Real estate investing can be a great source of income, but there are a lot of considerations to take into account when forming an LLC. Forming an Arizona limited liability company (LLC) provides the necessary protection and flexibility to pursue real estate investments while limiting personal liability. With the right knowledge and preparation, forming an LLC in Arizona can be a great way to pursue real estate investments and safeguard your personal assets.
Overview of Limited Liability Companies (LLCs)
Arizona limited liability companies (LLCs) are one of the primary structures for business entities. Among other benefits, LLCs help protect the personal assets of the members of the company from any business-related liabilities. An LLC is often the preferred business structure for real estate investors, as it is easier to form and maintain than a corporation and provides more taxation flexibility than a partnership.
The first step to forming an LLC is choosing a name. In Arizona, you can name your LLC anything you want as long as it does not violate the state’s rules for naming a corporation. Make sure the name is something unique and gives the impression you want for your business. In Arizona, you can form an LLC with one member or multiple members. The benefits of forming an LLC with multiple members are similar to those of forming a partnership. The major difference is that an LLC is easier to form and maintain than a partnership. LLCs are required to keep a record of the members’ percentage of ownership and periodic financial statements.
Requirements for Forming an LLC in Arizona
Arizona state law requires you to file articles of organization with the Arizona Corporation Commission to form an LLC. You will also need to obtain an Arizona tax identification number. These two steps are the most important required to form an LLC in Arizona, but you should also be aware of other requirements that may affect your business.
For example, you also have to follow any county or city regulations for forming businesses in your area. Some counties, for example, require you to file additional paperwork and/or obtain an occupational license or permit in order to operate your business. Be sure to check with your county government and/or county clerk’s office for any regulations you need to follow in addition to state requirements when forming an LLC in Arizona.
Choosing a Name for Your LLC
In Arizona, LLCs can be named anything as long as they don’t violate the state’s rules for naming a corporation. There are a few things to keep in mind when naming your LLC. The name should give the impression you want for your business. It should avoid being too generic. Avoid using words such as “corporation,” “incorporated,” or “company.”
Also, be sure to choose a name that is easy to spell and pronounce. If someone misspells your business name or can’t pronounce it, they’re not likely to do business with you. You also want to make sure your name is available. You can do a quick search by name at the Arizona Corporation Commission website. This can help you avoid potential problems down the line.
Drafting an Arizona LLC Operating Agreement
One of the most important decisions you’ll make when forming an LLC is deciding how to make decisions. This will determine the future success of your business. You’ll want to decide on how you’ll make decisions, how profits will be distributed, and what happens if a member wants to leave the business or dies.
You can formalize these decisions in an operating agreement. If you have multiple members, an operating agreement is particularly important. You may want to consider hiring an attorney to help you draft this document. An operating agreement can help solve disagreements before they become major problems. It can also help protect each member’s share of the LLC if one member sues another member. You can also make decisions easier by putting them in writing. This helps avoid misunderstandings and makes it easier to resolve disagreements as they arise. You may want to consider putting your operating agreement in a separate document. A separate document makes it easier to refer back to it as needed.
Appointing a Registered Agent
A registered agent is the person who is responsible for receiving service of process documents and legal notices. If someone sues your LLC, they may send the documents to your registered agent. This can happen if the plaintiff believes you have assets in the state where the lawsuit is taking place, but you don’t have a physical address there. If they don’t know where you are, they may try to find your registered agent’s address and send documents to them instead. This can lead to a default judgment against your LLC, which means you lose the lawsuit by default because you didn’t show up for court.
A registered agent is not required in Arizona, but it is highly recommended. If you have a physical address in Arizona, people can send legal notices to you. Having a registered agent is a good way to protect your assets and keep your physical address private.
Filing Articles of Organization with the Arizona Corporation Commission
Once you’ve decided on a name, you’ll need to file articles of organization with the Arizona Corporation Commission. This is the first step to forming an LLC in Arizona. Fortunately, the process is fairly straightforward and can be done online.
You’ll need the following information before you start the process:
- The name of your LLC
- The type of LLC you’re forming (membership format and number of members)
- The address where you’re going to be doing business (if different from where you are submitting the articles)
- The name and contact information of the registered agent Once you have this information, you can file the articles of organization online.
- If you have any difficulties with this process, you can also go to your local Arizona Corporation Commission office in person. You’ll need to pay a filing fee of approximately $150 for each LLC you form.
Obtaining an Arizona Tax Identification Number
You’ll want to obtain an Arizona tax identification number (TIN) as soon as you form your LLC. This can be done online and only takes a few minutes. You can also do this in person at an Arizona Department of Revenue (DOR) office. If you apply in person, there may be a wait time. You may want to apply online if you want to get this taken care of quickly. If you qualify to apply online, you can select the Individual Income Tax Account Type and select the “Tax Identification Number” option. If you don’t qualify to apply online, you can complete Form AZ-100-S, Application for an Arizona Tax Identification Number by Mail. You can get this form at the DOR website or by calling 800-647-3111. You’ll need the following information to apply: – Your name exactly as it appears on your articles of organization – The address where you’ll be doing business – Your email address – Your telephone number – The type of business you’re conducting (this will be “real estate”)
Setting Up a Bank Account for Your LLC
Once you’ve formed your LLC, it’s time to set up a bank account. This bank account will be used to deposit income received from real estate investments. You may want to consider setting up an LLC bank account at a different bank than your personal account. This can help protect the assets in your personal account from future lawsuits against your LLC. It can also help you keep your business and personal finances separate.
While an LLC bank account is often the preferred method of depositing real estate income, the type of account you have may vary depending on your business structure. If you are a corporation, you may want to consider a business checking account. If you are a limited liability partnership, you may want to consider a business savings account. Whichever type of account you choose, it is important to understand the terms of your account and to make sure you are in compliance with any regulations. It is also important to check your account regularly to make sure there are no fraudulent transactions occurring.
As always, it’s best to confer with qualified legal counsel before forming LLC. An experienced real estate attorney can help you decide the best structure for your entity moving forwards, and will use their experience to help you avoid common pitfalls along the way.
