Arizona Corporation

For Arizona Corporation prices and State fees, please visit the costs page for forming a Corporation in Arizona.

Incorporating your business provides effective protection from personal liability, and excessive taxation, There are many reasons for forming a corporation; by incorporating, you are forming a separate, distinct legal entity that can be utilized to safeguard your personal wealth and assets. This is done by separating you, personally, from business liability, lawsuits, creditors and excessive taxation.

By forming a Corporation, you are forming a separate legal entity that can own property and create income that is separate from yours. A corporation can sue and be sued on its own, thereby safeguarding the personal assets of the shareholders. This separation and safeguarding of personal assets and property is known as “limited liability.” Other advantages include perpetuity of the business, as the business is not affected by the changing of the shareholders due to death, transfer of shares, sales, acquisitions, etc.

Another key advantage is that potential vendors, creditors, partners as well as investors in your business associate the “inc.” after your company’s name as an indication that they are dealing with a company that is viable and professionally run. Further, savvy investors will recognize the increased protection from personal liability and undue taxation that an incorporated business provides.

There are three ways to incorporate your business in Arizona: hire a lawyer to do the job for you (a very expensive option) or to use a professional incorporation company. Doing this yourself is difficult and it requires an investment of time to learn the process as well as execute it. Companies Incorporated is the fastest and easiest way to form an Arizona Corporation.

Arizona Corporation Business Environment

• Ranked 4th by CEOs as the Best State to Do Business. (Chief Executive, 2005)
• Arizona ranked 1st as the Best State for Entrepreneurs. (Entrepreneur & NPRC, 2005)
• Phoenix, AZ ranked 16th in the overall category and 6th in the large city category for Best Places for Doing Business in America. (Inc. Magazine, 2005)

Arizona Corporation Formation Rules and Formalities

Corporation Name and Identifier

• The name that you choose for an Arizona corporation must be distinguishable from any other registered or authorized Arizona business entity and any reserved names on record. The name of the corporation must contain one of the following words as a corporate identifier
• Association, "Corporation", "Company", "Incorporated", "Limited", "Assoc." or contain the abbreviation "Inc.", Corp.", "Co". or "Ltd."

Disallowed words in corporate names

• The corporate name can’t imply affiliation with a religious, charitable, veteran, or professional organization without that tie being officially certified in writing
• The corporate name can’t be misleading, meaning you can’t have the phrase, “bank” in your corporate name if the company has not satisfied state requirements for incorporating as a bank

Annual reporting requirements for Corporations

• Every corporation must submit an annual report once a year. This annual report must be correctly filled out and submitted by the assigned due date or the corporation may be administratively dissolved or have its authority revoked by the State of Arizona. Penalties accrue on business corporation annual reports which are submitted late (after the due date). Corporations must use the annual report form prescribed by the Arizona Corporation Commission. No other format is allowed. The Commission will directly mail the corporation's annual report form to the official corporate address. Only forms distributed by the Commission are acceptable. Corporations should note any changes to their annual report and promptly return the form with the applicable fee.

Record keeping

• The legislature establishes and maintains a system of accounts to be kept by public service corporations, or classify the corporations and establish a system of accounts for each class, and prescribe the manner in which accounts shall be kept. It may prescribe the forms of accounts, records and memoranda to be kept, including the records of the movement of traffic as well as the receipts and expenditures of money, and any other records necessary to carry out the provisions of this article. The commission may prescribe the accounts in which particular outlays and receipts shall be entered, charged or credited.

License requirements

• An Arizona corporation must be registered with the Arizona Corporation Commission and in good standing with that agency before submitting an application for a license. The corporation must remain in good standing in order to renew their license.

Corporate Structure

Corporation and Tax Information

Business inventory tax

• None

Corporate income tax

• The income tax rate is 9.0% of net income or $100, whichever is greater. The minimum tax is $100.

Personal Income Tax

• - The current formula provides for a minimum withholding of 10% of the amount withheld for Federal income tax, if the annual wages are less than $15,000, or 19% of the amount withheld for Federal income tax, if the annual wages are greater than or equal to $15,000. An employee required to have 10% deducted may elect to increase this rate to 19%, 23%, 25%, 31%, or 37%. An employee required to have 19% may elect to increase this rate to 23%, 25%, 31%, or 37%.

Real and personal property tax

• The part that many people read over too quickly is that Arizona property taxes on owner-occupied residences are levied based on the Assessed Value, not current market value. In Maricopa County, where Phoenix is, the assessment ratio for owner-occupied residential property is 10 percent of Full Cash (market) Value. So if your home is valued at $350,000, you will be charged property tax based on the assessed value of $35,000

State Sales & Use tax

• 5.60%. Prescription drugs may be exempt. Local rates may also apply. Mining-nonmetal taxed 3.1%; transient lodging taxed 5.5%. Some cities tax food for home consumption.

Machinery rate

• None

Unemployment Insurance

• The FUTA tax of 6.2 percent is also assessed on the first $7,000 in wages paid to each worker in a calendar year. When state taxes are paid on time, a tax credit of 5.4 percent is awarded to reduce the FUTA tax, regardless of the Arizona unemployment tax rate.

Transaction Privilege & Use Tax

• This tax is a tax on the privilege of doing business in the State. The tax ranges from 5.6% - 9.0% with a state average of 8.3%.

Employer's Tax

• Arizona's new employers' tax rate is 2.7% for 2 years.

Arizona Business Certification Information

Arizona Small Business Services (SBS) provides information and resources for every stage of your business development. Small Business Services collaborates with state agencies and numerous business organizations to promote entrepreneurship among small, minority-, women-owned, and disadvantaged business enterprises.

1. Small business certification
2. Women owned business certification
3. Minority owned business certification
4. Disadvantaged business certification

Arizona Corporate Compliance

Take the following quiz to see if your Arizona corporation is complying with Arizona law.

• Does your corporation hold annual and special meetings of shareholders and directors?
• Does your corporation send notices of annual and special meetings to all shareholders and directors?
• Does your corporation prepare minutes of annual and special meetings of the shareholders and directors?
• Does your corporation prepare Actions by Unanimous Consent to be signed by all shareholders or directors to document meetings and major corporate action?
• Does your corporation maintain a minute book that contains copies or originals of signed and approved minutes of meetings of annual and special minutes of shareholders and directors and Actions by Unanimous Consent?
• If your corporation has loaned money to a shareholder, are the loans approved by the directors and evidenced by a promissory note and appropriate minutes? If the corporation is audited, the IRS will ask to see the note and corporate minutes and if the loan is not properly documented, the IRS may treat the loan as a nondeductible corporate dividend and taxable income to the shareholder

If you answered "no" to any of the above questions, your corporation: (i) is at risk for having its corporate veil pierced and holding the shareholders liable for the debts and obligations of the corporation, and (ii) needs the services provided by KEYTLaw's Corporate Meeting & Minutes Service.