How to Incorporate in Arizona vs. How to Start an Arizona LLC

There are basic characteristics for all states that are important to consider first when figuring out the right business structure for you:

• Minimal maintenance
  LLCs have the appeal of providing entrepreneurs lower overall annual maintenance and paperwork, creating a big selling point for the LLC structure. Corporations require annual meetings, directors meetings, recorded meeting minutes, and a notable amount of paperwork, while LLCs have little to no maintenance of this type. LLCs not only require less resolutions, but can make executive decisions without the need to hold an official meeting.
• Tax structure
  Unlike a corporation, which must pay its own taxes, LLCs are known as pass-through entities, meaning their tax structure is designed to have its profits, losses, credits, and expenses pass directly through to the owners, who report them on their personal income tax returns (similar to if the owners had a partnership or sole proprietorship). Corporations have a default tax structure known as the C corporation, but can potentially elect an S corporation tax status if it’s more beneficial. This structure imposes a double-taxation, where the net income is initially taxed, and then taxed a second time as personal income after the profits and losses are distributed to the shareholders. At first glance, double taxation may seem like a downside, but for the right business it can provide advantages, such as reinvesting profits into the business. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
• Investors
  Investors and shareholders often prefer doing business with corporations. The structure of a corporation is reputable and familiar. Investors know exactly where their time and money will be going with a corporation. LLCs can still be divided into percentages for members, but there is more trust behind the prominence of investing in stock within a corporation. Consider a corporation if you are serious about attracting investors.
• Prestige
  A corporation is the oldest form of business entity, and one of the most prestigious. When your business name contains “Inc” or “Corp” at the end, it conveys a sense of prestige and notoriety. The LLC ending still gives an extra boost of legitimacy, an often times offer better asset protection for a business.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Arizona. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

After understanding the general advantages and disadvantages between LLCs and corporations, we’ll cover the specifics of why an Arizona LLC or Arizona corporation is better for your business. Each state has its own set of statutes that govern the way its businesses operate, indicating the importance of understanding these differences on a detailed level. The information in this section will discuss the unique differences among the Arizona LLC and the Arizona corporation.

• Arizona Transaction Privilege Tax
  The Transaction Privilege Tax (TPT) for Arizona is a gross receipts tax on the income of retail businesses. Often times, businesses will pass this tax onto its customers, making it similar in appearance to a sales tax. The state TPT rate is 5.6%, and some counties and cities impose their own TPT on businesses, making the actual amount you pay higher.
• Arizona Corporate Income Tax
  The corporate income tax is a 4.9% flat tax, rather than a progressive (scaled) tax—which can be more favorable for larger, high-profit businesses.
• Arizona Personal Income Tax
  There are five personal income tax brackets in Arizona, and different tax brackets apply to different filing types. Married couples filing a joint income tax return have wider tax brackets. The lowest tax bracket begins at 2.59%, and the highest is 4.54%. For LLCs just starting out, the graduated scale can be the most advantageous, taking into consideration the size and expected income of your business.
• Certificate of Disclosure Form Required with Incorporation
  If you’re forming a corporation in Arizona, you are required to submit a Certificate of Disclosure form for all your businesses directors, officers, or major shareholders. This form will disclose any criminal history that has not yet reached the period of time needed to fall off a person’s criminal record.
• Better Asset Protection for Arizona LLCs
  A charging order is the “exclusive remedy” that a creditor can administer against the debtor of an LLC, which can lead to money or property an LLC tries to distribute from itself to its owner to instead go to the creditor. However, with a corporation, a creditor can use Arizona law to sell all of a corporation’s stock at an auction, wiping out the interest and value of a corporation. This difference in asset protection must be largely taken into consideration when choosing your business structure.

Arizona LLC or Arizona Corporation? Final Answer.

By nature, the LLC business structure is low maintenance and requires minimum effort, unlike the corporate structure. When examining the Arizona LLC, the initial filing to start an LLC requires more paperwork than just the Articles of Incorporation—you must also include a cover sheet, have your statutory agent fill out the Statutory Agent Acceptance form and publish a notice in the local paper of your newly-formed business (some counties are exempt from this). The initial filing to incorporate will require the same paperwork and publishing requirement, plus a Certificate of Disclosure.

However, this extra bit of paperwork for starting an LLC is trivial compared to Arizona not requiring LLCs the cost and hassle of filing an annual report every year (corporations do require an annual report). Combined with the relatively inexpensive cost to start an LLC and the quick paperwork processing times, maintaining an LLC in Arizona has lesser complexities, and more freedom of management, asset protection, and operational ease, while Arizona corporations have more initial and annual paperwork than a typical corporation. The state statutes governing Arizona businesses have recently adopted a new act for LLCs (the ALLCA), allowing them to be modernized and comparable to other states as well.

To answer whether an LLC or corporation is better for your needs, consider your business size and how important investors are for your business. An LLC will be your best choice if you are operating a small or medium-sized business, and investors are not one of your top priorities. If your business will be growing substantially and investors will be the key for that growth, and you have the means for the amount of paperwork required and understand the difference in the asset protection, your best bet will be to form a corporation.

To incorporate in Arizona, you must complete the Articles of Incorporation with the Arizona Corporation Commission (ACC). There are three ways you can go about filing your Articles of Incorporation:

• Online (recommended)
• By postal mail
• In person

Unlike most states, where these filings normally take place with the Arizona Corporation Commission, Arizona strictly goes through the Arizona Corporation Commission. A name reservation or an initial filing immediately after formation will not be needed, although the Articles of Incorporation must be accompanied by:

• A cover sheet
• The Statutory Agent Acceptance form (to be completed by the Statutory Agent)
• A Certificate of Disclosure form
• A standard filing fee

How much does it cost to incorporate in Arizona? 
The standard filing fee for Arizona is $60 ($95 total if expedited processing is needed).

To complete the Arizona Articles of Incorporation, you must include the following information:

To form an LLC in Arizona, you will need to file the Articles of Organization with the Arizona Corporation Commission. There are three ways you can go about filing your Articles of Organization:

• Online (recommended)
• By postal mail
• In person

Unlike most states, where these filings normally take place with the Arizona Corporation Commission, Arizona strictly goes through the Arizona Corporation Commission. A name reservation or an initial filing immediately after formation will not be needed, although the Articles of Organization must be accompanied by:

• A cover sheet
• The Statutory Agent Acceptance form (to be completed by the Statutory Agent)
• A standard filing fee

Please note: As of September 1, 2019, Arizona LLCs are not required to have a known place of business in Arizona—only a mailing address inside or outside of Arizona.

How much does it cost to form an LLC in Arizona?
There is a standard filing fee of $50 to form an LLC in Arizona.

To complete the Arizona Articles of Organization, you must include the following information:

In order to keep your LLC or corporation in Arizona in good standing, you do need to complete a couple tasks with the state to keep your business entity up and running.

1. File Your Annual Report
2. File Your Arizona Business Taxes

Below, you’ll find instructions and resources to help you complete your annual maintenance.

What is an Arizona Annual Report?
Corporations in Arizona must submit an annual report each year with the Arizona Corporation Commission. This must be submitted by either your statutory agent or an officer listed on the report and has a $45 filing fee. The report can be submitted online through the Arizona Corporation Commission website or by postal mail, and is due by the anniversary date of the corporation’s formation. You can file up to three months before your due date.

Unlike most other states, Arizona does not require LLCs to file annual reports.

How do I file an annual report in Arizona?
You can file your annual report yourself or have your statutory agent file it on your behalf. The report can be submitted online through the Arizona Corporation Commission website, by postal mail, or in person, and must be accompanied by a cover sheet.

If filing by postal mail or in person, send to:

Arizona Corporation Commission
Corporations Division – Annual Reports
1300 W. Washington St.
Phoenix, Arizona 85007

How much does it cost to file an annual report in Arizona?
The cost to file an annual report is $45.

When are Arizona annual reports due?
Annual reports are due by the anniversary date of the corporation’s formation. You can file up to three months before your due date.

Like most states, Arizona’s business taxes have many moving parts. For corporations, the state imposes a corporate income tax. For all businesses, the state imposes a Transaction Privilege Tax (TPT), which is a gross receipts tax on vendors.

The filings can be complicated and you may need the help of a CPA or a tax service to fulfill these requirements. This section will help get you started in understanding your business taxes.

Take a look at our Arizona Business Tax FAQ below:

What is an Arizona Transaction Privilege Tax (TPT)?
The TPT is a gross receipts tax that sellers pay on their income tax from retail sales, and is often referred to as a sales tax, since businesses will pass this tax onto its customers, turning it into something similar to a sales tax. The tax is based on the sales from certain business activities, not individual transactions. TPT is imposed on the seller for the privilege of doing business in the state.

How is the Arizona Transaction Privilege Tax calculated?
To calculate this tax, obtain the Transaction Privilege Tax Return form which will calculate your TPT owed and can be used to report gross income from business operations.

Reporting frequency changes depending on your tax liability. If your tax liability is between $500 and $1,250, you may file a return quarterly. If your tax liability is less than $500, then you may file a return annually. For new businesses, you may file on the frequency for your estimated future income for the next 12 months.

Who has to pay the Arizona Transaction Privilege Tax?
Any businesses selling a product or engaging in a service are subject to the TPT.

In Arizona, do I also have to file an income tax return for my LLC?
If your LLC is taxed as a partnership, you will need to file the Form 1065 informational return.
If your LLC is taxed as a disregarded entity, you will need to report income on your own personal income tax return, as well as Form 1040, to show the distribution of the businesses profits and losses.

What information is required for the TPT tax returns?
The TPT tax return is a two-page document that will require the following information:
• Taxpayer information such as taxpayer ID, license number, etc.
• Estimated TPT payment based on transaction numbers from page 2
• Profits, losses, and other transactional details regarding business earnings

What tax form does an Arizona corporation need to file?
Standard C corporations will need to file the Form 120. If elected to be taxed as an S corporation, you will need to file Form 120S.
What’s the Arizona corporate income tax rate?
The corporate income tax is a flat rate of 4.9%–one of the lowest rates in the US.

How are Arizona corporate income taxes calculated?
Arizona’s corporate income tax is calculated as a flat fee with a minimum tax of $50.

What’s the personal income tax rate in Arizona?
There are five personal income tax brackets in Arizona, and different tax brackets apply to different filing types.

Arizona – Single Tax Brackets

When are my business tax returns due?
Standard C corporation income tax returns are due by the 15th day of the 4th month following the end of the taxable year, or April 15 for calendar year filers. For S corporations, taxes are due on the 15th day of the 3rd month following the close of the taxable year, or March 15 for calendar year filers.

For LLCs taxed as disregarded entities, informational tax returns are due by the 15th day of the 4th month following the end of the taxable year, or April 15 for calendar year filers. For LLCs taxed as partnerships, informational taxes are due on the 15th day of the 3rd month following the close of the taxable year, or March 15 for calendar year filers.