What Types of Business Structure Does Arizona Allow?
A business' legal structure affects many aspects of ownership and operations. Among the most important considerations in choosing a business structure are the legal liability and taxation of the business owner(s). Want to make an informed choice about the best legal structure for your Arizona business?
First, know what types of business structure are available under state law. Next, get help from a knowledgeable business law attorney, so you can make certain to choose the best legal structure based on your goals and circumstances.
Sole Proprietorship
A sole proprietorship is a for-profit business owned and operated by one person. It is the simplest business structure. Many small businesses start out as sole proprietorships.
Arizona has no filing requirements for a sole proprietorship, although it may be advisable to register the company’s trade name. Trade name registration is not required in Arizona, but it is a standard business practice. Name registration may be required to establish business bank accounts and obtain business-specific licenses. The Arizona Secretary of State handles trade name registration for all businesses.
The owner has full management control over a sole proprietorship and pays all the taxes for the business operations as part of the owner’s personal income tax return. The owner of a sole proprietorship is personally responsible for all debts, obligations, and legal liabilities of the business.
Terminating a sole proprietorship requires only that the owner pay all debts, claims, and taxes owed by the business. As such, it is one of the easiest business structures to dissolve.
Partnership
A partnership — sometimes referred to as a general partnership — is a business owned and operated jointly by two or more individuals, who are referred to as partners. There is no limit to the number of partners who can own a general partnership.
Arizona has no filing requirements for a general partnership, but a written agreement among the partners is strongly recommended. Trade name registration may be advisable.
Unless a partnership agreement provides otherwise, all partners have equal control over operations and ownership of the business. Business income and losses are reported individually by partners on their personal income tax returns. The partnership itself does not file a return or pay taxes. Each partner is personally liable for business liabilities, debts, and claims. Individuals considering formation of a partnership can benefit substantially from talking with a knowledgeable business law attorney.
Arizona statutes also recognize three types of limited partnerships:
- Limited Partnership / LP
- Limited Liability Partnership / LLP
- Limited Liability Limited Partnership / LLLP
Limited partnerships must file with the Arizona Secretary of State to comply with applicable statutory requirements. These special types of partnerships enable partners to limit the liability and involvement of certain partners. Taxation is the same for a limited partnership as for a general partnership. Limited partnerships are sometimes used to attract investors in real estate and other investment ventures. Advice from an experienced business law attorney is strongly recommended for anyone considering formation of a limited partnership.
Limited Liability Company / LLC
A limited liability company or LLC is a flexible and popular type of legal structure that combines elements of other types of structures. LLCs are subject to specific Arizona statutes. Registration with the Arizona Corporation Commission is required.
Owners of an LLC are referred to as members of the company. One significant advantage of an LLC is that the members have limited personal liability for debts and actions of the company.
Profit and loss of an LLC can be allocated differently than the ownership interests. An LLC also provides management flexibility. Taxation of LLC members depends on whether the company elects to pay taxes as an S Corporation, which is an option for many LLCs.
If you consider forming an LLC when starting your business or converting a sole proprietorship or partnership to an LLC, getting guidance from an experienced business law attorney can help you make an informed decision about the best structure for your business, as well as comply with all the applicable legal requirements.
Corporation
A corporation is the most complex legal structure for a business. A corporation is a separate legal entity that is completely distinct from the owners. The company has specific rights and responsibilities under state and federal law. Owners of a corporation are called shareholders.
The primary advantage of a corporation is the limit on personal liability of the shareholders. Detailed statutory and regulatory requirements apply to formation and ongoing operations, including recordkeeping. Corporations are subject to double taxation on corporate profits and dividends.
Arizona recognizes two different types of corporations: C corporations and S corporations. Both types must file with the Arizona Corporation Commission. A C corporation is the basic corporate structure. Some corporations qualify to become an S corporation (sometimes referred to as a subchapter S corporation), which provides the protection of a corporation without the double taxation issues inherent in a C corporation. Specific legal requirements apply.
What Is the Best Structure for Your Business?
Choosing the form of legal entity for your business is one of the most important decisions you make as a business owner, whether you are starting a new business or running a successful business that is growing and changing. Determining the best legal structure for your business takes into consideration a wide range of factors.
A knowledgeable business law attorney helps you analyze your goals, concerns, and circumstances as part of deciding on the right legal structure for your business. That is just one of many ways that your business lawyer can help when you start a new business or run an existing business.
Schedule a Free Consultation With an East Valley Business Lawyer
At Peterson Law Offices, we understand that businesses, whether new or established, often do not need a full-time lawyer but do need reliable, responsive legal counsel throughout the life cycle of the business. To that end, we get to know our business clients and their families, so that we fully understand and support your business and personal goals and wishes. Our goal is to help your business succeed, grow, and thrive, while minimizing legal problems you encounter and finding the best solutions for the issues that do arise.
We provide high-quality legal services at affordable prices — and your first consultation is always free of charge. We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.
