Despite its harsh desert climate, Arizona is a popular and vital part of the American southwest. From its rural towns and government installations to its big cities, the state offers much to a variety of people. It also has a thriving international community. Starting a business in Arizona makes sense, and forming an LLC is a good way to do it.
Starting your own business, though, takes money. That might sound ominous, but it’s relatively painless if you know what you’re doing. We’re here to help you figure out where you need to spend your money, as well as optional purchases you’ll want to make that can make your life easier, both now and in the future.
This article will help you make a budget for starting an LLC in Arizona.
- The required costs for every LLC
- Extra costs we recommend you incur
- The different ways you can form your LLC, as well as the pros and cons of each
Total Arizona LLC Cost – $50 + publication fees
Forming an LLC in Arizona only requires that you file articles of organization, which will cost you $50. Though many states require a separate statement appointing a registered agent, in Arizona, you appoint your statutory agent in your articles.
Business formation fees are controlled by the Arizona Corporation Commission. The ACC’s current fee schedule is available on its website.
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How Much it Costs to Start an Arizona LLC
Of course, there’s quite a bit more to starting your own company than just filing a legal document. There are several things you need to consider, and all of them cost money. While you probably want to save as much money as possible, this section will outline the costs you need to think about incurring if you want the best start you can have.
Articles of Organization Filing Fee – $50
Of all your LLC’s legal papers, this one is the most important. Articles are like an LLC’s birth certificate. Without articles of organization, the company doesn’t exist in any sense. Once they have been filed, it can do business, pay taxes, and take any other legal action. Thus, you need to make sure your LLC’s articles are done first and done right.
This isn’t as tough as it sounds. While you can draft the Arizona LLC articles from scratch if you want, there’s no need. Arizona provides a basic fill-in-the-blank pdf form with all the details you need.
If you have a complicated business or ownership structure, you might need an attorney to draft your Arizona LLC articles of organization. In most cases, though, the ACC’s form should work just fine.
Publication fee – varies
Within 60 days of the filing of your LLC’s articles of organization, Arizona requires you to take an unusual step: publication of your LLC’s formation.
Arizona Revised Statutes section 29-3201(G) provides two ways this can happen:
- You can file a notice in the newspaper of the county where your statutory agent is located. The notice has to have the same information that the state required in your articles. It must be published in the paper three times in a row. Once this is done, you should file an affidavit with the ACC saying you did it.
- If your agent is located in a county with a population greater than 800,000 (e.g., Maricopa or Pima), then this requirement is fulfilled by the ACC. In this case, it will put the information about your LLC formation into its electronic database.
If you have to publish in a newspaper, the cost can run between $30 and $300. There is no cost if you live in one of the larger counties because you don't need to print a notice of publication.
Arizona LLCs – Optional Costs to Consider
$50 may be all you need to get your LLC running. That doesn’t mean that you shouldn’t plan on spending more. There are many other costs you should also plan for to give your LLC the best start it can get.
Expedited Filing Service – $35
The ACC website regularly updates its processing times for business filings. Currently, the regular processing time is estimated to be 13-15 business days. Because that time could translate to as long as three weeks, you might want to get your articles done a bit more quickly.
Fortunately, the ACC offers a few different options to speed things up. The first is expedited service. For an extra $35, you can shorten the processing time for your articles to 3-5 business days. You can expedite other documents too, though the total price will vary depending on the exact thing you wish to file.
If you need processing even more quickly than that, the ACC also offers next-day, same-day, and two-hour service, but those options are pricey:
- Next-day service: $100. The articles must be received by 5:00 p.m. to secure service by the next business day.
- Same-day service: $200. The articles must be received by 10:00 a.m. to secure service by 5:00 p.m. on the same business day.
- Two-hour service: $400. The articles must be received by 3:00 p.m. to secure two-hour service.
Business License – varies
According to the Arizona Commerce Authority, Arizona does not have a statewide business license. However, your city and county governments likely do, so you should check with them to see what their requirements are. Here is a partial list of governments you might need to contact.
Some local governments, like Phoenix, do not have a separate business license requirement. Others, like Tuscon, have complex licensing systems and even a $25 application fee. So, there may be a considerable cost here, and it will be necessary to talk to your city and/or county governments to figure out what that cost may be.
Also, keep in mind that many types of businesses will require you to have professional licenses. Check with the government entity that issues those types of licenses for more information.
Registered Agent Fee – about $100 per year
When you file your articles, you’ll have to name your LLC’s statutory agent (which is the same thing as a resident agent) so that the state and the public can timely communicate with your LLC. This is important if someone decides to sue your LLC. That may not sound like fun, but it is critical to the life of your business that you know exactly when this happens.
Because your agent’s details are included in your articles, you don’t pay an extra fee to the state to name an agent. Still, you should think about hiring a company to serve as your company’s agent.
Many owners are tempted to serve as their LLCs’ agents. This is not a good idea. It involves making your address public and always being available just in case someone wants to sue your company.
It’s an easier and more cost-efficient plan to hire an Arizona statutory agent service for your LLC. These registered agent companies usually charge $100 per year and take care of all your agent needs. It’s money well spent.
Operating Agreement – varies
An operating agreement sets down the rules of your LLC. It says how the people in charge should do their jobs, when meetings must be held, how members can enter and exit the company, and almost any other matter you might need to address.
Arizona won’t force your LLC to have an operating agreement if you don’t want one, but we strongly recommend that you consider it. Without a written contract, you have much less control over what happens to your company when something unexpected happens.
If you choose to have an LLC operating agreement, you don’t have to file it with the state. You can write it yourself, but unless you are a lawyer or know exactly what it’s supposed to look like, we don’t recommend that option.
A lawyer would likely charge you by the hour for drafting an Arizona LLC operating agreement. While that contract would likely be a good one, that could also run you at least a few hundred dollars, and probably well over a thousand in a city the size of Phoenix. If you use an LLC formation service, you can have a good agreement drafted, though, for as little as $39.
DBA Fee – $10 every five years
After you’ve filed your paperwork, you may need to change your LLC’s name slightly. Maybe you had to add or drop words you wanted, or your business name sounds too much like that of a competitor.
If so, don’t worry. You can apply for a trade name, also known as a “doing business as” name (DBA) or fictitious business name. It’s a very common process, and not hard to get. You just have to apply for a DBA with the Arizona Secretary of State. A $10 filing fee gets you the DBA you want for five years, after which you will have to renew your application.
Name Reservation Fee – $45
Maybe you have a good plan and the perfect business name for your company, but you’re not ready to start just yet. If you want to make sure that you can use a certain name when you are ready, you can reserve a name with the ACC for $45, which is composed of a $10 fee plus a mandatory $35 expedite fee, since the reservation is instant.
Name reservations are good for 120 days.
Domain Name – about $20 per year
In this day and age, small businesses need a presence on the Internet. The first step in creating a good website is to get your own domain name. While this might have been pricey in the past, it is now very affordable.
You should secure your domain name as soon as possible, even if you don’t have plans for a website right now. If you don’t, a competitor could buy your ideal domain and its variations to block you from using them. Domain squatters also sift through newly registered LLC names and will buy their domains only to relist them with huge markups.
In general, a domain ending in .com will be more expensive than a .net or .info domain, and some names will likely be taken, meaning you will have to do some searching (and maybe compromising).
A domain name from GoDaddy.com or a similar registrar may cost you between $20 and $50 per year, with regular specials and sales where you can get substantial discounts.
Registering with the State Tax Office – Free
Arizona imposes a transaction privilege tax, more commonly referred to as a sales tax, on businesses for the privilege of operating in the state. As in other states, LLCs with employees will also have withholding tax obligations.
All businesses must register with the Department of Revenue before beginning operations in the state. Though this takes some time to complete, there does not appear to be any cost associated with it.
Getting a Federal Employer Identification Number (“EIN”) – Free
An EIN is a number created and assigned by the Internal Revenue Service to a business for paying taxes. (Think of an EIN as a social security number for a business.) Some LLCs need them, and some don’t.
Regardless of whether the IRS says you need one, we recommend that you get an EIN. Many banks won’t allow your company to have its own account without one. Having an EIN can also simplify the process of getting credit.
You can apply online and get an EIN for free in minutes, or you can apply for one through the mail or fax. Whatever you do, don’t pay someone else to get an EIN for you. It’s too easy to pay someone else to do it unless it is part of a broader service package.
Read More: How to Get an Employer Identification Number in Arizona
Foreign LLC Qualification Fees – about $100 per extra state
If your business takes off, congratulations! You may soon start thinking about expanding to new locations. If one of those places is in another state, you’ll have to pay for the privilege of doing business there. You won’t have to re-form your business, but you will have to register as a foreign limited liability company with the Secretary of State there and pay some extra fees.
The exact fees will depend on the state in which you are registering. As a rule of thumb, expect to pay about $100 in filing fees to register your LLC in another state.
Writing Formation Costs Off
Because it takes money to start your business, you can write off many, if not all, of your costs on your taxes for a deduction. The IRS has a lot of guidance on this matter, and you should compare your specific costs to the materials on the IRS website. It appears that Arizona follows federal guidance on this matter as well.
Keep in mind that, in most cases, an LLC is taxed by both Arizona and the IRS as a pass-through entity. Generally speaking, LLC owners can deduct up to $5,000 of their business startup expenses in the first year.
Greg wants to start an outdoor sports/camping store in Phoenix, Arizona. He will work the whole operation himself, without any employees. Because he needs to sign a lease and get a place for inventory as soon as possible, he will file his articles and pay for same-day expedited service from the ACC.
Note that Greg does not have to publish notice of his LLC in a newspaper because his business is located in Maricopa county.
The business name on his articles is GG Outdoor Adventures, LLC, but he wants to use the name “Wild Man Adventures” for his store, so he will need to get a DBA.
Greg’s LLC formation costs are as follows:
- Arizona Articles of Organization filing fee: $50
- Arizona Articles of Organization same-day expedite fee: $200
- Registered agent service fees: $100
- DBA fee: $10
- Operating Agreement: $39
- Web domain costs: $50
Greg has elected to have his LLC taxed as a pass-through entity by both the IRS and the state. This means that he will claim both his business income and deductions on his personal tax returns.
Greg’s startup costs, which will form his deduction, total $449. His taxable income before the deduction was $30,000, which puts Greg in the 12% income tax bracket. Arizona’s state income tax bracket for Greg is 3.34%.
With the deduction, Greg’s taxable income in Arizona will be reduced to $29,551. That saves him $53.88 in federal taxes and $15.00 on his state taxes, for a total savings of $68.88.
Keep in mind that if Greg had more than $5,000 in expenses, he would likely be able to claim those, but he could not deduct them all in the first year.
Cheapest Way to Start an LLC in Arizona
Now that you know all the basic costs, it’s time to shop around. Not every business needs to be formed in the same way, and you can save both time and money by picking the best option for you.
Formation Service – $39 + state fees
A business formation service is a popular and inexpensive way for new LLC owners to get started.
These companies are dedicated to helping entrepreneurs bring their visions to life. They have not only the knowledge of all the state laws you need to know, but also forms, documents, and procedures to make your life as easy as possible.
Formation services are quick and complete ways to handle formation needs for most LLCs.
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
While formation services can be great for most people, they are not always the best choice. Some cons for these services are:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry, you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
Attorneys are licensed, reliable, and powerful resources for business formation. They are also quite expensive. Let’s use Greg as an example here. His income is not very high, and he lives in one of the most expensive cities in Arizona. A good business attorney in there could cost nearly $1000 per hour. That is not an effective use of Greg’s resources.
A business owner with more money than Greg, though, could benefit from having an attorney if their business was at all complicated. For that reason, some owners choose to go this route.
Despite the expense, sometimes hiring a lawyer is the best choice.
- Lawyers help you manage risk. An LLC with complicated legal issues needs a lawyer. Let’s say that instead of a sports shop, Greg wanted to start an immigration law firm. In that case, a lawyer would be able to help Greg comply with the numerous federal and state laws that would affect the firm.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
For most people, getting an attorney has considerable downsides that outweigh any benefits.
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very caring people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Many people, after searching the Internet for the information they need, decide to try forming their new LLCs themselves. This process can give you a lot of personal expertise, but remember that time is money. If you are spending hours on your business formation, that’s time you’re not spending on the substance of your business.
In most instances, then, it is more cost-effective to just pay an LLC formation service, with confidence that everything has been done correctly, rather than try to reinvent the wheel yourself.
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own business, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t figure out the value of your time, a DIY solution is the cheapest option.
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that then costs them more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even harder for you.
Annual Arizona LLC Fees: How Much Will it Cost to Maintain your LLC?
Even after you’ve formed the LLC, there are annual costs for which you will have to budget. These include both government fees and amounts paid to third parties, like:
- Local Business License, depending on exact location: varies
- Registered agent service fee: $100
- Domain name: $20
- Transaction Privilege Tax (TPT): varies
Although you don’t have to file an annual report in Arizona, you do have to file a TPT return every year, even if your sales for the year were zero. Failure to file and pay the TPT electronically will result in a fine of at least $25.
Also, keep in mind that any small business should have an accountant. Costs for accounts vary significantly, but you should spend an average of $2,000 to $3,000 per year on an accountant in most cases.
How Much are LLC Taxes in Arizona
How your Arizona LLC is taxed depends on how you characterize it with the IRS. If the IRS treated your LLC as a pass-through business entity, Arizona will do so too, and will not tax your LLC’s income. Instead, you will pay taxes on the income after the LLC passed it on to you.
If you elect for your LLC to be taxed like a corporation, it will likely pay a 6.968% net income tax to the state, with a minimum tax of $50. For tax and legal advice on your choices, talk with an Arizona lawyer or accountant.
A discussed above, If your LLC has employees, it will have to register as an employer and withhold taxes. And if it sells any goods or services, you’ll also have to collect and pay the transaction privilege tax.
Arizona LLC Formation Costs Quick Links
- ACC — Business Entity Search
- ACC — Expedited and Same Day/Next Day Service
- ACC — Fee Schedule
- ACC — Form Articles of Organization
- ACC — Form Statement of Change
- ACC — Name Reservations
- ACC — Processing Times
- Arizona Commerce Authority — Business Licensing
- Arizona Commerce Authority — City/Town Offices
- Arizona Department of Revenue — Employer Withholding Filing Obligations
- Arizona Department of Revenue — Transaction Privilege Tax
- Arizona Professional Licenses
- Arizona Secretary of State — Apply for a Trade Name/DBA
- City of Tuscon — Business License Process
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
Arizona LLC Formation Costs FAQs
How much does it cost to start an LLC in Arizona?
The minimum cost is $50, plus another possible fee to publish notice of your company’s formation. You must pay at least this amount to file your LLC’s articles of organization with the ACC. Check with your local government to see whether you have to pay a publication fee, which may run as high as a few hundred dollars.
What is the cheapest way to start an LLC in Arizona?
A do-it-yourself approach will have the lowest price tag, but it isn’t the cheapest in terms of your time. The best balance of price and time, for most people, is to use a formation service.
Do I need to hire an attorney to form an LLC in Arizona?
No. Most people will not need to invest the considerable expense and time of hiring a lawyer. A formation service or a DIY approach will work for most business owners.
Can I pay to form an LLC more quickly in Arizona?
Yes. Formation services will generally complete formation tasks faster than business owners acting on their own. For an extra state fee, the ACC also processes any document you file more quickly, even within a matter of hours.