If deciding on a business structure has led you to choose a corporation, you are not alone. Corporations account for 18% of businesses in the U.S. and generate 82% of revenue. While corporations are one of the more complicated business types because they are treated as an entity separate from the shareholders, there are many benefits to starting one.
Corporations fall into the following three categories:
- C corporations. These are owned by shareholders who elect a board of directors to oversee operations. They are taxed as a separate legal entity from anyone else involved and provide the greatest protection between businesses and personal assets.
- S corporations. Any earnings are split among shareholders and are taxed at that level only, not also separately as a business entity.
- Nonprofit corporations. A nonprofit can apply to be tax-exempt at the federal level (employees still pay taxes on their salary); however, this structure requires significantly more paperwork, and the business must adhere to strict regulations.
If you’re ready to form your Arizona corporation, read on to get started.
How do I form a corporation in Arizona?
Steps to form your Arizona Corporation
- Name Your Corporation
- Appoint Directors
- Choose an Arizona statutory agent
- File the Arizona Certificate of Incorporation
- Create Corporate Bylaws
- Draft a Shareholder Agreement
- Issue Shares of Stock
- Apply for Necessary Arizona Business Permits or Licenses
- File for an EIN and Review Tax Requirements
- Meet Arizona’s publication requirement and submit your corporation’s first report
To start a corporation in Arizona, you must file the Articles of Incorporation with the Arizona Corporation Commission (ACC). Note that this is different from many other states that require you to file with the Secretary of State’s office. In Arizona, the Secretary of State does not handle these registrations; the ACC does.
However, before you get to that point, several other steps are involved, and there are steps to take afterward. To simplify the process of forming a corporation in the state of Arizona, we’ve put together 10 easy steps for you to form your business:
Step 1: Name Your Arizona Corporation
This first step requires you to name your corporation. This might seem simple on the surface, but there are many factors to consider during the process, such as making sure your business name is unique, suits your business well, aligns with all business naming regulations, and includes a corporation designator.
You also don’t want to overlook the importance of choosing a name for which you can reserve a matching website domain name that has not already been taken. Additionally, you should consider any “doing business as” (DBA) names or trademarks you may want.
Here are some guidelines to help you through the naming process:
- Make a list of potential names first. Names on this list should match your business’s purpose, and the more names you have, the better. The next several steps will begin to narrow down your options.
- The final version of any name you choose must include the word “association,” “bank,” “company,” “corporation,” “limited,” “incorporated,” or an abbreviation of one of those words. (Note that if it includes the word “bank,” it must be a banking corporation and receive written approval to use that word in the title.) Professional corporations have additional naming requirements, which can be found on the Corporations Division webpage.
- Search your prospective business names on the ACC eCorp website to eliminate any names that are too similar to existing businesses. (Note that words or abbreviations in a name that indicate the type of company — “Corporation,” “Inc.,” etc. — are not considered when determining if a name is unique. Differences in spaces, punctuation, capitalization, etc., are also not enough to make a name unique.)
- Unless your business is banking-related, the name cannot include anything suggesting that it is. You cannot include a professional designation, such as “engineering” or “attorney,” unless all principals are licensed to deliver those services. You will need to eliminate any name choices from your list that do not meet these standards.
- The name cannot suggest that it is associated with any government agency or include anything indicating that it will be engaged in business that is illegal.
- Once you’ve narrowed down your list based on the above, the next task is to search for available domain names to ensure you will be able to secure a website domain that matches your business name.
- Check to make sure your desired name isn’t trademarked at either the federal or state level. If not, you could consider getting a trademark on the name or any accompanying logo or slogan. To do so on the state level, you will need to complete a Trademark Registration Application on the Secretary of State’s website and pay a $15 filing fee. But while it’s easier and quicker to file at the state level, you could also consider filing at the federal level for broader protection, especially if you plan on doing business outside of Arizona.
- If you would like to do business under a name different from your official business name (often called a “doing business as,” or DBA, name), you will need to file a Trade Name Registration Application on the Secretary of State’s website and pay a $10 filing fee. (A DBA name is referred to as a trade name in Arizona).
- Once you have settled on a business name, you can reserve the name if you are not ready to register your business. Reserving your business name can be done through the ACC for a $45 fee. The reservation will be good for 120 days.
- When you reserve your name or register your business, you can also register the domain name you plan on using with it at the same time.
Step 2: Appoint Directors
A corporation’s board of directors is responsible for overseeing the operations of the business. As such, your business needs one to get started. The initial incorporators — those filing the Articles of Incorporation for the business — often appoint the initial board of directors. Afterward, the board is elected annually by shareholders (those who hold stock in the company; this can include the original incorporators). In Arizona, only a single incorporator is required, and only one director on the board is needed, although having more is generally advisable. Incorporators may be directors and shareholders. In fact, a single person can start a corporation and hold all associated titles. But the three titles are associated with different roles within the company. To clarify, here are some of the different roles that exist in a corporation:
- Incorporators are responsible for starting the business and filing the initial paperwork.
- The board of directors oversees the operation of the business.
- Shareholders finance the business by owning shares in the company; they also often have voting power when selecting the board of directors.
- Officers execute the duties associated with running the business.
If your business has more than one incorporator, the initial board of directors should be appointed during an incorporators meeting before filing the Articles of Incorporation. The appointed directors should then meet to approve corporate bylaws, determine the share structure, and solidify other matters before filing. That way, your business starts on the right foot with plans clearly in place.
Step 3: Choose an Arizona Statutory Agent
A statutory agent (often referred to as a registered agent in other states) is a person or entity that agrees to receive legal documents and court summons on behalf of the corporation.
When filing your Articles of Incorporation, you must list a statutory agent who meets the following criteria:
- The statutory agent must be an individual or corporation with a street address (not a P.O. box) in the state of Arizona on record with the ACC.
- A corporation cannot serve as its own statutory agent.
- The statutory agent must accept the appointment in writing, which can be done by submitting the Statutory Agent Acceptance (form M002) through the ACC’s website.
While a shareholder or director of a corporation (but not the corporation itself) can serve as the corporation’s statutory agent, this is generally not advisable. Having a separate statutory agent helps give space between your business and business activities and any legal issues.
We highly recommend going with a registered agent service for simplicity and protection.
Step 4: File the Arizona Certificate of Incorporation
If you’ve made it this far, you are ready to file your Articles of Incorporation! This document officially registers and establishes your business with the state. In this document, you will need to include:
- The name of your business
- The type of business services provided
- Whether you are for-profit or nonprofit (C corporation and S corporation designations are for tax purposes only and not included on this form)
- Number of authorized shares of stock (this is often determined by the board of directors or the incorporators and set at a high number so that more shares can be issued without the need for amendment)
- Any professional services offered if applicable
- Name, physical address, and mailing address of the statutory agent
- The official address of the place of business
- Information (names and addresses) for every incorporator
- A Certificate of Disclosure (basically stating whether any incorporators, directors, etc. have been convicted of felonies or other violations or bankruptcy)
- Signatures of incorporators (every incorporator must sign)
This filing is completed online on the ACC website by creating an eCorp account. The filing fee is $60 for for-profit corporations and $40 for nonprofits. You can also expedite processing for an additional $35. Accepted payment forms include cash (in-person only), check or money order, or credit card.
The formation paperwork must be examined and approved by ACC staff. If approved, you will get an approval letter with additional instructions. If rejected, your letter will instruct you on how to resubmit the paperwork.
Step 5: Create Corporate Bylaws
Something that should be tackled during the first board of directors meeting is the creation of corporate bylaws. The bylaws establish all of the rules and functions of the corporation and the day-to-day activities of your business. Arizona requires all corporations to adopt bylaws. Your corporate bylaws may include:
- A clear statement of your business purpose
- A list of the board of directors and the rights, responsibilities, and qualifications of each
- Details of your management structure and the duties of each officer
- Annual meeting scheduling and goals for directors and shareholders
- How ownership and shares are distributed and how the stock is sold or transferred
- How changes are made or voted on
- Details of any committees and their responsibilities
- How conflicts of interest are to be handled
Bylaws are legally binding, so it’s a good idea to seek the assistance of an expert or a lawyer when creating them. You can also find templates online that might help.
Your corporation’s bylaws do not need to be filed anywhere but should be kept safe with other corporate documents. (It’s often a good idea to set up a corporate records book where you can keep all of your corporation’s important papers, including bylaws, minutes from meetings, and stock certificates.)
Step 6: Draft a Shareholder Agreement
The shareholder or stockholder agreement is a document that outlines the rights and responsibilities of all shareholders in the company. It may include the following:
- Shareholders and their contact information (address, phone number, etc.)
- Shareholder responsibilities, including rules about officer appointments and any actions that shareholders are allowed to take on behalf of the business
- Shareholder voting rights, including whether a simple majority or higher percentage may be required for certain decisions
- How changes to the original shareholder agreement may be made
- How stock can be sold or transferred
- The financial obligation and time commitment for each shareholder
- A clear outline of how dividends are distributed
- A plan for the distribution of assets should the business close
Again, this agreement can be drafted from a template, but you may want to utilize professional assistance. Your shareholder agreement should be kept with your other important corporate records.
Step 7: Issue Shares of Stock
Once your business is registered, and rules are in place, it is time to issue stock. When you filed the Articles of Incorporation, you stated the number of stock shares authorized. The number of shares you issue should always be less than or equal to this number.
Stock may be issued publicly or privately. Privately issued stock is usually issued to the founders, officers, managers, employees, or a private group of investors. A public corporation makes a portion of its stock shares available for public purchase.
Shares of stock are how your company gets funded. The funds you use to get started are called capital. Before issuing stock, you should determine how much capital is needed. You can then divide this value among the stock shares you will issue to shareholders.
Note that when initially issuing shares, some may be issued as compensation for helping start the business. As a result, the shareholder they are issued to does not contribute monetary capital for them, and this should be accounted for when determining share price.
Each share is only issued once, but after issuance, shares can be traded and sold. All issued shares must be documented in the company’s annual report. Companies issuing public stock need to file quarterly statements with the Securities and Exchange Commission (SEC). They must also track how many shares are issued and to whom. You should also check with the Arizona Securities Division to see what might be required at the state level.
Step 8: Apply for Necessary Business Permits or Licenses
To keep your business on the right legal footing, make sure you take the time to research any required permits or licenses. What permits and licenses are needed depend on the business services you provide, the county or city where your business is located, and whether you have employees. Be sure to search for the following:
- State and city transaction privilege tax license (if you are selling goods)
- Regulatory or professional licenses or permits (associated with the services you provide)
- General business license (there is no statewide general business license, but some cities and counties require one)
- Any local business licenses or permits, including alarm permits, building permits, health permits, occupational permits, signage, or zoning permits
Step 9: File for an EIN and Review Tax Requirements
Corporations are generally regarded as entities separate from the people involved. As such, you will need to acquire an Employer Identification Number (EIN). This number acts like the corporation’s Social Security number for tax purposes.
To apply for an EIN, you need to visit the IRS website and fill out the online form. It only takes a few minutes and is free. Afterward, you will receive your EIN. You should keep track of this number, as you will need it for future documentation and filing your business’s tax returns.
Step 10: Submit Your Corporation’s First Report
The final step to starting your business in Arizona is to publish an announcement of your business in a local newspaper. When your corporation is approved, the ACC will send you a letter with instructions for meeting this publication requirement, so don’t publish until you receive this. After the notice has been published, the newspaper will send you an Affidavit of Publication, which you can send to the ACC to record or keep with your other business documents. You’ll need to publish the notification of formation for three consecutive weeks.
Every year, corporations in Arizona are required to submit annual reports. This can be done electronically through your eCorp account with the ACC. There is a filing fee of $45 for for-profit corporations and $10 for nonprofits. The annual report consists primarily of updated information from your Articles of Incorporation and a list of stock shares issued.
How much does it cost to start a corporation in Arizona?
The exact cost of starting a corporation in Arizona will vary depending on the size and type of business and where it is located. You will need to pay the $60 fee for filing the Articles of Incorporation at a minimum. Additional fees may include:
- $35 for expedited processing
- Statutory agent service fees
- Fees for copies of documents from the ACC or Secretary of State
- Fees assessed for amendments or other business filings
- Fees associated with licenses or permits
- $45 annual report fee
What are the benefits of a corporation in Arizona?
Many benefits come with starting a corporation in Arizona. As a business type, the benefits of a corporation include:
- Protection of personal assets
- Legal recognition as a separate entity in and outside the U.S.
- The ability to issue stock (which can help with funding and capital)
However, there are disadvantages you should also be aware of to make an informed decision. The disadvantages are the tax structure (profits are taxed at both the corporation and personal income tax levels), and there is a lot more red tape and paperwork involved than there is with other structures, such as limited liability companies (LLCs).
How is an Arizona corporation taxed?
How your corporation is taxed in Arizona depends on whether it is a C corporation, an S corporation, or a nonprofit (501c3) corporation.
C corporations are treated as separate entities and must file their own tax returns. In addition to this, all owners and shareholders file tax returns for earnings and dividends. This results in double taxation; however, there are some benefits to this tax structure, including more flexibility in what can be deducted.
S corporations are pass-through entities. All profits are passed through to the owners, who must pay on their individual income taxes.
Nonprofit corporations are exempt from paying federal and state taxes, provided they stay within the rules for nonprofit activity. However, anyone drawing a salary from a nonprofit corporation will pay income tax on that salary.
Visit the Arizona Department of Revenue webpage for more information.
Arizona Corporation FAQs
- Does running a corporation in Arizona involve more paperwork than running other types of businesses?
Because corporations are more complex in structure, they often come with more paperwork than a simpler business model, such as an LLC. This includes more reports, meetings, and recordkeeping.
- What is the difference between an LLC and a corporation in Arizona?
LLC stands for limited liability company. This type of business structure is a pass-through entity for tax purposes, and it is useful in keeping the owners’ assets separate from business assets. However, LLCs do not have a board of directors and do not issue shares.
- How do I change my corporation’s name in Arizona?
To make any changes to your corporation’s filing, you will need to submit the Articles of Amendment through the eCorp portal and pay a $25 filing fee.
- How many people are needed to form a corporation in Arizona?
A single person can form a corporation.
- Can I form my Arizona corporation online?
Yes! In fact, the ACC has an online filing system called eCorp.
- How do I dissolve my Arizona corporation?
You can dissolve your corporation by filing the Articles of Dissolution through the eCorp portal and paying a $25 filing fee.