Are you looking to form a professional limited liability company (PLLC) in Arizona, but you’re not sure how the formation process works? There are several important steps when it comes to creating an Arizona PLLC that is compliant and able to do business in the state.
What is an Arizona Professional LLC?
The professional limited liability company (PLLC) is a specialized type of LLC that is intended for licensed professionals to offer their unique services. In Arizona, a PLLC is a limited liability company organized for purposes that include rendering a service that may only be lawfully rendered by someone licensed or otherwise authorized by a licensing authority in the state of Arizona to render such service. Licensed professionals that may choose to form a PLLC in Arizona include, among others, doctors, lawyers and accountants.
The Arizona PLLC is typically more popular than a professional corporation (PC) because it’s a more flexible business type, but it still includes the personal asset protection and professional qualifications that make the PSC valuable.
PLLCs in Arizona have relatively simple formation and maintenance requirements, several options for how they want to be taxed, and flexible management. From one-person businesses to multi-member PLLCs with several owners, the PLLC is a popular choice for a reason.
An important detail of the PLLC that differs from a traditional LLC is that liability protection is not shared across all members of the company. For example, if you operate a PLLC for physicians, your business structure does not shield each individual member from malpractice suits. Instead, each member is liable for their own malpractice insurance, and no member is liable for another member’s malpractice.
Forming a PLLC in Arizona (in 6 Steps)
Step One) Choose a PLLC Name
Your PLLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
Arizona requires that the name of a professional limited liability company contain the words “professional limited liability company" or one the abbreviations "P.L.L.C.," " P.L.C.," " PLLC," or " PLC," in uppercase or lowercase letters. Your PLLC may use a name consisting of the full or last name of one or more of its members or may adopt a fictitious name if adopting a fictitious name is not otherwise prohibited by law or the ethics of the applicable profession. Under the Arizona Limited Liability Company Act, your PLLC’s name cannot contain the words “association,” “corporation,” “incorporated” or any abbreviations of these words. You also cannot include the words "bank," "deposit, "credit union," "trust," or "trust company" unless your PLLC is actually “actively and substantially engaged in the banking, credit union or trust business” or your PLLC is a holding company with a substantial interest in a company actively and substantially engaged in such businesses.
Another aspect to consider is including language that explains what your business does. For example, if you’re a doctor, put the word “physician” or the initials “MD” in your PLLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your PLLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming a PLLC is to not get too attached to any one business name until you know that it is available for use. You can check if your chosen name is available by searching the Arizona Corporation Commission’s website. Once you’ve chosen a business name, you can reserve the name online for 120 days for $45 ($10 filing fee plus $35 expedite fee) by using the Arizona Corporation Commission website’s "FILE" feature. The expedite fee is automatically charged for online applications because you obtain the name reservation immediately. You can also submit a paper application.
Step Two) Designate a Registered Agent
Every PLLC in Arizona is required to designate a registered agent, which is the individual or business entity that receives government correspondence on behalf of your business, then forwards those documents to you.
Registered agents are referred to as “statutory agents” in Arizona because a statute requires that each Arizona business appoint an individual or entity to accept service of process (that is, lawsuit papers or other legal documents) on behalf of such business. Officials notices from the Arizona Corporation Commission will also be sent to the statutory agent. According to the Arizona Corporation Commission, “law requires that corporations and LLCs maintain a statutory agent with a valid Arizona street address (not a P.O. Box or personal mailbox) on the records of the Arizona Corporation Commission at all times.”
Without a registered agent, you could lose your good standing with the state of Arizona, and the state also has the right to dissolve your PLLC if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend hiring a dedicated registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
Step Three) File Formation Documents with the State
Once you are ready to form your Arizona professional limited liability company, you will fill out the Articles of Organization
This is THE document that will register your PLLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Checked box indicating the entity being formed is a PLLC
- Exact name of your PLLC
- Description of the professional services your PLLC will provide
- Name and address of your Arizona registered agent
- The address of your business, if different than the address of the registered agent
- The duration of your PLLC
- Whether your PLLC will be member-managed or manager-managed
- Signature of the organizer
You will also need to include the following items with your Articles of Organization: 1) a cover sheet, 2) a Member Structure Attachment or a Manager Structure Attachment, depending on whether your PLLC is member-managed or manager-managed, 3) a Statutory Agent Acceptance form, and 4) the filing fee. When you’re ready to form your PLLC, you can submit your completed documents either in person or by mail at the address below. Documents cannot be filed by any electronic means.
Arizona Corporation Commission, Corporations Division
1300 W. Washington St.
Phoenix, Arizona 85007
Cost to Form a PLLC
The filing fee for the Articles of Organization is $50 ($85 for expedited processing). If submitting your documents in person, you can pay by cash, check, money order, or credit card. If filing by mail, the filing fee must be paid by check or money order.
The time it takes for the Arizona Corporation Commission to process your formation paperwork can vary, but in general regular processing takes 30 business days or less and expedited processing takes 5 business days or less. Current processing times are posted each week on the Arizona Corporation Commission’s website. The processing times posted on the website do not include any additional time that may be required for notification or mailing after your Articles of Organization have been either approved or rejected.
Step Four) Create an Operating Agreement
After you register a PLLC in Arizona, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for a copy of this document. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your operating agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your operating agreement, or you can create one from a free template online. You can read more about operating agreements here, but some of the basic information you’ll want to have includes:
- Individual members' ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the PLLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five) Handle Taxation Requirements
The vast majority of PLLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important PLLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
Arizona imposes a corporate income tax, but the state does not have a general franchise or privilege tax applicable to PLLCs. Depending on the nature of your business, your company may be subject to other Arizona state taxes. The Arizona Department of Revenue publishes A Guide to Taxes for Arizona Businesses to help determine which taxes may apply to your business. Businesses can use the Arizona Department of Revenue’s AZTaxes website to file and pay taxes online.
Depending on where in Arizona your business is located, you may also need to pay some local taxes. Business resources for four of the largest Arizona cities are available online: Phoenix, Tucson, Mesa, and Chandler.
Step Six) Obtain Business Licenses and Permits
The following three types of “business” licenses are available in Arizona:
- Transaction Privilege Tax, or TPT, Licenses. Businesses that sell products or engage in certain activities in Arizona may need to acquire a TPT license from the Arizona Department of Revenue.
- Business Licenses. Arizona does not require a general state business license, but many cities issue business licenses. You should check with the city in which you plan to base your PLLC or conduct business to determine whether any business licenses are required for your business.
Regulatory Licenses (such as Professional Licenses). If your business engages in activities that are regulated on a federal, state and/or local level, additional licenses or permits may be required. You should check with appropriate government agencies to determine which licenses or permits may be required. Given the nature of a PLLC, you will likely need to obtain one or more licenses in order to legally conduct business in Arizona.
Would You Prefer a Professional Form Your PLLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online business formation service.
Because of the often-complex nature of professional limited liability companies, some of our favorite service providers don’t offer PLLC formations, but there are still plenty of quality companies that do provide this service. A couple of our favorites for PLLC formation are LegalZoom and MyCorporation.
Another option would be to hire a business attorney to handle your PLLC formation. While this is certainly a more expensive route than using an online formation service, a lawyer’s expertise could come in handy when you’re forming a specialized business structure like this.
Next Steps: What to Do After Creating a PLLC in Arizona
Open a business bank account
We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Arizona law requires that all employers that regularly hire workers in its customary business obtain workers’ compensation insurance for their employees. This requirement applies regardless of the number of employees and regardless of whether such employees are part- or full-time, aliens, minors, or family members. For further information, see the Industrial Commission of Arizona’s Employers' Frequently Asked Questions about Workers' Compensation. Though not required, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies pertaining to the profession practiced by your PLLC.
Understand income reporting
Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year.
Your PLLC’s federal tax classification determines its classification for Arizona tax purposes. For example, if your PLLC makes a valid federal election to be taxed as a corporation, your PLLC must file an Arizona corporate income tax form. Arizona corporate tax forms can be found on the Arizona Department of Revenue’s website. For more information on the tax treatment of LLCs in Arizona, you should review the Arizona Department of Revenue’s Corporate Tax Ruling CTR 97-2.
Understand annual reporting
Arizona does not require PLLCs to file an annual report.
Find an accountant
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to best manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.