Do These Before Restructuring Your Business in Arizona
Changing the structure of your business in Arizona, like in any other state, is complex and requires a number of steps.
- Understand different business structures.
- Consult professionals.
- Approval from owners or partners.
- File necessary documents with Arizona Corporation Commission (ACC).
- Obtain a new EIN from the IRS.
- Update licenses and permits.
- Notify stakeholders.
- Update contracts and agreements.
Seek advice from qualified professionals when considering changing the structure of your business. For more information, consider reaching out to the Arizona Corporation Commission or the Arizona Department of Revenue.
Differences Between Sole Proprietorships vs. LLCs
- A sole proprietorship does not require registration with the Arizona Corporation Commission (ACC). However, you may need to register a trade name if you’re doing business in Arizona under a name other than your own. You may also need certain licenses and permits. On the other hand, forming an LLC requires you to file Articles of Organization and pay a filing fee with the ACC. Arizona also requires LLCs to publish a notice of LLC formation in a newspaper for three consecutive publications.
- Sole proprietorships have only one owner who has complete control over the business. Meanwhile, an LLC has one or more owners, also known as members. These members have the authority to distribute control and management of the company, which is often outlined in an operating agreement.
- In sole proprietorships, there is no personal liability protection. Thus, the owner’s personal assets can be utilized to pay off the debts. An LLC provides limited liability protection. Members are not personally responsible for the debts and liabilities of the business. Only the assets of the business are at risk.
- The business does not pay taxes separately in a sole proprietorship. Instead, the business income or loss is reflected on the owner’s personal income tax return, which is known as “pass-through” taxation. While LLCs typically benefit from pass-through taxation, they also have the flexibility to choose to be taxed as a C corporation or S corporation. Depending on the company’s profit and the members’ tax situations, this could sometimes be advantageous.
- A sole proprietorship expires when the owner passes away, decides to sell, or chooses to shut down the business. On the other hand, an LLC has a more perpetual existence. The LLC may survive the death, resignation, or transfer of any member, unless expressly provided in the operating agreement.
Differences Between Partnerships vs. LLCs
- In partnerships, the business is owned by two or more individuals. They share control of the business. The exact distribution of responsibilities and decision-making power may be outlined in a partnership agreement. Meanwhile, an LLC can have one or more owners, known as members. An operating agreement can specify how control is distributed inside an LLC, which is frequently more flexible than it is in a partnership.
- All participants in a General Partnership (GP) have unlimited personal liability for the debts of the company, putting their personal assets at risk. Some liability protection is provided by Limited Partnerships (LP) and Limited Liability Partnerships (LLP), but at least one partner must still have unlimited liability. Limited Liability Companies (LLCs) provide members with protection from personal liability for the debts and obligations of the business.
- For purposes of taxation, partnerships are considered pass-through entities. The individual partners get the earnings or losses, who then declare them on their personal income tax forms. Pass-through taxation is favorable to LLCs as well, however they can choose to be taxed as corporations if it is more advantageous. This implies that members’ personal tax filings must disclose their profits and losses. Unless it decides to be registered as a corporation, the LLC itself does not pay federal income tax.
- Unless otherwise stated in the partnership agreement, a partnership may be dissolved when a partner quits. Meanwhile, an LLC can continue to exist even if a member leaves, dies, or if ownership is transferred, unless the operating agreement specifies otherwise.