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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:
If you’re ready to form your Arizona corporation, read on to get started.
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:
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:
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:
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.
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 an Arizona statutory agent who meets the following criteria:
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.
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:
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.
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:
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.)
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:
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.
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.
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:
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.
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.
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:
Many benefits come with starting a corporation in Arizona. As a business type, the benefits of a corporation include:
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 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.
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.
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.
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.
A single person can form a corporation.
Yes! In fact, the ACC has an online filing system called eCorp.
You can dissolve your corporation by filing the Articles of Dissolution through the eCorp portal and paying a $25 filing fee.