Starting a Business in Arizona - Guide
14 February, 2020
The Grand Canyon State of Arizona, which was originally a frontier state established on agriculture and mining, is now the home to many fast-growing cities in the nation. It has a very strong economy and it continues to gain momentum in the wake of the American recession. Due to this, it has become very easy to open a small business in Arizona.
Additionally, the sprawling capital of Phoenix provides a year-round warm climate along with affordable housing in comparison to the nearby west coast. The state also offers a business-friendly environment that has lower costs in relation to the neighboring states. It also offers tax credits for investing in Arizona small businesses via its Angel Investment Program.
Why choose Arizona for business?
From the above, you might have got a slight idea as to why you should start your business in Arizona. But if you are still not convinced, then this might help. Basically, Arizona has been ranked as the best place to start a business in many reports over the last few years. In fact, in WalletHub's 2019 "Best and Worst States to Start a Business" report, Arizona was ranked as the 7th best place to start a new company.
This report assessed the states on 3 main criteria including:
- Business costs like the office-space affordability, corporate taxes, and labor costs;
- Access to resources like the financing accessibility and higher-education assets; and
- The business environment that includes metrics like the industry variety, growth in a number of small businesses, and average work week length.
As a matter of fact, Arizona ranked even higher than the entrepreneurially strong states like Washington and California. This state is a great place for startup entrepreneurs to open a small business with all the needed resources and little to no cost. You will be able to get affordable access to all the education, people and resources you need that would help your business grow. The main aim of Arizona is to connect people together and connect the towns and cities together. The best way to go about this is through the small businesses.
Steps to start a business in Arizona
With it clear that Arizona is a great place to start your business, the next thing is to understand the process involved in starting the business. There are some basic steps that you will have to follow. Below are the steps that will help you in starting your small business in Arizona.
Step #1: Decide the Business Structure
Before you can begin doing business in the state, you will have to register your company in the state. And for that you need to decide about when you want to start a business in Arizona is the kind of business structure you want. There are three main kinds of business structures: DBA (sole proprietorship), LLC and Corporation (C corp and S Corp).
Let us take a quick look at what each of the types is:
- LLC: This is the most popular kind of business structure as it offers the owners the flexibility to choose how they would like to be treated during the tax time. Additionally, they also get some personal protection. This means that if the company is sued, the shareholders would not have their personal assets used to pay off any liability or debt. Only the assets under the company's name would be used, even if it is not enough.
Corporation: A corporation is almost the same as an LLC. The only difference is the way in which it is taxed. It is the best kind of structure for the companies that are looking for funding. There are two kinds under this:
- C Corp: This type of corporation does not have any limit on the number of shareholders it can have. But it is the only structure that faces double taxation; one at the corporate level and other at the individual level for the dividends offered to the shareholders.
- S Corp: This is a much more formal structure than the LLC. It can have a max of 100 shareholders. The profit earned by the company is claimed on the personal tax returns of the shareholders.
- DBA (Sole Proprietorship): This is the least formal structure available where you would not need to file for the articles of incorporation/organization. But you might want to file a DBA "Doing Business As" to legally run your business under a fictional name. This is the riskiest kind of business structure since there is no protection of your personal assets. If the company is sued, your personal assets would be used to pay off the liability and debt.
Step #2: Choose a Business Name
After you have selected the business structure for your company, the next thing that you need to look into is the business name. This part is also very important since many issues arise if you pick up the wrong name. Obviously, you can change the name of your company later on, but the lesser the number of times you change it, the better it would be for your brand.
But as you choose the name of your company, ensure that it is easy to understand/pronounce and can survive over time. The best way to find out if the name has been used or not before. Use Google to find out. If you want to operate the company internationally or nationally, you will have to make sure that it is a unique name. After this, check the name availability on the Arizona Corporation Commission website.
Tip: Search a lot of variations of misspellings, plurals, and spellings to avoid your company name being rejected due to its similarity with another one later on. Also, keep in mind the various restrictions on the company name by the state. For instance, if your company is an LLC, your company name will have to have the words: "Limited Company," "Limited Company," or even the abbreviations LLC, L.C., L.L.C. or LC. To get the list of rules, check out the State of Secretary website before selecting your company name when you want to start your small business in Arizona.
Step #3: Register the Business
Every state has its own requirements for registering a business in it. Once you have selected the company name and decided on the business structure, you need to register your business with the Arizona state government. Here are some points that will help you to start a business in Arizona:
- Forming an LLC in Arizona: File the "Articles of Organization" with the Arizona Corporation Commission.
- Incorporating in Arizona: File the "Articles of Incorporation" with the Arizona Corporation Commission. To be an S corporation, you will have to elect the S Corp status with the IRS using the IRS Form 2553.
Note: You will need a registered agent in Arizona to start a business in Arizona. IncParadise can help you with this. Contact to know more!
- Filing a DBA in Arizona: To file a DBA in Arizona, you will have to visit the Arizona Secretary of State and apply for a trading name. It will take 2 to 3 weeks after which you will get an email to complete payment. Once done, you will get the DBA certificate via email. Remember that the trading name cannot end with LLC or corporation here.
Step #4: Obtain your Federal Employer Identification Number (FEIN or "EIN")
The next step to start a business in Arizona is to get the EIN, which is like the Social Security Number for your company. It is needed for the LLCs and Corporations, although it is an option for the DBAs. In fact, if you do not have any employees, you will not need it. Nonetheless, in case you are a DBA, and you do not get the EIN, you will have to use your Social Security Number for all official documents. Hence, it is better to get it to prevent identity theft. To obtain an EIN you can apply online with the IRS or via IRS Form SS-4.
Step #5: Separate Your Personal & Business Assets
Utilizing dedicated business banking and credit accounts is very important for personal asset protection. It will help keep your personal assets away from any risk in case your company is sued. Here are some things that you would need to do:
- Open a business bank account: This account will be used for all the transactions so that your personal assets are safe. But remember that you will need the EIN for opening the bank account and some initial capital.
- Get a business credit card: This another thing that helps you keep the personal and business expenses separate. It will also help you in building a good credit history for your company. This can be used to get loans later on.
- Keep the bookkeeping and accounting up to date: Ensure that the accounting and bookkeeping are done well and are always up to date in case the IRS comes in for an audit.
Step #6: Obtain Business Licenses and Permits
The next to start a business in Arizona is to get the needed business licenses and permits for your company. Basically, these licenses and permits would authorize your company to do business (or a certain kind of business) in the state, locality, and country.
Basically, Arizona doesn't need you to have a "general" business license, unlike the other states. But based on the nature of your business, it is important to get the needed permits and pay the special taxes needed on the federal, state and local levels. It is better to do this rather than paying a hefty fine. So, take the help from a local lawyer to ensure that you have all the needed licenses or connect with the State of Secretary of Arizona to know more.
How can IncParadise help you?
In short, it is very easy to start a small business in Arizona. So, are you ready to start your business in Arizona? Well, if you are, IncParadise can help you in registering and incorporating your business in Arizona.
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