How to Form an LLC in Arkansas!

Forming an LLC in Arkansas can provide a number of legal benefits.

Freedom of Contract for Members

The Arkansas LLC Act expressly states its policy is “to give maximum effect to the principle of freedom of contract and to the enforceability of operating agreements.” It also gives members contractual freedom to create Voting and non-Voting classes of membership and to customize their capital contributions and shares of profits and losses. 

The ability to create Voting and non-Voting classes of membership facilitates everything from complex, multi-million dollar business deals to succession planning in family businesses and estate planning by gifts of non-Voting interests. The ability to specify a method for allocating profits and losses in an LLC agreement that is greater or lesser than a member’s portion of capital contributions gives members contractual flexibility to tailor their income and risks of loss to further their big-picture asset management plans.

Privacy for Owners

The Act does not require filing of members’ names at formation, although they are required for annual reports (and are kept confidential). A “person” may organize an LLC by filing its Articles of Organization with the Arkansas Secretary of State. The definition of “person” is not just a natural person, but 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.

Protection Against Unwanted Business Partners

The Arkansas LLC 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 participate in management or to become a member. Instead, the assignee may receive only the distributions to which the assignor would have been entitled, and the non-assigning members must unanimously consent to the assignee becoming a member.

Creditors Only Get Passive Rights, Not Control Rights

Section 4-32-705 provides that 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. That is, the judgment creditor has only the right to receive distributions which would otherwise be paid to the member and does not have a right to participate in management.

Furthermore, section 4-32-802 states that unless an LLC agreement provides otherwise or all members give unanimous written consent, a person ceases to be a member of an LLC when the person makes an assignment for the benefit of creditors, becomes a debtor in bankruptcy, is adjudicated bankrupt or insolvent, or fails to contest a petition seeking the appointment of a trustee, receiver, or liquidator over his or her property. These events are considered “events of dissociation.”

Here are the steps you will need to follow to successfully set up an LLC in Arkansas.

Step 1. Choose a Name

For an LLC name in Arkansas, you need to follow a few legal requirements. First, the name must contain “limited liability company,” “limited company,” or one of the following abbreviations: “LLC,” “L.L.C.,” “L.C.,” or “LC”. It must also be distinguishable on the records of the Secretary of State from every other business entity existing in Arkansas or authorized to do business in Arkansas.

Step 2. Appoint a Registered Agent in Arkansas

An Arkansas LLC must continuously maintain an agent for service of process in the state. A Commercial Registered Agent service may act as an Arkansas Registered Agent.

Step 3. File Articles of Organization 

LLCs in Arkansas are filed by submitting Articles of Organization. This only requires the LLC name, the name and address of the Registered Agent, and whether the management of the company will be done by members or managers. This is filed with the Secretary of State with a $50 fee to form the LLC.

Step 4. Prepare an Operating Agreement

Arkansas LLCs must have a written Operating Agreement to regulate the affairs of the LLC. This can be amended, and should be executed by all members as it is binding on the LLC and all of its members.

There are some additional steps you will need to take after you form your Arkansas LLC to finish setting up and maintaining your business.

Get an EIN Number

If your Arkansas LLC is going to have multiple members or if your LLC has employees, you will need to contact the IRS for an Employer Identification Number (or ask an incorporation service to assist you).

Pay the Annual Franchise Tax

Every Arkansas LLC must pay an annual franchise tax of $150 to be able to do business in the state. You must also give the address of your LLC, and the names and addresses of all members (although this is kept confidential).

Qualifying Foreign LLCs

An unusual aspect of the Arkansas LLC Act is its penalties for failing to register a foreign LLC to do business in Arkansas. This is sometimes called “qualifying” a foreign LLC to do business in the state. A foreign LLC is an LLC that is formed under the laws of a state other than Arkansas.

In most states, a foreign LLC may defend itself in state court if it has not qualified to do business in the jurisdiction, but it may not be a plaintiff in state court until it has qualified. Many states also require a foreign LLC to pay the taxes and fees that it would have paid if it had qualified when it first started doing business in the jurisdiction.

In addition to these two penalties, Arkansas charges a civil penalty of up to $5,000 per year that a foreign LLC did business in Arkansas without being qualified.  Because an application for registration costs only $300, foreign LLCs should qualify to do business in Arkansas if there is any doubt about their status of “doing business” in Arkansas.