Looking to launch a professional business entity, but unsure about the best course of action? One of your options in Arizona is to form a professional corporation (PC). At ZenBusiness, we understand that forming a PC can be overwhelming. To simplify the process, we’ve created this guide packed with valuable information about forming your Arizona PC.
All businesses should consider a formal entity structure, but there are some that would do better as a corporation than other types. See the ZenBusiness entity guide to help decide what’s right for you.
Steps to Form an Arizona Professional Corporation
- Choose a name for your Arizona PC
- Find an Arizona statutory agent
- File the Articles of Incorporation
- Establish a corporate record
- Designate a board of directors
- Draft your corporate bylaws
- Hold your first official board meeting
- Understand Arizona tax obligations
- Obtain business licenses and permits
- Acquire insurance for your Arizona PC
- Open a business bank account
Is a professional corporation the right structure for you?
If the services you provide require state licensing, a professional business entity is right for you. In Arizona, there are two options: PCs or professional limited liability companies (PLLCs). A PLLC is easier to form and has certain tax benefits, but it cannot issue stock and the liability protection for its owners is slightly weaker. For high-income providers, such as doctors, lawyers, and architects, who prefer a structure that offers increased liability protection, a PC is worth considering.
Owners, referred to as shareholders, are granted a percentage of ownership. This percentage is reflected in the amount of stock they control. When forming the business, your percentage may be determined by your initial investment. Only licensed professionals can be shareholders.
There are three central roles to fill to keep things organized and managed. Keep in mind that one person can hold multiple titles.
- Shareholders: State-licensed partners who purchase stock in the company
- Directors: Individuals who guide the company’s strategic decision-making process and hire officers
- Incorporator: A person who signs and submits the Articles of Incorporation, but they can also be an external legal entity. Once Articles are accepted, the incorporator’s role is over.
Step 1: Choose a name for your Arizona PC
In Arizona, your name must include “professional corporation,” “professional association,” “service corporation,” “limited,” or “chartered.” Alternatively, you may use an abbreviation such as “P.C.” Some finance-industry monikers like “bank” and “trust” need prior written approval.
Do a business name search on the Arizona Corporation Commission’s website to see if your desired name is available. If you find an available name and want to reserve it until you’re ready to file, you can pay a fee and complete a form on the Arizona Corporation Commission website or use ZenBusiness’s name reservation service to reserve your name for 120 days while you prepare your Articles of Incorporation. It’s also a good time to select an available web domain name so that your online presence remains consistent and easy to find.
Step 2: Find an Arizona statutory agent
Arizona law mandates that a registered agent, referred to as a statutory agent in Arizona, be appointed during the incorporation. Your agent must:
- Be 18 years of age or older or be a state-registered business entity.
- Have an active office address in Arizona.
- Accept responsibility when receiving documents and notifying the corporation of legal procedures.
A shareholder can serve as the statutory agent, but this requires always staying on-site during normal business hours. ZenBusiness’s registered agent service connects you with an Arizona professional who can meet this legal requirement while you focus on your business.
Step 3: File the Articles of Incorporation
Completing the Articles of Incorporation is required to make your business a legal professional entity. You’ll also submit a Statutory Agent Acceptance and Certificate of Disclosure. In Arizona, you cannot file online; you must deliver the articles in person or by mail along with a processing fee. Expedited processing is available for an additional fee. Filings should include a check or money order payable to the Arizona Corporation Commission. Credit cards are accepted when filing in person.
Step 4: Establish a corporate record
All Arizona corporations should maintain an official record of important documents, transactions, and minutes of meetings. We recommend keeping a secure binder or file cabinet on the premises and utilizing a cloud storage system as backup.
Step 5: Designate a board of directors
The board of directors plays an integral role in your new business. They hold meetings, provide oversight, and appoint officers. It’s permissible for the incorporator to serve as an initial board member. All names should be recorded in an official Incorporator’s Statement.
Step 6: Draft your corporate bylaws
Your initial directors will arrange a time to meet and draft bylaws. These are the rules and regulations that your business will operate by. Voting procedures, share distribution, conflict resolution, and officer appointments are often included. The document should be signed and stored in the corporate records binder after ratification.
Step 7: Hold your first official board meeting
Now that you’ve named your directors and drafted your bylaws, it’s time for your first board meeting. Ask a team member to record it so that you can reference the notes or minutes later. They’ll be needed for your corporate record. The goals for this meeting include:
- Appointing officers (president, secretary)
- Ratifying bylaws
- Discussing tax status
- Outlining shareholder agreement
- Issuing stock shares per Arizona law
Step 8: Understand Arizona tax obligations
The first step toward tax preparation is registering for an employer ID number (EIN). This is a federal business identification number your corporation uses to file taxes, open a bank account, and hire employees. You can apply for an EIN through the IRS or take advantage of ZenBusiness’s streamlined tool to acquire your EIN.
PCs either pay taxes as a C corporation (default) or an S corporation (requires a special application). C corporation shareholders are taxed twice, once on the corporate level and again on individual tax returns. S corporation status eliminates double taxation but has rigid eligibility requirements. Your Arizona PC needs to demonstrate that it has less than 100 shareholders, no foreign shareholders, and issues only one class of stock.
You can pay all of your state’s corporate taxes online after registering with the Arizona Department of Revenue. These include income, property, and payroll taxes. Arizona doesn’t impose a corporate franchise tax.
Most cities in Arizona collect a transaction privilege tax (TPT) from all for-profit businesses. To report this tax liability, your corporation will need to acquire a TBT license from your municipal revenue division and possibly another license from the Arizona Department of Revenue (ADOR). You can check your local government websites for additional tax obligations.
Step 9: Obtain business licenses and permits
There’s no general business license you’re responsible for obtaining. However, your local government may require industry-specific permits. It can be a challenge to understand what you need because there’s no central location to gather such information. ZenBusiness’s license report service does the digging for you by determining all the licenses and permits required for your company so you can feel confident you have everything you need.
Step 10: Acquire insurance for your Arizona PC
In Arizona, professionals aren’t required to have commercial liability or malpractice insurance, but it’s recommended to protect yourself from possible legal claims and financial losses.
Under Arizona law, workers’ compensation is mandatory for any business that hires employees. Check with a qualified insurance agent or an attorney to determine any other insurance your PC needs.
Step 11: Open a business bank account
Separating your personal and business finances is crucial. You may need your EIN to open a company account, and bring along your Articles of Incorporation, bylaws, and signatories for verification.
Ready to start your business?
At ZenBusiness, we are proud to support small businesses through a variety of different tools and services. Whether you need a registered agent service, want to reserve a business name, or are looking to register a domain name, our goal is to help you stay on the road to success. Check out our services and contact us today to see how we can help you grow your company.
Arizona Professional Corporation FAQs
What are the filing fees for an Arizona professional corporation?
The fees for starting an LLC in Arizona depend on factors such as whether you choose to reserve your business name or expedite your filing. Fees change over time, so you should check the Arizona Corporation Commission website for the most recent fee schedule.
Do I need a lawyer to form an Arizona professional corporation?
A lawyer isn’t necessary, but legal advice can be a valuable asset as you form your new corporation.
Does Arizona have a professional limited liability company (PLLC) entity?
Yes. Licensed professionals are free to form a PLLC in Arizona. Benefits include lower taxes, simple startup, and easier maintenance. However, PCs offer more protection and structure for high-income, high-liability professions.
Can professionals from different fields form an Arizona professional corporation together?
No. Members of your PC must all provide the same state-licensed services, but they are permitted to offer ancillary services related to that profession.
Will I be taxed as an S corporation or C corporation in Arizona?
C corporation is the default business type for a PC. You’ll be taxed as such unless you obtain S corporation status. To be eligible for S corporation tax benefits, your Arizona PC must meet federal eligibility requirements established by the IRS. Typically, you must have less than 100 shareholders, one class of stock, and no out-of-state or corporate owners.