{"id":2732,"date":"2011-01-05T07:51:08","date_gmt":"2011-01-05T14:51:08","guid":{"rendered":"http:\/\/www.keytlaw.com\/azllclaw\/?page_id=2732"},"modified":"2022-01-31T07:35:21","modified_gmt":"2022-01-31T14:35:21","slug":"best-arizona-entity","status":"publish","type":"page","link":"https:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/best-arizona-entity\/","title":{"rendered":"Most Effective Arizona Company to Form (in 2022)"},"content":{"rendered":"<p>by <a href=\"https:\/\/www.keytlaw.com\/attorneys-staff\/richard-keyt\/\" target=\"_blank\" rel=\"noopener noreferrer\">Richard Keyt<\/a>, Arizona LLC, corporate and business lawyer<\/p>\n<p style=\"text-align: justify;\">This article is part of a series of nine related articles I wrote about the seven types of entities used in Arizona to operate a business and to hold business assets and investment real estate. The articles are:\u00a0 (1) the <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/best-arizona-entity\/\" target=\"_blank\" rel=\"noopener noreferrer\">&#8220;Best&#8221; Arizona Entity<\/a>, (2) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/arizona-llc\/\" target=\"_blank\" rel=\"noopener noreferrer\">limited liability companies<\/a>, (3) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/sole-proprietorships\/\" target=\"_blank\" rel=\"noopener noreferrer\">sole proprietorships<\/a>, (4) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/arizona-general-partnership\/\" target=\"_blank\" rel=\"noopener noreferrer\">general partnerships<\/a>, (5) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/arizona-limited-partnership\/\" target=\"_blank\" rel=\"noopener noreferrer\">limited partnerships<\/a>, (6) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/arizona-c-corporation\/\" target=\"_blank\" rel=\"noopener noreferrer\">C corporations<\/a>, (7) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/arizona-s-corporation\/\" target=\"_blank\" rel=\"noopener noreferrer\">S corporations<\/a>, (8) <a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/arizona-business-trust\/\" target=\"_blank\" rel=\"noopener noreferrer\">business trusts<\/a>, , and (9) the<a href=\"http:\/\/www.keytlaw.com\/azllclaw\/az-entities\/entity-comparison-table\/\" target=\"_blank\" rel=\"noopener noreferrer\"> entity comparison table<\/a>. The type of entity can have significant income tax and asset protection consequences. The articles discuss the entities in terms of ease and cost of formation, number of owners &amp; restrictions on ownership, privacy, control and management, owners protection from liabilities of the entity, and federal income taxation issues.<\/p>\n<p><strong style=\"text-align: justify;\">The LLC is the &#8220;Best&#8221; Arizona Entity<\/strong><\/p>\n<p style=\"text-align: justify;\">Almost always the best type of entity to form in Arizona is the limited liability company.\u00a0 In reality, few people form any type of entity other than an LLC or a corporation.\u00a0 In general, Arizona LLCs offer the following advantages over the other types of entities:<\/p>\n<ul>\n<li>Cheaper to form<\/li>\n<\/ul>\n<ul>\n<li>Cheaper to operate (no requirement for annual meetings and minutes)<\/li>\n<\/ul>\n<ul>\n<li>Fewer legal formalities<\/li>\n<\/ul>\n<ul>\n<li>Better asset protection (because of fewer legal requirements)<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\">More choices on how the entity can be taxed for federal income tax purposes (4 for LLC vs. 2 for corporations)<\/li>\n<\/ul>\n<ul>\n<li>No annual report due the State of Arizona (required of AZ corporations)<\/li>\n<\/ul>\n<ul>\n<li>No annual fee due the State of Arizona ($45\/year for AZ corporations)<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\">Last, but certainly not least: a charging order is the exclusive remedy of a creditor who gets a judgment against the owner)<\/li>\n<\/ul>\n<p><strong>What is a Charging Order &amp; Why is it Important?<br \/>\n<\/strong><\/p>\n<p style=\"text-align: justify;\">Arizona LLC law provides that members of an Arizona LLC have charging order protection.\u00a0 Shareholders of an Arizona corporation do not.\u00a0 Arizona Revised\u00a0 Statutes <a href=\"https:\/\/www.keytlaw.com\/azllclaw\/ars-section-29-3503\/\" target=\"_blank\" rel=\"noopener noreferrer\">Section 29-3503<\/a>, which states:<\/p>\n<blockquote>\n<p style=\"text-align: justify;\">&#8220;A. On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. A charging order requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor. . . .<\/p>\n<p style=\"text-align: justify;\">E. This Section provides the exclusive remedy by which a person seeking in the capacity of judgment creditor to enforce a judgment against a member or transferee may satisfy the judgment from the judgment debtor\u2019s transferable interest.&#8221;<\/p>\n<\/blockquote>\n<p style=\"text-align: justify;\">If a creditor who holds a judgment against a member of an Arizona LLC applies to an Arizona Superior Court for a charging order and the court issues the charging order, the creditor will then serve the charging order on the LLC or LLCs in which the member\/debtor has a membership interest.\u00a0 The legal significance on the LLC that is served with a charging order is that the LLC becomes subject to a court order that says that if the LLC intends to distribute any money or property to the member\/debtor, the LLC must deliver the money or property to the creditor rather than to the member\/debtor.\u00a0 If the member\/debtor has control of the LLC, the member\/debtor can cause the LLC to refrain from making distributions to the member\/debtor, which means the creditor will get nothing from the LLC.<\/p>\n<p style=\"text-align: justify;\">If the characteristics of\u00a0 Arizona LLCs and corporations were exactly the same except for the charging order protection given to members of an Arizona LLC, then this fact alone would be the reason to form an Arizona LLC instead of an Arizona corporation.\u00a0 The following example illustrates the legal significance of having charging order protection vs. not having it.<\/p>\n<p style=\"text-align: justify;\"><strong><strong>LLC vs. Corporation Asset Protection Examples<\/strong><\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>Example 1 (corporation)<\/strong>:\u00a0 Homer Simpson own all of the stock of an Arizona corporation that has a value of $300,000.\u00a0 Homer loses a lawsuit to Ned Flanders who gets a judgment for $25,000.\u00a0 Homer has cash flow problems and cannot come up with the $25,000 he owes Ned.\u00a0 Ned uses the Arizona debt collection process to sell all of Homer&#8217;s stock of the corporation at a public auction.\u00a0 Only one person shows up for the auction.\u00a0 The bidder offers $10,000 for the stock, which is then sold to the highest bidder.\u00a0 <strong>Result<\/strong>:\u00a0 <strong><span style=\"color: #ff0000;\">Homer lost his $300,000 company and he still owes Ned $15,000.<\/span><\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>Example 2<\/strong> (<strong>LLC<\/strong>):\u00a0 Same facts as Example 1 except Homer owns an Arizona LLC instead of an Arizona corporation.\u00a0 Because Arizona LLC law provides that Ned&#8217;s sole remedy is to serve a charing order on the LLC, Ned cannot force a sale of the LLC.\u00a0 Result:\u00a0 Homer retains all of his LLC and its $300,000 value.<\/p>\n<p style=\"text-align: justify;\">The night and day different result in Examples 1 &amp; 2 illustrates why the Arizona LLC is the best type of entity to form in <strong>Arizona.<\/strong><\/p>\n<p style=\"text-align: justify;\"><strong>Arizona Corporation Commission Entity Formation Statistics<\/strong><\/p>\n<p style=\"text-align: justify;\">During 2020 people formed 5,459 Arizona corporations and 83,708 Arizona LLCs &amp; PLLCs.\u00a0\u00a0<span style=\"color: #ff0000;\"><strong>Arizona LLCs are 15 times more popular than Arizona for profit corporations<\/strong><\/span>.\u00a0\u00a0Most people forming Arizona corporations do not know that the corporation is an obsolete entity that should be used only in a few select circumstances.\u00a0 See &#8220;<a href=\"http:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/acc-stats\/\" target=\"_blank\" rel=\"noopener noreferrer\">ACC Entity Formation Statistics<\/a>.&#8221;<\/p>\n<p style=\"text-align: justify;\">Here is my list of the only times I recommend forming an Arizona corporation over an Arizona limited liability company:<\/p>\n<ul style=\"text-align: justify;\">\n<li>The company will sell securities to investors who prefer to purchase stock rather than membership interests in an LLC.<\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li>A medical doctor wants to form a professional entity and all or almost all of the other doctors in his or her medical group formed professional corporations.<\/li>\n<\/ul>\n<ul>\n<li style=\"text-align: justify;\">A person has always owned and operated corporations and insists on using a corporation.<\/li>\n<\/ul>\n<p><strong>For People Who Want to Form an LLC Themselves<\/strong><\/p>\n<p style=\"text-align: justify;\">If you think you might want to create a do-it-yourself Arizona LLC you must read Arizona LLC attorney <a href=\"http:\/\/www.keytlaw.com\/attorneys-staff\/richard-keyt\/\" target=\"_blank\" rel=\"noopener noreferrer\">Richard Keyt\u2019s<\/a> article called \u201c<a href=\"https:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/how-to-form-an-arizona-llc\/\" target=\"_blank\" rel=\"noopener noreferrer\">Step by Step Guide: How to Form Arizona LLC 2022 in (6 Easy Steps)<\/a>.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"<p>by Richard Keyt, Arizona LLC, corporate and business lawyer This article is part of a series of nine related articles I wrote about the seven types of entities used in Arizona to operate a business and to hold business assets and investment real estate. The articles are:\u00a0 (1) the &#8220;Best&#8221; Arizona Entity, (2) limited liability companies, (3) sole proprietorships, (4) general partnerships, (5) limited partnerships, (6) C corporations, (7) S corporations, (8) business trusts, , and (9) the entity comparison table. The type of entity can have significant income tax and asset protection consequences. The articles discuss the entities in terms of ease and cost of formation, number of owners &amp; restrictions on ownership, privacy, control and management, owners protection from liabilities of the entity, and federal income taxation issues. The LLC is the &#8220;Best&#8221; Arizona Entity Almost always the best type of entity to form in Arizona is the limited liability company.\u00a0 In reality, few people form any type of entity other than an LLC or a corporation.\u00a0 In general, Arizona LLCs offer the following advantages over the other types of entities: Cheaper to form Cheaper to operate (no requirement for annual meetings and minutes) Fewer legal formalities Better asset protection (because of fewer legal requirements) More choices on how the entity can be taxed for federal income tax purposes (4 for LLC vs. 2 for corporations) No annual report due the State of Arizona (required of AZ corporations) No annual fee due the State of Arizona ($45\/year for AZ corporations) Last, but certainly not least: a charging order is the exclusive remedy of a creditor who gets a judgment against the owner) What is a Charging Order &amp; Why is it Important? Arizona <a href=\"https:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/best-arizona-entity\/\"> [&#8230;]<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":7,"menu_order":0,"comment_status":"open","ping_status":"open","template":"","meta":{"om_disable_all_campaigns":false,"footnotes":""},"class_list":["post-2732","page","type-page","status-publish","hentry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.7 (Yoast SEO v28.0) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Best Arizona Entity to Form<\/title>\n<meta name=\"description\" content=\"Arizona lawyer who has formed 8,000+ LLCs explains why the limited liability company is the best type of entity to form in Arizona.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/best-arizona-entity\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Most Effective Arizona Company to Form (in 2022)\" \/>\n<meta property=\"og:description\" content=\"Arizona lawyer who has formed 8,000+ LLCs explains why the limited liability company is the best type of entity to form in Arizona.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.keytlaw.com\/azllclaw\/forming-llcs\/best-arizona-entity\/\" \/>\n<meta property=\"og:site_name\" content=\"Arizona LLC Law\" \/>\n<meta property=\"article:publisher\" content=\"http:\/\/www.facebook.com\/keytlaw\" \/>\n<meta property=\"article:modified_time\" content=\"2022-01-31T14:35:21+00:00\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"5 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/\"},\"author\":{\"name\":\"Richard Keyt\",\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/#\\\/schema\\\/person\\\/9d6c74d30296559f95e238fa25182391\"},\"headline\":\"Most Effective Arizona Company to Form (in 2022)\",\"datePublished\":\"2011-01-05T14:51:08+00:00\",\"dateModified\":\"2022-01-31T14:35:21+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/\"},\"wordCount\":977,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/#organization\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/\",\"url\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/\",\"name\":\"Best Arizona Entity to Form\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/#website\"},\"datePublished\":\"2011-01-05T14:51:08+00:00\",\"dateModified\":\"2022-01-31T14:35:21+00:00\",\"description\":\"Arizona lawyer who has formed 8,000+ LLCs explains why the limited liability company is the best type of entity to form in Arizona.\",\"breadcrumb\":{\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/forming-llcs\\\/best-arizona-entity\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Information &#038; 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We also prepare wills, trusts and estate plans to protect our clients' most valuable assets - their loved ones.\",\"email\":\"rk@keytlaw.com\",\"telephone\":\"480-664-7478\",\"legalName\":\"KEYTLaw, LLC\",\"foundingDate\":\"2001-06-01\",\"numberOfEmployees\":{\"@type\":\"QuantitativeValue\",\"minValue\":\"1\",\"maxValue\":\"10\"}},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/www.keytlaw.com\\\/azllclaw\\\/#\\\/schema\\\/person\\\/9d6c74d30296559f95e238fa25182391\",\"name\":\"Richard Keyt\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/be46af086de7d79cb650301f8e2188550999d39b68ef6226ddae375f7b4c0778?s=96&d=mm&r=g\",\"url\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/be46af086de7d79cb650301f8e2188550999d39b68ef6226ddae375f7b4c0778?s=96&d=mm&r=g\",\"contentUrl\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/be46af086de7d79cb650301f8e2188550999d39b68ef6226ddae375f7b4c0778?s=96&d=mm&r=g\",\"caption\":\"Richard Keyt\"},\"description\":\"The author of this article is Richard Keyt, an Arizona limited liability company and estate planning attorney who has formed 9,800+ LLCs. 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