A Step by Step Guide
By Richard Keyt, an Arizona LLC attorney who has formed
Phase 1 of an Arizona LLC formation is relatively simple. To form an Arizona limited liability company, you merely:
- File Articles of Organization with the Arizona Corporation Commission (the “ACC”) with an ACC document called a Cover Sheet and another document that is either a Member Structure or a Manager Structure information document,
- Publish the Articles of Organization in a newspaper of general circulation the required number of times, and
- Submit an affidavit of publication to the ACC.
Despite this relatively easy three-step process, there are a number of tasks the must be performed in conjunction with forming an Arizona limited liability company (“LLC”).
I want to form an S corporation: There is no type of entity recognized by Arizona law called an S corporation. The term “s corporation” refers to the method of federal income taxation selected by an entity, i.e., it is an entity that is eligible for and that has elected to be taxed under subchapter S of the Internal Revenue Code of 1986 (the federal tax law). An LLC can be taxed as an “s corporation” by filing an IRS form 2553 timely, but the LLC always remains an LLC under Arizona law.
For a summary of the characteristics of the seven types of entities commonly used in Arizona to operate businesses and hold assets, see “Types of Entities for New Arizona Companies.“
Finding a good name for your new Arizona limited liability company can sometimes be the most difficult piece of the formation puzzle. Ideally, you want a name that: (i) will afford strong federal trademark protection, but will not infringe on anybody’s trademark or service mark, (ii) will be easy for your customers to remember, (iii) will describe your products or services, and (iv) will allow you to obtain .com, .net., .org, .biz and .info domain names. For information on obtaining domain names, see How to Obtain a Domain Name that Does Not Infringe on a Trademark.
One way to check if your desired company name will infringe on a federally registered trademark or service mark is to search your prospective name and variations thereof on the searchable database of the United States Patent & Trademark Office.
Unfortunately, obtaining a strong trademark that describes your product or services is frequently not possible. These two goals are in conflict. Most clients of trademark lawyers want a trademark that describes their products or services. For example, if I have a bar and grill called Rick’s Bar & Grill, it describes my business, but federal trademark law grants a lower level of protection to marks that are merely descriptive of the products or services. People like descriptive trademarks because they are descriptive. Trademark lawyers prefer marks that are arbitrary such as Apple® when used to identify computer products or fanciful marks such as Xerox® because these types of marks provide the highest level of trademark protection.
For more information about trademarks and service marks, see the KEYTLaw our trademark website. Our trademark attorney can prepare an application for a federal trademark or service mark for $895 plus the filing fee.
b. Arizona Corporation Commission Name Approval
When you have selected at least one possible company name, you should search the ACC’s LLC name database to see if any Arizona entity or tradename is exactly the same as or too similar to the name you have chosen for your LLC. To determine if your desired LLC name is available, do the following:
- Review the ACC’s naming rules so you understand how the ACC will examine your name and compare it to names of existing entities.
- Go to the ACC’s Corporations and LLCS page then: (i) click on the text that says “Name – Forms for entity name reservations” (ii) enter your desired LLC name in the Name field, (iii) in the Entity Type field select LLC, and (iv) click on check name.
All Arizona LLC names must satisfy the requirements of Arizona Revised Statutes Section 29-602. The following is quoted from the ACC’s website:
Entity names only be “distinguishable” from other entity and trade names on file with the Arizona Corporation Commission and the Arizona Secretary of State. “Distinguishable” is a minimal standard. A name is “distinguishable” if it is different in any way from other entity and trade names, however, some differences do not count and are not considered in determining distinguish-ability. The following differences do not make a name distinguishable:
- entity identifiers (Inc, LLC, Corporation, etc.)
- spaces between words (“roll out now co.” vs. “rollout now co.”)
- specific punctuation (“Great Expectations ” vs. “Great Expectations!”)
- the case of the letters contained in the name (“TOO COOL” vs. “Too Cool”)
- the use of ampersand (&) versus “and” (“U & I Inc.” vs. “U AND I Inc.”)
- the use of Arabic numerals (1,2,3,etc) and words representing these numerals (“One Stop LLC” vs. “1 Stop LLC”)
- the use of the articles “a”, “an” and “the” (A Birdcage vs. The Birdcage)
The Arizona Corporation Commission will not approve a proposed LLC name unless the proposed name is distinguishable from other names already on file with the Arizona Corporation Commission and the Secretary of State. For an explanation of what makes a name distinguishable from another name, see the Arizona Corporation Commission Naming Standards, which has a list of the rules the ACC uses when reviewing proposed names.
- The name of the Arizona LLC (the new company’s name)
- The address of the registered office of the Arizona LLC
- The name and business, residence or mailing address of the agent for service of process for the Arizona LLC
- The latest date, if any, on which the Arizona LLC must dissolve
- One of the following statements:
Management of the limited liability company is vested in a manager or managers, or
Management of the limited liability company is reserved to the members
- The name and business, residence or mailing address of either of the following:
If management of the Arizona LLC is vested in a manager or managers, each person who is a manager of the limited liability company and each member who owns a twenty per cent or greater interest in the capital or profits of the limited liability company, or
If management of the Arizona LLC is reserved to the members, each person who is a member of the limited liability company.
- The statutory agent must sign a statement acknowledging acceptance of the duties of statutory agent.
How to Access the Arizona Corporation Commission’s Form Articles of Organization
To start an Arizona LLC the “organizer” must complete, sign and file the Arizona Corporation Commission’s two page fill in the blanks Articles of Organization. If you use this ACC form you must also complete and submit both of the following documents:
(b) the Statutory Agent Acceptance form.
See the Instructions for the Articles of Organization. If somebody holds an Arizona tradename identical to the desired name of your new LLC then when you submit the Articles of Organization to the ACC for filing you must also submit a Notice of Transfer of Limited Liability Company Name Reservation signed by the holder of the tradename. See the Instructions for this form.
Why AZ LLC lawyer Richard Keyt Never Uses the Arizona Corporation Commission Fill in the Blanks Articles of Organization Form
AZ limited liability company attorney Richard Keyt always prepares custom drafted Articles of Organization using the Word form he created. Here are the primary reasons Richard Keyt never uses the ACC’s gross form Articles of Organization.
The Articles of Organization is the fundamental document that creates your LLC. You know what they say about first impressions. The LLC’s Articles of Organization is the primary document that makes a first impression of the LLC. Third parties sometimes want to see the LLC’s Articles of Organization. For example, if you open a bank account in the name of the LLC or if the LLC applies for a bank loan, the banker will want a copy of the LLC’s Articles of Organization. Your LLC’s Articles of Organization can make a good impression or a bad impression on the banker. Compare the fill in the blanks Arizona Corporation Commission form Articles of Organization vs. professional looking custom Articles of Organization and ask which makes a better first impression on the third parties your LLC will deal with?
Richard Keyt’s Articles of Organization contain provisions in the Section titled “Limitations on Company Action” that are not found in the Arizona Corporation Commission’s fill in the blanks form. This section contains provisions that Arizona LLC attorney Richard Keyt believes are important limitations on the ability of the LLC to engage in certain actions.
The last section of Richard Keyt’s Articles of Organization called “Springing Member” contains a provision that ties into a similar provision in Richard’s do-it-yourself Operating Agreement. The springing member provisions in the Articles of Organization and the Operating Agreement are especially important if the LLC has only one member and that member is a person. These two provisions may avoid the termination of an LLC that is owned solely by one person if that person were to die. Arizona law provides that if there is only one member of an Arizona LLC and that member is a person who dies, the LLC automatically terminates, i.e., ceases to exist. This could be a very bad thing! The termination of an LLC could have adverse consequences to the LLC and the person or people who would inherit the interest of the last deceased member. For example, the termination of the LLC could cause the recognition of income and recognition of income taxes if the deemed distribution of assets of the LLC on its termination is a taxable event. The springing member provisions in the Articles of Organization that tie into similar provisions in Richard Keyt’s Operating Agreement allow the LLC to name a springing member who becomes a temporary member only if the last member were to die. The sole purpose of the springing member is to prevent the termination of the LLC if the last member were to die. The springing member does not have any power or rights to receive money or property form the LLC.
Purchase AZ LLC Lawyer Richard Keyt’s Do-It-Yourself Custom Form Articles of Organization & Operating Agreement
Richard Keyt has prepared Articles of Organization and Operating Agreements for 5,300+ Arizona limited liability companies. He sells his custom Arizona state specific Articles of Organization and Operating Agreement as downloadable and editable Word forms. These llc forms are essentially the same documents Richard uses when he forms an Arizona LLC for a client. Save $50 off the $223 per per item price when you buy the Articles of Organization, Operating Agreement and AZ LLC Quick Start Guide bundle for $173.
- Do-It-Yourself Articles of Organization Form – $27
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- LLC Starter Kit 3 Item Bundle: Do-It-Yourself Articles of Organization, Do-It-Yourself Operating Agreement and the Arizona LLC Operations Manual is $173. Save $50 if you purchase all three items together.
The statutory agent must be one of the following:
- An adult individual who resides in Arizona.
- A domestic company formed under Arizona corporate law.
- A foreign company authorized to transact business in Arizona.
- A limited liability company formed under Arizona law.
- A limited liability company authorized to transact business in Arizona.
The statutory agent must have an Arizona street address rather than a post office box. The person or entity that will be the statutory agent must complete and sign the Arizona Corporation Commission’s Statutory Agent Acceptance form.
Whenever you file a document with the Arizona Corporation Commission you must include an ACC form called an “Arizona Corporation Commission Corporations Division Submission Cover Sheet.” Submit one copy of the completed ACC Submission Cover Sheet to the Arizona Corporation Commission with two copies of your Articles of Organization.
Call 602-906-4953, ext. 1 NOW if you want an LLC to: (1) prevent creditors of your business or investment real estate from taking your personal assets, and (2) asset protect your personal assets from debts, liabilities and lawsuits.
You may also pay an extra $35 for expedited review service. I recommend that you pay the extra $35, which will cause the ACC to review your Articles of Organization within the shortest time period possible. If you do not pay the extra $35 it could take up to a month for the ACC to approve or reject your Articles of Organization. When the articles are approved, the date of approval reverts back to the date the articles were filed. The problem with using regular review service rather than the expedited review, is that it can substantially reduce the time remaining to publish the Articles of Organization and deliver the affidavit of publication to the ACC.
- Completed and signed Articles of Organization
- Completed cover sheet
- Cash or check to pay the filing fee
Get AZ LLC attorney Richard Keyt’s free white paper called “Common LLC Mistakes.”
Phoenix office: 1300 W. Washington, 1st Floor, Phoenix, AZ 85007.
Tucson office: 400 W. Congress St., Tucson, AZ 85701
ACC offices are open Monday – Friday, 8:00 a.m. to 5:00 p.m., except holidays. You may mail all the Articles of Organization and a check for the filing fee to either ACC office. The ACC does not accept credit cards.
If You Do Not Hire KEYTLaw to Form Your AZ LLC, Give Yourself Peace of Mind and Purchase Our AZ LLC Operations Manual – Only Available from KEYTLaw.com
What you don’t know about operating your Arizona LLC could cost you thousands of dollars or possibly risk a court “piercing the veil” and holding the members of the LLC liable for its debts. Arizona business attorney Richard Keyt’s in depth, Arizona specific 170 page Arizona LLC Operations Manual is the Holy Grail about operating Arizona LLCs. Merriam-Webster’s dictionary defines “Holy Grail” as “an object that is sought after for its great significance,” a term that aptly describes the AZ LLC Operations Manual.
This owner’s manual for operating an Arizona LLC explains 75+ critical topics that affect Arizona LLCs. Chapter 3 of the LLC Operations Manual contains a checklist of 34 tasks new LLCs should perform in the first 75 days after the LLC is formed. See the nine page Operations Manual Table of Contents and you will be amazed that so many important topics are explained in one convenient source. Ignorance of Arizona LLC law and how to operate your Arizona LLC could be very costly.
If your Articles of Organization were approved, the Arizona LLC was created (“born”) as of the date the Articles of Organization were filed with the ACC (or a later date set forth in the articles).
If you file the Articles of Organization on an expedited basis, you may wait to publish the Notice for Publication until the ACC approves the Articles of Organization to prevent wasting the publication costs if the articles are rejected.
See the ACC’s list of Arizona newspapers of general circulation by county, which list also includes newspapers from which the ACC will not accept publications. The cost to publish the Notice for Publication depends on the newspaper, the county in which the newspaper is located and the length of the Notice, but you should budget $55 – $85 if the known place of business is in Maricopa County.
Publication cost will be greater if your company’s known place of business is outside Maricopa County. Caution: The Yuma Daily Sun is the only ACC approved newspaper in Yuma County so it grossly over charges for legal publications, including a Notice for Publication. In the past, this newspaper charged me three times more to publish in Yuma County than what I paid in Maricopa County for similar publication.
How to Avoid Being Over Charged by a non-Maricopa County Newspaper
To avoid excessive legal publication costs (perhaps as much as $100 or more) for a Notice of Publication, do the following:
- Before filing the Articles of Organization, prepare question 2 of the Articles to list the LLC’s known place of business in Maricopa County.
- Publish the Notice of Publication in Maricopa County (hopefully using our convenient discount publication service – see below).
- File a change of address form with the Arizona Corporation Commission to change the LLC’s known place of business from Maricopa County to the desired address in the appropriate county.
Return the Affidavit of Publication to the ACC
Within ninety days after the date of filing the Articles of Organization, you must file with the ACC a notarized Affidavit of Publication evidencing the publication of the Notice for Publication as required by Arizona law. Confirm with your newspaper that it will automatically as part of its publication service prepare and file the Affidavit of Publication with the ACC. Instead of filing the Affidavit of Publication directly with the ACC, some newspapers mail the document to you and you must then send the Affidavit to the ACC before the ninety day deadline. Make a tickler or calendar a reminder of the deadline if you must send the Affidavit to the ACC.
Failure to Comply with the Publication Requirements
If you fail to timely publish the Notice of Publication or fail to timely file the Affidavit of Publication with the Arizona Corporation Commission, the ACC may revoke the charter of the company, which causes it to die and cease to exist.
You should apply for an EIN early enough to have your number when you need to open a bank account, file a tax return or make a tax deposit. You can get an EIN over the phone by calling the Tele-TIN phone number for your state, which for Arizona entities is 1-800-829-4933. Before calling the IRS, fill in the IRS Form SS-4 as best you can because the IRS may ask you to refer to it while on the phone and may ask that you sign and mail or fax a copy of the form to the IRS within 24 hours. The person making the call must be authorized to sign the form or be an authorized designee.
You may also obtain a federal EIN online in a matter of minutes from the IRS website. After completing the IRS’ online questionnaire, the IRS’ website will immediately issue an EIN. Online EINs are available 24/7 without the need to file any paper document with the IRS. The online EIN is a provisional EIN, but it will be the permanent federal employer identification number for your business unless voided by the IRS. The IRS may void an EIN obtained online if : (i) the name and social security number of the principal officer do not match Social Security Administration records, or (ii) the business has already been assigned an EIN. Keep a record of your application for an EIN. Be sure to print your SS-4 application after the EIN is assigned and keep a paper copy for your records. You can do this by clicking the “Print Form” button after receiving your EIN.
Applications for a federal EIN for LLCs must provide the following information in the online Form SS-4: (i) the LLCs exact legal name in box 1 ending with LLC without punctuation, (ii) the type of entity for tax purposes in box 8a (i.e., will the LLC be taxed as a partnership, sole proprietorship, or corporation), and (iii) type the words single or multi member LLC in box 8a on the line called Other, but do not check the Other radio button.
Third parties may also request EINs via the internet on behalf of a taxpayer. A third party who obtains an EIN for another party must retain a completed copy of the IRS Form SS-4 signed by the taxpayer and the signed statement authorizing the third party to file the online application.
If you prefer, you can fax a completed Form SS-4 to the appropriate service center (215-516-3990 for Arizona), and they will respond with a return fax in about one week. If you do not include a return fax number, it will take about two weeks. If you apply by mail, send your completed Form SS-4 at least four to five weeks before you need your EIN.
Note for Single Member LLCs: A single-member LLC that intends to be taxed as a sole proprietorship does not need an EIN and generally should not file IRS Form SS-4. Generally, the LLC should use the name and EIN of its owner for all federal tax purposes. However, the reporting and payment of employment taxes for employees of the LLC may be made using the name and EIN of either the owner or the LLC. If the LLC-applicant indicates in box 13 of IRS Form SS-4 that it has or expects to have employees the IRS will assign the single-member LLC its own EIN.
A single member LLC may elect to be classified as a sole proprietorship, a C corporation or an S corporation. Multi-member LLCs may elect to be taxed as a partnership, C corporation or S corporation. The LLC, however, may not elect to be taxed as an S corporation unless it meets all requirements applicable to S corporations. If the LLC does not elect its classification by filing IRS Form 8832 (pdf), the IRS assigns a default classification of partnership (for multi-member LLCs) or sole proprietorship (for single member LLCs).
Even though it is owned by two members, an LLC that is owned solely by a husband and wife as community property may be taxed as a sole proprietorship or as a partnership. The couple may elect either form of taxation. IRS Revenue Procedure 2002-69 states that the IRS will accept the married couples’ choice to be taxed as a sole proprietorship or as a partnership.
In general, the difference between being taxed as a corporation and being taxed as a partnership is that partnerships are not taxpaying entities and corporations (other than S corporations) are. The profits, losses and other tax items of an LLC taxed as a partnership are passed to the members of the company prorata according to their ownership and included on the members’ federal income tax returns. By electing to be taxed as a partnership for federal income purposes, a multi-member company can avoid the double tax that can occur with a corporation when the corporation has taxable income.
The LLC may elect to be taxed as a partnership or as a corporation for federal tax purposes by filing IRS Form 8832 (pdf), Entity Classification Election. For more information, see IRS Publication 542 (pdf), Corporations, and IRS Publication 541 (pdf), Partnerships.
Before electing how your Arizona LLC will be taxed, you should consult with your accountant because the election will have significant economic consequences. Facts and circumstances applicable to each new Arizona LLC will influence the taxation election that is best. An erroneous tax election can be very expensive.
- Requiring super majority approval or unanimous approval of members for major company decisions such as borrowing large amounts of money, entering into major contracts, amending the Articles of Organization, changing the capital structure of the company, hiring or firing people related to members and managers, setting compensation of key employees, and entering into contracts with related parties or companies affiliated with members or managers.
- Restrictions prohibiting members from selling, encumbering or transferring their interests in the LLC without first giving the company and other members a right of first refusal to acquire the membership interest.
- Rules governing rights of the company and members following a member’s death, disability, divorce or incapacity. The agreement can obligate the company to purchase the interest of a deceased member or give the company and other members options to purchase the interest of a deceased member.
- The acquisition of life insurance to fund the purchase of the interest of a deceased member.
- Fixing the value of membership interests in certain situations such as the purchase by the company of the interest of a deceased member.
- Requiring minority members to sell their interests when the majority of the members want to sell the company
- Requiring members to cooperate if the company makes a public offering of securities.
- “Shot-gun” buy-out procedures that can be used to terminate the ownership of members when they cannot get along or work together.
The best and easiest time to adopt an Operating Agreement is when the company is formed. I have seen too many sad member disputes that could have been avoided with a good Operating Agreement. An Operating Agreement is like insurance, i.e., if you never need it, you don’t miss it, but if you need it and don’t have it, you may suffer greatly.
Caution: If the members of an Arizona limited liability company do not adopt a written comprehensive Operating Agreement, their rights and obligations with respect to each other and the company will be as provided by the default provisions of Arizona law. Trusting Arizona law to govern your limited liability company can have substantial unintended and adverse consequences. For example, Arizona law provides that absent a written agreement to the contrary, all distributions of money and property from the company to the members must be made first in proportion to the amount of members’ unreturned capital contributions and then equally to the members. See A.R.S. Section 29-703.B.
Example of Unintended Consequences: John and Mary form an Arizona LLC. John contributes $10,000 to the capital of the company and Mary contributes nothing. They agree orally that the will split the profits and distributions 75% to John and 25% to Mary. If John and Mary do not document their agreement in writing, Arizona law provides that the members rights with respect to allocation of profits and distributions are as follows:
- John and Mary are each entitled to 50% of the profits.
- John gets all distributions of money and property from the company until he gets his $10,000 back.
- When John gets all of his money back, all future distributions of money and property must be split equally among the two members.
- Until John gets all of his money back, Mary will be allocated 50% of the profits for federal income tax purposes and be liable to pay taxes on any profits allocated to her each year, but not be entitled to any distributions of money from the company.
For the reasons why I strongly urge multi-member Arizona limited liability companies to put their agreements in writing and adopt a comprehensive Operating Agreement, see my article entitled “Arizona Limited Liability Company Operating Agreement FAQ.“
KEYTLaw Operating Agreement Preparation Service
KEYTLaw prepares comprehensive Operating Agreements for Arizona limited liability companies for a fixed fee. Our Operating Agreement preparation service includes initial consultations to determine members’ desires and answer questions, preparation of a 45+ page custom Operating Agreement and, after delivery of the agreement, up to one hour of additional services in connection with answering questions about the agreement and modifying it as requested by the members.
- Arizona Department of Revenue – tax forms and tax information
- Guide to Arizona Licensing Requirements – Arizona agencies that require licensing, certification or permits for business activities conducted in Arizona.
KEYTLaw LLC Formation Service
Call 480-664-7478 NOW if you want an LLC to: (1) prevent creditors of your business or investment real estate from taking your personal assets, and (2) asset protect your personal assets from debts, liabilities and lawsuits.
Arizona LLC attorney Richard Keyt (practicing business law in Arizona since 1980) offers three LLC formation packages and prices: $397 (Bronze package), $597 (Silver package) & $997 (Gold package). See our table that compares LLC formation services for each of the three packages. For a detailed explanation of the LLC formation services we provide for each of the three packages see “Contents of Our Bronze, Silver & Gold LLC Formation Packages.”
To understand why we have formed 5,300+ Arizona LLCs, see the testimonials from some of our recent LLC clients.
Two Easy Ways to Hire Richard Keyt to Form Your Arizona LLC for $397, $597 or $997
We’ve made it very easy to hire Richard Keyt to form your new Arizona LLC. It’s a simple 5 – 10 minute process. To hire Richard to form your new LLC select one of the following two options:
Option 1 – Telephone: Call and give us your information.
- Richard Keyt, J.D., LL.M (federal taxation) – 480-664-7478
- Richard’s son former CPA and Arizona LLC attorney Richard C. Keyt – 480-664-7472
- KEYTLaw LLC legal assistant Michelle Watkins – 480-664-7413
Option 2 – Online 24/7
- Pay with your major credit in our secure online site for a Bronze ($397), Silver ($597) or Gold ($997) LLC package.
- Complete and submit our online LLC Formation Questionnaire.
Although it is relatively easy and inexpensive to form an Arizona LLC and the information in this article tells you how to do it, I recommend that you consult an Arizona business attorney when forming an Arizona LLC because there are many issues that may require legal advice and action. For example, when offering to issue and issuing membership interests and securities, all LLCs must comply with federal and applicable state securities laws. It may be advisable to file trademark applications with the U.S. Patent & Trademark office to protect your trademarks and/or service marks. Forming the new Arizona LLC is just the “tip of the iceberg” with respect to operating a business in the LLC form.
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