Forming a Business in Arizona
In Arizona, the Limited Liability Company ("LLC") has become the standard for most businesses when choosing the type of legal entity to form. An LLC is an entity that is similar to both a corporation and a partnership. It does, however, have distinct differences from the corporation. Many see it as an answer to the shortcomings of the traditional corporations stringent organizational requirements, and the unlimited liability imposed upon partnerships.
The characteristics that distinguish the LLC from other business formation choices is: (1) limited liability of the members; (2) requires the use of the word "limited" in the entity's name; (3) treated as a separate and distinct legal entity from its members; and (4) members control admission of new members.
The LLCs benefits
As mentioned above, there are a number of benefits in choosing an LLC as your business entity. First and foremost, the members of a limited liability company are, for the most part, shielded from personal liability for actions on the part of the L.L.C. This is because the LLC is an entity. Imagine for a moment a table, surrounded by two two chairs. In one chair is yourself, and the other chair is empty at the moment. If you form an LLC entity, that LLC entity would be sitting in the other chair, as it is a completely separate business entity. If you dissolve the LLC, it would cease to exist.
Arizona law states that "no member, manager, employee, officer or agent of a limited liability company is liable solely by reason of being a member, manager, employee, officer or agent, for the debts, obligations and liabilities of the limited liability company whether arising out of contract or tort, under a judgment, decree or order of a court otherwise. " A.R.S. 29-651
The mere fact that a person is a member of a corporation does not completely avail them of avoiding future liability when two specific exceptions apply: "piercing the corporate veil" or "alter ego" theory of liability. In these scenarios the LLC will sometimes be disregarded if it is necessary to prevent fraud or to prevent a member from avoiding their existing personal obligations. In addition, members can be held personally liable under the veil theory if they fail to provide adequate capitalization at the time of formation.
The second benefit of the LLC is the flexibility in the management. Members of an LLC can participate directly in the management of the business, or can elect a manager or managers to handle the affairs of the LLC. The LLC can pay compensation to employees who are not members and deduct this compensation as a business expense. If compensation is paid to a member-employee of an LLC with more than one member, the compensation is deductible so long as it is determined without regard to the income of the LLC.
You can form a corporation or an LLC with an attorney for reasonable costs that will save you money and problems in the long run. A properly run corporation or LLC protects the personal assets of owners from debts or court judgments against the company. If your business fails or goes bankrupt, for example, your creditors cannot force you to use your home, car, and personal financial accounts to settle your debts if the business is a limited liability company.
Small business owners have realized the benefits of choosing an LLC, and form it early on. Many, however, do not understand the rights and responsibilities that come with choosing an LLC. The laws in Arizona are subject to change, so it's important to check on them when you are ready to incorporate or form your LLC.
How do you form or setup a Limited Liability Company in Arizona?
If you have chosen an LLC as your business entity, the company must be setup properly. You must file Articles of Organization for the LLC with the Arizona Corporation Commission. Most of the time you can have your Articles of Organization for your LLC formed within three to five weeks, however the formation of the LLC Articles of Organization can be expedited for an additional fee. Once approved, a Notice of Publication must be filed in accordance with the Corporation Commissions guidelines. Although it seems simple, there is a lot that can go wrong if not done properly.
Although you can form an LLC yourself, it would be wise to hire an attorney experienced in business formation to do the filing for you. Choosing to have a professional file your LLC can save you time and money by doing it right the first time. An experienced attorney will know how to do it right, and how to satisfy each of the requirements. They will be able to check for any conflicts in the name of the company, as well as advise you on the potential benefits and pitfalls of filing as an LLC. Also, the law firm can serve as a statutory agent for service of process purposes.
In today's volatile market, it is important to build your business on a firm foundation. Forming your own business can be a perfect solution for many, and even many of today's major corporations started off in a garage or backyard. The point is, when you form an LLC you never know where it will go, so you want someone there to point you in the right direction all the way through your companies formation.
ABOUT THE AUTHOR: Aaron M. Kelly
Aaron M. Kelly is an attorney based in Scottsdale, AZ who focuses on Internet Law, Business Law, and Bankruptcy. Aaron is an experienced Internet Lawyer and he regularly speaks on topics involving Internet law.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.