How to start a business in Arizona
What do Mrs. Fields Cookies, Disney, Yankee Candle, Maglite, Amazon, and Maya Tea* have in common (besides the fact that they get some of my money every year)? Someone started them in a garage or kitchen with a dream, and tremendous drive. Of course, you need vision and energy, not necessarily a garage or kitchen, to start a business, but you also have to address mundane – and sometimes, yes, headache-inducing – particulars when you launch a new venture. Many would-be entrepreneurs overlook these key steps and then have to go back, at significant cost in terms of money, time and worry, to rectify what should have been addressed earlier fairly easily.
Cue the mournful music and the regret-littered road of cease and desist letters, dead partnerships, legal entanglements, hard earned money up in smoke and dashed hopes.
If you are thinking about starting a business in Arizona--make sure you cross all the “t’s” and dot the “i’s” so you don’t run into trouble. What does that mean? Well, here is a kind of general overview of what you need to think about and do if you are starting a business. Depending on the type of business, there may be specific tax, legal or regulatory considerations so what follows is neither legal advice, nor is it a comprehensive overview by any means.
- Determine what kind of entity you want to be. Do you need to be an entity? The short answer is “heck yes.” There are lots of reasons to do it and really no goods one not to. You can be a corporation, an LLC or a partnership. You need help here from a lawyer and an accountant to discuss the pros and cons of each. The vast majority of our clients become LLC’s because of the flexibility and tax implications, but with the recent changes you should think about why you are opting to be one or the other. Also, the Arizona Legislature is currently rewriting the LLC statute and that may make things a little more murky. This is a good place for professional advice.
- Choose a name but then do some research. A major part of this process is ensuring no one else is using the name you like, so Google every name you are considering before you become too attached to it or spend one dime. If other companies have the same or similar name, there may be future legal consequences. You can also head to the USPTO to make sure you are not stepping on someone’s trademark. You can search the Trademark Electronic Search System (TESS) here: http://tmsearch.uspto.gov.
- Most companies use the same name for the entity that they are using for their business so also check to see if the name you like is usable as the name of your entity as well. Head to the Arizona Corporation Commission (A.C.C.) at http://ecorp.azcc.gov/. If the name is available, consider reserving it until you file your paperwork. Better safe then sorry.
- Once you decide what entity you want to be, file your paperwork with the A.C.C. LLCs require Articles of Organization. Corporations require Articles of Incorporation. Partnerships are filed with the Secretary of State not the A.C.C. Always expedite, otherwise it could take weeks.
- Secure your EIN (employer identification number) or TIN (tax identification number) from the IRS. It is free. Watch those URLs closely though. When I opened my first business, I wasn’t paying attention and fell prey to an “IRS clone” website. I knew what happened instantly but it was a headache to deal with (yes, even attorneys get bamboozled sometimes).
- Once you get your EIN you can open a business bank account. Even if it’s a sole proprietorship, I advise clients to do so to have distinct separation between their business and personal finances. Also, at most banks in Phoenix now you need to show them an Operating Agreement before you can open a business account. Again, I recommend your attorney prepare this not your accountant. This is a touchy subject because while there are accounting issues to discuss that relate to an operating agreement it is a legal document that should be prepared by a lawyer. If you have an estate plan already this matters to who the member of your LLC is or the shareholder of your Corporation. The documents all have to work together.
- Once your paperwork is approved by the A.C.C., you may need to register for service-related taxes with the Arizona Department of Revenue (www.azdor.gov).
- Arizona, unlike many other states, doesn’t require companies to have a general business license but some types of businesses do require licenses, as do most municipalities. These are the categories of licenses and permits: State and City Transaction Privilege Tax Licenses; Regulatory or Professional and Special Licensing and Permits; and Local Business/Occupational Licenses and Permits.
- Finally, if you plan to file a trademark at the federal level determine if you will file it after you begin to do business (in use) or before (intent to use). You may need to also register as a Doing Business As (DBA) if your business entity name and brand name don’t match. Some people do file their own trademarks but it can be tricky and I don’t recommend it.
While the process may appear daunting at first (and I didn’t even begin to review employer-employee tax requirements), it does not have to be painful. Really. It does however require patience and a methodical approach. When you are starting out it is tempting to bootstrap and go it alone -- filing your own docs or using sites like LegalZoom. There is nothing wrong with that but I guarantee you will save yourself time and money in the long run if you at least get legal and accounting advice at the top. There are business attorneys out there like me who will sit down and walk you through a game plan and work with you on fees. Truly.
If you have questions, please shoot me an email. Having sworn off gluten the last year, I won’t be munching a Mrs. Fields but I will be sipping a cup of Maya Tea’s Madagascar Coconut (really, really, yummy and almost like dessert).
*You may know tea is a preferred morning beverage (after a cup of joe). Maya Teas is one of my favorite recent finds. It’s based in Tucson and, no, I don’t get any swag for this endorsement.