The following is general legal informatin only and not intended to serve as legal advice or a substitute for legal advice. To have your specific questions addressed, please contact an attorney.
The Law Offices of Steven C. Vondran
(877) 276-5084
Working Hard for You!
Serving the Greater Phoenix Arizona Area!
FORMING AN ARIZONA LIMITED LIABILITY COMPANY (LLC)
This information is provided for real estate professionals and other companies that want more information on forming an LLC in Phoenix Arizona and Surrounding Cities such as Scottsdale, Tempe, Chandler, Goodyear, Gilbert, and Mesa.
ARIZONA L.L.C. SPECIAL!!!
COMPLETE FORMATION PACKAGE TO FILE YOUR LLC
This is NOT a TYPO
$499
Add $75 for a CORPORATE KIT
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DON'T WASTE YOUR TIME WITH NON-ATTORNEYS WHO WILL (OR AT LEAST SHOULD) TELL YOU STRAIGHT UP:
"SORRY, WE CANNOT GIVE YOU LEGAL ADVICE"
AN ARIZONA LICENSED REAL ESTATE AND BUSINESS ATTORNEY WILL GET YOU SET UP FASTER THAN YOU CAN SAY "BUSINESS IS BOOMING"!
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For Questions, Contact Arizona Attorney Steve Vondran
(877) 276-5084
Serving our business and real estate Clients in and around Phoenix, Scottsdale, Mesa, Chandler, Peoria, Goodyear, Buckeye, Queen Creek, Surprise, Glendale, Cave Creek and other nearby Arizona cities
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ARIZONA LLC
FREQUENTLY ASKED QUESTIONS
I. Introduction - What is a Limited Liability Company ("LLC")?
In general, a limited liability company is a statutory legal entity recognized in the State of Arizona. The Company is separate and distinct from the owners of the company which provides the owners, in most cases, with insulation from having to put their personal assets at risk. Note, there are ways that the "Corporate veil" can be pierced and this is discussed below.
Therefore, often the key feature to keep in mind as to why people form a corporation to begin with is that they want to protect or shield their personal assets from being attached by creditors (i.e. successful Plaintiffs in a lawsuit).
A corporation is deemed to be a "person" in the eyes of the law and this "person" is a separate and distinct entity from the individual owners. This separate entity creates a "veil" protecting the owners' personal assets.
As long as corporate formalities are followed and observed and other requirements are met, the owners of a limited liability company will normally enjoy limited liability except in the rare case where a creditor or litigant has grounds to PIERCE THE CORPORATE VEIL. See the Frequently Asked Question below discussing Common Grounds for Piercing the Corporate Veil in Arizona.
II. How is an Arizona LLC different from an Arizona Corporation?
Your main goal as an Arizona Businessperson is to choose the legal entity that is right for you. LIKE A PAIR OF SHOES, ONE SIZE DOES NOT FIT ALL.
There are several different types of legal entities you may want to consider, for example:
A. Arizona Sole Proprietor: Basically this involves an individual operating business under their own name, without undertaking any type of legal filing with the Arizona Corporation Commission ("ACC"). Sometimes a sole proprietor will file for A DBA. The nice feature about a sole proprietor is that there is no filing requirements, no filing fees, no corporate formalities to adhere to (such as voting on corporate issues, amending articles of incorporation etc.). The owner is usually the sole decision maker.
PERSONAL LIABILITY: However, the downside to operating as a sole proprietor in Arizona is that if you do something legally wrong, and/or cause injury to a third party, you can be held personally liable. This means that the injured party would sue you directly and can go after any personal assets you may own (such as your house, car, bank account, real estate holdings, etc.).
NO CORPORATE VEIL: Obviously this is a HUGE RISK to take. A sole proprietor therefore has no shield to protect their personal assets and virtually everything is on the line each day you do business or have your property open for business. An Arizona limited liability company can offer you better protection than this.
TAXATION: As far as income, taxes are paid on the sole proprietor's personal income. Check with your accountant or CPA to discuss whether a limited liability company or sole proprietorship is better for you.
TERMINATION: When a sole proprietor dies the sole proprietorship ends.
BOTTOM LINE: Being a sole properietor may be quick, cheap and easy to form, but may be a risky business posture to take, but if you have no assets, are not engaged in a risky business and/or have no budget to pay for corporate filings, a sole proprietorship may be the entity you need at least to get started.
B. Arizona Corporation
A corporation is a legal entity separate and distinct from its owners which is owned by shareholders and governed by a board of directors.
Formation of a corporation requires filing formalities, adequate capitalization and a proper purpose.
The advantages of forming an Arizona corporation include: (1) limited liability of shareholders, (2) centralized management and (3) a potentially infinite duration and existence.
Other Potential Advantages of Forming an Arizona Corporation
(1) IPO: A corporation is eligible to "go public" and sell its shares of stock on a stock exchange. An LLC does not have this feature as an LLC would have to convert to a corporation so that it would have shares of stock to sell on the open market.
(2) Centralized management: A corporation is managed by a board of directors who are elected by shareholders. An LLC is managed by members or by a manager.
(3) Limited Liability of shareholders: Shareholders are normally only liable up to the amount of their investment in the corporation. This shields the investor/shareholders personal assets from being attacked by creditors. This assumes of course that the creditor/litigant does not have grounds to PIERCE THE CORPORATE VEIL (discussed in greater detail below). Arizona limited liability companies do not have "shareholders" they have "members" or "managers"
(4) Easy transfer of shares: Shareholders can easily transfer their shares of stock thereby transferring ownership in the company to new owners. This increases the ability to sell stock to raise working capital. LLC'S do not have shares of stock that can be sold.
(5) Potential perpetual existence: A corporation will continue to exist even if, for example, the President, or majority shareholder dies (unless the articles or bylaws state differently). The artciles and bylaws are the documents that govern the arizona corporation.
(6) A Corporation can hold and transfer property in its name (meaning the Corporation can be named on a deed of trust or mortgage).
Potential Disadvantages of Forming an Arizona Corporation
(1) Double taxation: Corporate profits are taxed and Dividends paid to shareholders are also taxed. This is a feature that may not be attractive to you. Consult with your accountant or CPA for more specific information about your situation.
(2) Filing Requirements and Fees: A Corporation must make routine filings and pay certain fees.
(3) Corporate Formalities must be observed in order to maintain the corporate veil (ex. voting and meeting requirements, amendments, etc.)
(4) Specific Required Arizona Corporation Formalities (an Arizona corporation must hold an initial organizational meeting and must vote on and approve all fundamental changes. In addition, every corporation must file an annual report with the Arizona Corporations Commission and an annual meeting is required. Failing to adhere to these formalities could result in a lack of corporate status and/or having the "corporate veil" pierced by a litigious plaintiff. This would, of course, open up the owners of the company to personal liability.
LEGAL REQUIREMENTS TO FILE FOR A CORPORATION IN ARIZONA
(1) Draft and Articles of Incorporation with the Arizona Corporation Commission ("ACC")
(2) Draft and File a Certificate of Disclosure
(3) Pay the $60 filing fee
(4) Publish in Newspaper of general circulation within 60 days of filing the articles of incorporation
(5) Submit affidavit of publication to the ACC within 90 days
(6) Complete the organization by conducting the initial meeting of the board of directors and appointing officers, adopting bylaws and keeping a minutes of the meeting
There are basically two different types of elections you may make (when you form an Arizona corporation) which will affect how you will be taxed. These elections are as follows
(i) S-Corporation (IRS Form 2553). After forming your Arizona Corporation and within the applicable timeframes, an Arizona Corporation may want to file the Form 2553 which is an election to be taxed as an "S-Corporation." An S-Corporation is taxed like a partnership wherein the owner of the business accounts for their personal income on their tax returns. The fancy way to say this is that the profits "flow through" to the individuals tax returns. The corporation itself makes a legal filing, but it is not taxed on its profits. The profits and losses of an S-Corp are passed to the shareholders according to their pro rata ownership interest.
Note: Not just any corporation can elect the S-Corp status. There are some requirements such as, but not limited to: (a) there can be no more than 100 shareholders, (b) the corporation must be a domestic corporation, (c) there can be no nonresident alien shareholders, (d) the corporation can only have one class of stock, and (e) each shareholder consents.
(ii) C-Corporation (this is the default corporation and not really an election, but rather a failure to elect). If you do nothing you will be subject to double taxation. Your corporation will pay taxes on its income and the owner will also pay taxes on any personal income they make.
For information on Arizona tax rates, visit: http://www.revenue.state.az.us/
C. Professional Corporation (PC)
This is a corporation that is formed by a state licensed professional such as a lawyer, accountant, doctor or architect. The same basic corporate rules apply. 51% or more of the Corporation must be owned by the licensed professional. As an example, my company is The Law Offices of Steven C. Vondran, P.C.
D. Arizona Statutory Close Corporation
Arizona recognizes a statutory close corporation which is a corporation limited to 75 shareholders. The corporation has "pass-through" tax treatment available; limited corporate formalities and can go public without having to change entity structures. A close corporation provides ownership interest as "capital units" rather than shares of stock. The owners of the company are called managers. There is no annual meeting requirement. It is permissible in a Arizona statutory close corporation to restrict transfer of shares. The other interesting feature of a close corporation is that generally all members must agree when voting on an issue.
Requirements to form a Statutory Close Corporation in Arizona
(1) File articles of incorporation with the Arizona Corporations Commission. The name must contain the words "Arizona Close Corporation" And you must name each investor (maximum of 10) and identify their "capital contributions" You must also set forth the names and addresses of the managers
(2) Pay a fee and file a certificate of disclosure
(3) Publication within 60 days
(4) File affidavit of publication with the ACC
E. Arizona Partnerships
There are basically four types of partnerships recognized under Arizona law:
(1) General Partnership: A general partnership is a voluntary association of two or more persons who intend to carry on a lawful business as co-owners for profit. The partners need only subjectively intend to carry on business as co-owners. They do not, however, need to intend to form a partnership. Courts will look to the words and conduct of the parties to ascertain whether or not the parties intended to carry on business as co-owners. What this means is you can create a partnership even though you did not actually intend to. This can have some dramatic implications.
Here are some of the Factors (that a Court may look to) that Evidence whether or not a Partnership was formed in Arizona:
•· Was there co-ownership of property?
•· Did both parties sign a lease?
•· Was there a sharing of profits?
•· Was there a sharing of losses and expenses?
•· Did the parties hold themselves out to the public as partners?
•· How were the parties paid?
•· How were management decisions made?
Where a partnership is found to exist in Arizona partnership disputes for accounting for profits often arises. This can lead to potentially lengthy and costly court battles. If you want to set up a partnership, it is often a good idea to put the terms of your partnership arrangement in writing. Contact us and we can discuss your business model, goals and requirements, and draft an Arizona partnership agreement that can protect your interests.
General characteristics of a formal written General Partnership (these may differ)
(a) Each partner has an equal right to manage and control the business and make decisions.
(b) All partners have unlimited liability for the acts of the other partners in the course and scope and in furtherance of the partnership business.
(c) Partners normally split the profits and losses in accordance with their capital contributions.
(d) Each partner has a fiduciary duty to the other party which includes a duty of fair dealing, obedience, accounting, no secret profits, due care and loyalty.
(e) In Arizona, where partners do not have a formal written partnership agreement, the Revised Uniform Partnership Acts ("RUPA") governs the relationship among partners.
(2) Limited Partnership:
This is a formal legal partnership that requires a legal filing with the Arizona Secretary of State (SOS). A "Certificate of limited partnership" must be filed.
A limited partnership requires at least one General Partner and one limited partner.
The General partner runs the day to day business of the partnership while the limited partner is in for the investment purposes.
The General Partner assumes the risk of personal liability while the limited partner is generally shielded from personal liability.
(3) Limited Liability Partnership ("LLP"):
In this scenario, both the General Partner and the Limited Partner enjoy protection form personal liability.
A "Statement of Qualification" must be filed with the Arizona Secretary of State. There is a publication requirement and annual reports must be submitted.
For Taxation purposes, partners have pass-through tax treatment and pay taxes on their personal income. Contact your CPA or Accountant for additional infomation.
NOTE: In both the scenarios above, the General Partner may be a person or a corporation or a trust, etc.
(4) Limited Liability Limited Partnership (LLLP)
This is a newer type of entity in Arizona. It stands for limited liability limited partnership.
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F. Limited Liability Company
A limited liability company in Arizona is basically a hybrid between a corporation and a partnership
Essential Features of an Arizona Limited Liability Company:
(1) AN LLC is Taxed like a partnership
(2) Choice of management structure (member managed or manager managed) there is no limit to the number of members who can manage the company. Managers can be in-state or out-of-state entities and can be either a person or another corporation.
(3) Managers are not held personally liable
(4) All members have a equal right to manage
(5) No annual meeting or annual report requirements
(6) Cannot "go public" unless change to corporation
(7) Members are not (normally) personally liable for the obligations of the company
(8) An "operating agreement" controls the governance of the corporation rather than a "bylaws" in a standard corporation.
How is an Arizona LLC different from a partnership?
As discussed above, a partnership may or may not have asset protection features. In a general partnership, each partner is liable for the debts and liabilities incurred by the other partners. In a limited liability partnership only the limited partner has asset protection.
In an Arizona LLC. all members of the limited liability copmpany have an equal right to manage and control the company and membersl have the asset protection afforded by the corporate veil.
How to form an LLC in Phoenix Arizona, Scottsdale Arizona and other Cities in Arizona
Here are the basic steps to follow if you want to try to form your own Arizona Limited Liability Company (LLC) and you live in the Scottsdale, Phoenix or any other Arizona city or town:
(1) Choose a LLC name that is unique and does not infringe on the trademark rights of any other company.
(a) Do a quick www.google.com search for your name. Is anyone else using a similar name? You do not want to choose a business name that may infringe the intellectual property or trademark rights of another company
(b) Another good place to check your corporate name is http://starpas.azcc.gov/scripts/cgiip.exe/WService=wsbroker1/connect.p?app=names-report.p
(c) Also run a trademark search here: http://www.uspto.gov/
Also note: in Arizona, a corporate name must comply with A.R.S. 10-341.
(2) If you are going to have a website, investigate potential domain names so you can get a domain name that is short and easy to remember and similar to your corporate name or the name of your Arizona limited liability company.
Some people also like to check potential domain names to see if the name is available. I personally use www.godaddy.com a Scottsdale, Arizona company.
If you are going to maintain a website, consider also that you will want to create (1) a privacy policy (2) Disclaimers, (3) Terms of Use / Terms of Service and other initial documents. My firm has worked with software companies and has drafted and created these types of documents and well as contracts with programmers and graphic designers and confidentiality and trade secret agreements.
(3) Your Articles of Organization must be filed with the Arizona Corporations Commission ("ACC"). The Articles must contain the names of your members or manager and the agent for service of process. This designates the vesting power. If there is a set date for dissolution this should also be set forth in the articles.
We can serve as your agent for service of process for an annual fee of $99.00. Ask us about this service if you are interested.
How much does it cost to file an Arizona Limited Liability Company?
As mentioned above, we will file your Arizona LLC for $499. This includes your filing fee. This blows the socks off most other attorney and non-attorney LLC formation services you will find out there. Contact us for more information:
Law Offices of Steven C. Vondran, Serving Arizona Clients in cities such as Phoenix and Scottsdale and other Arizona towns and cities.
(877) 276-5084
Can an Arizona LLC hold title to real property?
Yes, and this is often done by real estate investors in an around the City of Phoenix, Scottsdale, Glendale, Peoria, Mesa, Chandler, Queen Creek, Tempe, Goodyear and Buckeye Arizona.
If I own more than one property should I get a separate LLC for each property?
Yes, Generally it is advisable to have a separate LLC for each property.
Will Steve Vondran Attorney serve as agent for service of process?
Yes, we can serve as your agent for service of process for a annual fee of $99.00.
What is Required in the Annual Corporate Report?
For Corporations, Annual Reports must be filed with the Arizona Corporation Commission ("ACC") every year in an anniversary month as determined by the commission. The report must include the following:
- The corporation's name and state or country of incorporation
- The address of its known place of business and the name of its Arizona agent for service of process
- The address of its principal place of business
- The nature of the corporation's business
- The names and addresses of the corporation's directors and officers
- The total number of shares authorized itemized by class and series and the total number of issued and outstanding shares itemized by class or series
- A certificate of disclosure
- The names of shareholders of record of the corporation holding more than twenty per cent of any class of shares issued by the corporation, including persons beneficially holding the shares through nominees
- A statement that all corporate income tax returns required have been filed with the department of revenue.
Should you have an Arizona LLC Attorney form your Corporation?
There is no requirement to hire an Arizona attorney to file your LLC. Most people find that the ease and convenience of having a Phoenix-based attorney file their LLC is well worth the money.
Steve Vondran, Arizona limited liability company attorney
If you are in or around Phoenix, Arizona and need to set up your LLC, give me a call. I am a real estate and business attorney.
Choosing the name of your Arizona LLC - Trademark considerations
When choosing a name for your Arizona limited liability company or other business entity you should make sure you find a name that is unique and distinguishable from any other registered Arizona business entity and distinct from any name of a company that may have state or federal trademark protection. It does not make sense to start your business only to find out another company will send you a "cease and desist" letter stating that you are violating their trademark or trade name. Careful research up front can avoid this potential problem.
In addition, the name of your Arizona corporation must contain one of (or an abbreviation of) the following endings or words of similar import in another language:
- "Incorporated"
- "Corporation"
- "Company"
- "Limited"
- "Association"
Arizona law also prohibits the use of false or misleading business names.
Registering your out of state LLC to be a foreign LLC in the State of Arizona
The Arizona Corporations Commission has the unlimited power to exclude out of State entities and exclude foreign corporations from doing business in Arizona. If an out-of-state entity wants to qualify to do business in the state of Arizona they must file an application for "authority to transact" business in Arizona and submit a certificate of good standing from your home state. A filing fee applies.
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FOR MORE INFORMATION ABOUT FORMING AN ARIZONA LIMITED LIABILITY COMPANY, CORPORATION OR PARTNERSHIP PLEASE CONTACT US AT THE NUMBER LISTED BELOW.
The Law Offices of Steven C. Vondran, P.C.
Licensed to Practice Law in California and Arizona
Serving Greater Phoenix Arizona & Southern California
Arizona: 2415 E. Camelback Road, Phoenix, Arizona 85016
California: 620 Newport Center Drive, Suite 1100 Newport Beach, Ca. 92660
(877) 276-5084
www.VondranLaw.com
The preceding is general legal information only and not legal advice. There are no guarantees, promises or warranties that the information is correct or up to date. In addition, this is not intended to be a substitute for obtaining legal advice. This is an advertisement and communication pursuant to state bar rules. Copyright 2008 - Law Offices of Steven C. Vondran, All Rights reserved.
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