of 8.1%.

How do I get an Arizona Transaction Privilege Tax License?

You can obtain a TPT through AZTaxes.gov. You’ll also need to mail a Joint Tax Application (JT-1), or submit the JT-1 form in-person at a Department of Revenue office. You’ll be able to use the same website to renew your license.

How do I get a professional license in Arizona?

Professional licenses in Arizona are handled by the state board that governs the profession. For example, if your business is involved in social work, counseling, or marriage and family therapy, you’ll need to apply with Arizona’s Board of Behavioral Health and pay the required application and licensing fee. If your business is involved in engineering, you’ll need to apply with Arizona’s State Board of Technical Registration.

6. Organize Your Money

The liability protection you get from forming an LLC or corporation is only as strong as the separation between you and your business. At a minimum, you’ll need to open a bank account for your business. And if you’re going to hire employees, you’ll need to tackle payroll, too.

Open a Business Bank Account

To keep your business spending separate from your personal spending, you’ll need to open a business bank account. If you don’t, a court could find that your business is not actually separate from you, the owner, under the Alter Ego Doctrine. Also known as piercing the corporate veil, this is the outcome when a judge finds that a company is not a separate entity but rather an alter ego of the owner. If this ever happens, you could lose your limited liability status. Additionally, some credit card processing companies will only do work with you through a business bank account.

Opening a business bank account as a sole proprietor is important, too. Though sole proprietors and general partnerships have no limited liability status to protect, both will benefit from organizing their business finances come tax season.

Set up your account by providing the bank with your:

• Formation documents
• Corporate bylaws or operating agreement
• EIN
• Corporate Resolution to Open a Bank Account or LLC Resolution to Open a Bank Account.

Set up Payroll

If you can’t pay your employees on time, prepare for them to break out the pitchforks. Here’s how you set up payroll:

• get an EIN for your business
• register for an Arizona Withholding Tax Account Number
• get your Arizona Unemployment Insurance Tax Account Number
• ask yourself if you’re hiring employees or independent contractors
• prepare the forms your employees will fill out
• manually enter your own payroll (yuck), purchase payroll software, or hire a service
• set a schedule for payroll

Setting up payroll isn’t a walk in the park. That’s why a lot of businesses, large and small, use payroll software, or hire a payroll processing service.

What forms do my employees need to fill out?

Your new employees will need to fill out a W-4 to determine how much you’ll withhold and an I-9 to verify that the employee is eligible to work in the US.

What’s the difference between an independent contractor and an employee?

It’s important to understand the difference between an independent contractor and an employee. That’s because for employees, you’ll need to withhold and pay income, social security, and Medicare taxes. Independent contractors pay these taxes on their own.

An independent contractor is self-employed—how they complete their work is not directly controlled by an employer. An independent contractor may perform the same kind of work for other businesses, and can do the work when and how they choose.

An employee, on the other hand, performs their work how and when their employer chooses.

If you’re unsure, you can file Form SS-8 with the IRS and let them decide.

Learn everything you need to know about hiring independent contractors.

How do I get an Arizona Withholding Tax Account Number?

Arizona employers that withhold income tax from the wages of their employees can use their EIN to register with the Arizona Department of Revenue (ADOR). To register, you’ll need to fill out and file a Joint Tax Application (JT-1).

7. Get Business Insurance

Forming an LLC or corporation protects your personal assets. But if anything disastrous befalls your business—like a lawsuit, burglary, flood, or fire—your business is going to have to pony up some cold hard cash. Business insurance can help cover the costs.

Whether or not you need or want business insurance depends on the amount of risk you are comfortable with taking on. The cost of insurance is dependent on what kind of business you are engaged in, and how much coverage you need. For instance, a roofing company is going to pay a higher insurance premium than your general office-based business.

Types of business insurance include, but are not limited, to:

• Workers’ Compensation Insurance
  Workers’ compensation insurance covers things like medical bills, lost wages, rehabilitation, and death benefits. Per AZ Revised Statute § 23-901, if you have one or more workers, full- or part-time, you must carry workers’ compensation insurance. You can buy insurance from Arizona’s State Compensation Fund, which is now administered by a private insurance company, Copper Point Insurance. Arizona also allows employers to self-insure, if they meet the minimum qualifications.
• Liability Insurance
  This covers the costs of claims against your business for injuries or damages to the property of others, like clients or customers. This includes medical expenses, legal fees, settlements, and judgments. Beyond general liability insurance, you can purchase or add on more specific types, like professional, cyber, commercial, home-based business, or product liability insurance.

Do business owners need workers’ compensation insurance in Arizona?

Workers’ compensation coverage is not necessary for the owner of the business, but it’s probably a good idea to include yourself in the company policy.

Do I need business insurance for my home-based business?

Probably. That’s because you can’t count on your homeowners’ or renters’ insurance policy to cover damages related to your business. Most insurance companies offer a home-based business insurance plan.

8. Understand Your Tax Burden

Whether we like them or not (we don’t), taxes are a fact of life, especially for business owners. Here’s the lowdown on the type of taxes your business can expect to pay in Arizona.

Federal Taxes

• LLCs. Single-member LLC? By default, you’re taxed similar to a sole proprietor. More than one LLC owner? You’re taxed as a general partnership. Either way, your default tax status is “pass-through,” which means you don’t pay corporate taxes. Instead, your LLC’s owners report profits and losses on their personal tax returns. LLC members are responsible for their own federal self-employment taxes (15.3%). LLCs can elect to be taxed as an S-Corp or C-Corp by filing the appropriate paperwork with the IRS.
• Corporations. Corporations are taxed as C-Corps by default. This means that corporations pay the 21% federal corporate tax rate and the applicable Arizona corporate tax rate.

To pay your federal taxes (and take a good deal of other steps required to start a business), you’ll need to get an Employer Identification Number (EIN). You can apply for one with the IRS or hire us to get one for you.

Do I need an EIN if I’m self-employed?
If you’re operating a sole proprietorship or single-member LLC that doesn’t employ anyone else and you don’t need to file excise or pension plan returns, you don’t legally need an EIN.

However, you can still get one—and you probably should. Otherwise, you’ll have to use your own social security number to do business. Plus, you’ll likely need an EIN to open a business bank account.

How do I get an EIN?
To get an EIN, you can either apply online or file form SS-4 by mail with the IRS. Getting an EIN is free.

Check out our guide to applying for an EIN.

What is an S-Corp?
An S-Corporation is a federal tax election. Registered business entities like LLCs and corporations start out with a default tax status, but can file paperwork with the IRS to be taxed as an S-Corp. Like LLCs, S-Corps are taxed as pass-through entities. Like corporations, S-Corps can make distributions that aren’t subject to the 15.3% self-employment tax.

Learn more about the S-Corp tax election.

What is a C-Corp?
A C-corporation is the default federal tax election assigned to corporations. Most corporations are taxed as C-Corps, but LLCs can also apply for C-Corp tax designation by filing paperwork with the IRS. C-corps file federal corporate income taxes and state corporate income taxes (in Arizona, the corporate income tax rate is a flat 4.9%). C-corps can pay their shareholders in distributions, and the shareholders report those profits on their personal tax returns.

Learn more about the C-Corp tax election.

Arizona State Business Taxes

Similar to federal income taxes, Arizona income tax rates are based on your income and your filing status. Arizona has a graduated income tax, with rates ranging from 2.59% to 4.5%. The more money you make, the more you pay.

Similarly, Arizona imposes a 5.6% business privilege tax (TPT) on businesses, not customers. However, most business pass this tax onto customers. Essentially your business will be charged a 5.6% tax on each sale. Sell $1,000 in hot dogs, expect to pay $56 to the state for the privilege of doing business. Arizona calls this a privilege license, but anyway you slice it, it acts as a tax. How much business you do determines how often you’ll need to remit your payments to the Arizona Department of Revenue:

• Annual filings for sales totaling less than $2,000
• Quarterly filings for sales totaling $2,000 – $8,000
• Monthly filings for sales totaling more than $8,000

Arizona Local Business Taxes

On top of the state tax, every Arizona city or county sets their own TPT rate. For example, the city of Mesa levies a TPT tax rate of 2%. Therefore, combined with Arizona’s state TPT of 5.6%, you’re business will be expected to cough up a combined 7.6% of all sales.

9. Build Your Business Website

If you want actual local Arizona customers to find your business, they have to be able to find you online. This means you’ll need a website, a business email account, and social media accounts. Don’t worry if you’re not especially tech-savvy—you don’t have to be a web developer or an annoying influencer to establish a robust online presence. You’ll just need the following:

• Domain name. Your domain is the address where your website will live. You’ll want a domain name that is short, unique, local, and—most importantly—available. If your domain is trademarked, you could face legal trouble.
• Domain registrar. Once you’ve decided on a domain name, you’ll want to register it with a domain registrar. Some domains are more expensive than others. Some domain registrars also offer hosting and most will provide you with a business email that includes your domain name (“[email protected]”).
• SSL certificate. An SSL certificate signals to your users that your website is secure. If your website will use forms—like a sign-up form or a “contact us” form—an SSL certificate is critical. But even if you don’t you use forms, you’ll still probably want one—it allows an encrypted connection, which means your users’ data is transported securely. There are several types of SSL certificates, and you can often get one through your domain registrar.
• Site design. The easiest option is to use a free website creation tool—there are a number of free options available. Most are easy even for a newcomer to use, with styles and built in templates. For a more custom design, you can hire a web designer to work on your website, but this will be much more expensive.

10. File the Arizona Annual Report

Arizona requires all corporations and nonprofits to file an annual report each year. LLCs don’t have to file. Annual reports must be submitted using the ACC’s eCorp online filing system. You will need to create an account in order to file online. The report costs $45, and is due on the anniversary of your incorporation. This means if you formed you business on July 23rd, 2022, your report will be due by July 23rd, 2023, and every year after.

Read more about How to File an Arizona Annual Report.

What if I don’t file an annual report in Arizona?

If you fail to file your annual report, Arizona will hit you with a monthly penalty of $9. While nine bucks may not sound terrible, failure to file after 90 days will result in a warning that your entity faces possible administrative dissolution. If this still doesn’t force you to act, Arizona will give you 60 days before dissolving your business.

11. Apply for Trademarks

A trademark is a design, symbol, word, phrase—or any combination thereof—that represents a brand’s goods or services exclusively. Only some businesses register trademarks.

You can apply to register your trademark with the State of Arizona or federally with the U.S. Patent and Trademark Office (USPTO). Registering your trademark in Arizona is cheaper and easier than registering with the USPTO, but doing so only protects your trademark in Arizona.

You can only register a trademark once you’ve started using it (so slap it on that website you just made), and not all applications are approved. Trademark law is complex, and the strength of a trademark application (and the trademark itself) depends on many factors.

Our attorneys can review your application, offer advice, and prepare and submit the application for you—Check out our Trademark Service.

How do I register for a trademark in Arizona?

Trademarks can only be filed online through the Arizona Secretary of State website. To register a trademark you’ll need to provide a full written description of your phrase, word, or logo that you want trademarked. You’ll need to upload three samples of the mark you wish to register. The filing fee is $15. The approval process can take up to three weeks. Once registered with the state, your trademark will be good for ten years. You can renew the trademark for another ten years at a cost of $15.

Can I register a trademark before I use it?

No. But you can file an application with the USPTO under Intent-to-Use status. This gets your application in line before you’ve actually used the mark, which could be helpful if you’re worried someone else might register your mark before you’ve had a chance to use it.

For your trademark to become official, you’ll eventually need to show proof that you’re using it. An Intent-to-Use application buys you some time to do that.

Learn more about filing an Intent-to-Use Trademark.