When forming or re-positioning a business, your first consideration should be company structure. The type of operating entity you choose to create should depend on your corporate objectives.
A competent business attorney can identify your goals and which corporate structure could help you achieve them—whether it is a sole proprietorship, partnership, limited liability company, or corporation. To discuss the merits and drawbacks of different approaches to starting a company, contact a Phoenix business formation lawyer.
Taxation and Corporate Entities
One difference among operating entities is how they are taxed under state law. The most popular type of entity in Arizona is a limited liability company (LLC). Like a corporation, an LLC typically can elect to be taxed under either Subchapter C or S of the Internal Revenue Code. An LLC typically has two additional tax options: if the LLC only has one member—or the members are married and share interests as community property—it can elect to be taxed as a sole proprietorship; if the LLC has at least two members, it can generally be taxed as a partnership under Subchapter K of the Internal Revenue Code.
Sole proprietors and general partners should expect to be personally responsible for a company’s debts. In contrast, with a corporation, shareholders are not personally liable under usual circumstances; however, a creditor can pursue a judgment against a shareholder to attempt to force a sale of the shareholder’s stock, effectively ending the shareholder’s ownership. Our knowledgeable attorneys can help present and future Phoenix business owners understand the role of taxes and personal liability in determining which type of corporate entity to form.
Legal Requirements for Forming an LLC in Phoenix
A skilled lawyer can take the lead on managing the necessary legal requirements to start a business. One of the first steps is to file a company’s organizational articles or certificate of incorporation with the Arizona Corporation Commission. We would then pursue the various required licenses and tax numbers, including numbers required for dealings with banks and the IRS. Other considerations and services include the following:
- Assistance securing a registered agent;
- Meeting notices in compliance with statutes and governing documents;
- Minutes for initial meetings where directors or managing members are appointed;
- Initial employment contracts;
- Stock and asset sales and purchases;and
- Advising on, and drafting, operating agreements.
While an Arizona LLC is not required to have an operating agreement in place, doing so is generally advisable. The Arizona Limited Liability Company Act (the “Act”), revised in 2020, governs LLCs that do not have an operating agreement in place. Thus, a company that fails to adopt an operating agreement is subject to the rules in the Act, which it may not agree with, including regulations on member voting, indemnification rights, and fiduciary duties.
The documents required to create a new business depend on the type of entity and its goals for the future. Some forms are required under Arizona law, while others are optional. Our local attorneys can guide residents through the process of business formation while providing recommendations about which approaches are advisable.
A Phoenix Business Formation Attorney Provides a Solid Foundation
Becoming legally recognized as a corporation or other business entity involves important legal decisions that will help you most effectively execute your vision for your business. For example, you must choose a type of corporate entity, consider tax requirements, and create founding documents.
While you concentrate on managing your business, we can handle the legal processes to get you up and running. Contact a Phoenix business formation lawyer at Giles Law for more information.
