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Whether your favorite animal is a coyote, diamondback, or cardinal, you can form an Arizona LLC to protect your personal assets from claims against your small business.
FORMING AN ARIZONA LLC
- Choose a Name
Arizona LLC names must satisfy a few statutory requirements. First, the name must include one of the following designators: “limited liability company,” “limited company,” “L.L.C.,” “L.C.,” “LLC,” or “LC.” It cannot include the words “association,” “corporation,” “incorporated,” “bank,” “deposit,” “credit union,” “trust,” or “trust company.” In addition, the name must be differentiable from every other business entity that is formed in Arizona and every foreign entity that has qualified to do business in Arizona.
- Articles Of Organization
To form an Arizona LLC, a person must file Articles of Organization with the Arizona Corporation Commission. The Articles of Organization must include the LLC name, the address of the LLC’s place of business in Arizona, the name and address of the Registered Agent, the latest date that the LLC must dissolve, and whether managers or members will manage the LLC. If managers will manage the LLC, you must include the names and addresses of managers, along with members who have greater than a 20% interest in the LLC. If there are no managers, you must submit the names and addresses of all members. Then these Articles of Organization, which can include any other provisions you would like, are sent to the Corporation Commission with a $50 filing fee.
- Operating Agreement
While not mandated, many Arizona LLCs will have Operating Agreements that govern their internal affairs. This agreement can be verbal, although we recommend that it is written to avoid any future conflict.
- Ongoing Compliance
Annual Report: Arizona, unlike most states, does not require LLCs to file annual reports or pay annual fees.
EIN: If an Arizona LLC is going to have employees or multiple members, it will need to obtain an EIN directly from the IRS or through an incorporation service like Incnow®.
WHY FORM AN LLC IN ARIZONA?
The Benefits and Advantages of Creating an Arizona LLC
The Arizona LLC Act gives LLC members contractual freedom to customize their Arizona LLC Operating Agreements with regard to contributions, rights, duties, and distributions of profits and losses. In addition, Arizona law gives members contractual freedom to establish classes of membership interests with different rights, and it allows members to protect their control of an LLC.
Arizona Is Known for Entrepreneurial Activity
Each year, Arizona forms over 48,000 new LLCs. Arizona has over 259,000 active LLCs. According to the U.S. Chamber of Commerce, Arizona ranks first for entrepreneurial activity. It also ranks Arizona on its “top ten states for entrepreneurship” list and its infrastructure quality list.
- Advantages of Forming an Arizona LLC
The Arizona LLC Act enables members to create classes of membership. An LLC agreement may establish classes of membership interests with different rights, powers, and duties, including Voting and non-Voting interests. Section 29-682 specifically states an LLC agreement may also provide a method for creating additional classes of membership interests in the future. These provisions facilitate everything from complex, high-dollar-volume transactions to succession planning in family businesses and estate planning by gifts of non-Voting interests.
The Arizona Act gives members contractual freedom to customize their capital contributions and their shares of profits and losses. Section 29-709 states “[t]he profits and losses of a limited liability company shall be allocated among the members and among classes of members in the manner provided in an operating agreement.” This gives members contractual flexibility to have preferred members who get paid first or paid more than common members.
A “person” may form an LLC by filing its articles of organization, and the definition of “person” includes almost any kind of business or legal entity. An LLC’s members may therefore have an entity or person who is not a member file the LLC’s Articles of Organization with the Arizona Corporation Commission.
Preventing Unwanted Business Partners
The Act allows members to protect their control of an LLC. An LLC agreement may prohibit members from assigning their membership interests. But if an LLC agreement does not prohibit it, an assignment does not dissolve the LLC or entitle the assignee to become a member. Instead, the assignee may only receive the allocations of profit and loss and distributions to which the assignor would have been entitled, and all the other members must consent to the assignee becoming a member. Therefore, the default provisions of the LLC Act in Arizona are reasonable and sophisticated to suit many people’s needs.
Creditors Only Get Passive Rights, Not Control Rights
If a judgment creditor of a member obtains a charging order against the member’s membership interest, “the judgment creditor has only the rights of an assignee.” Furthermore, a charging order is a judgment creditor’s exclusive remedy.
In addition, the Act states that unless an LLC agreement provides otherwise or all members give written consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated insolvent or bankrupt, or fails to contest a petition seeking his or her reorganization, liquidation, dissolution, or similar relief. These events are considered “events of withdrawal.” If this is not what you want, you should modify your Arizona LLC agreement accordingly.
- Arizona Registered Agent
An Arizona LLC must continuously maintain an agent for Service of Process in the state. A Commercial Registered Agent service may act as an Arizona Registered Agent. A Commercial Registered Agent can be a valuable partner in keeping your LLC in Good Standing, especially if you have a small business or operate out of your residence.
Because of the advantages of forming an LLC in Arizona, over 48,000 new LLCs are formed in the state each year. Should you wish to have more flexibility and protection, you may instead form a Delaware LLC even if you operate in Arizona. What are the advantages of a Delaware LLC? (Delaware LLC) We can then help you file an application for registration to do business in Arizona with your Delaware LLC.
§ 29-601 “Definitions” § 29-604 “Known Place of Business and Statutory Agent To Be Maintained” § 29-606 “Service of Process on Limited Liability Company” § 29-631 “Formation; Parents and Subsidiaries” § 29-632 “Articles of Organization” § 29-635 “Formation of Limited Liability Company” § 29-682 “Operating Agreement” § 29-709 “Sharing of Profits and Losses” § 29-731 “Admission of Members” § 29-732 “Interest in Limited Liability Company; Transferability of Interest; Rights of Assignees” § 29-733 “Events of Withdrawal” § 29-802 “Certificate of Registration; Application” § 29-803 “Registration of Foreign Limited Liability Company; Certificate of Registration” § 29-806 “Requirement for Statutory Agent of Foreign Limited Liability Company” § 29-809 “Transaction of Business Without Registration”
Arizona vs. Delaware LLC's: Which State Is Better?
|LLC Filing Fee
|Required to Name Members or Managers
|Reduce Fiduciary Duties?
|Charging Order as Exclusive Remedy
|Maximum Freedom of Contract
|Separate Equity Court?