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About Legal Terms And Concepts PDF Print E-mail
What are the different advantages or disadvantages of the various forms of doing business?

The various advantages or disadvantages depend upon your business needs. For an overview of the various business structures, click here

What are the advantages of being a corporation or LLC?

Generally, the most popular advantage is the limitation of liability and protecting the owner’s personal assets from company obligations. For more reasons, click here.  

How do I change from a sole proprietorship or a partnership to a corporation or an LLC?

A sole proprietorship is an unincorporated business that is owned by one person.  A partnership is an unincorporated business that is owned by two or more persons.   A sole proprietor and a partnership can become a corporation by filing Articles of Incorporation or become an LLC by filing Articles of Organization and assigning all the unincorporated business assets and liabilities to the entity they form.

What are the requirements for my company name?

Arizona statute requires that either a Corporation or an LLC’s name be distinguishable from other names already on file with the Arizona Corporation Commission and the Arizona Secretary of State since the Secretary of State is responsible for approving Arizona trade names and trademarks.  The Arizona Corporation Commission provides the following guidance as to what is “distinguishable.”  

A “distinguishable” name is one that is different in any way except for differences in (a) entity designation (Inc, LLC, Corporation, etc), (b) spaces between words (“roll out now co.” vs. “rollout now co.”), (c) specific punctuation (“Great Expectations ” vs. “Great Expectations!”) (d) the case of the letters contained in the name (“TOO COOL” vs. “Too Cool”), (e) the use of ampersand (&) versus “and” (“U & I Inc.” vs. “U AND I Inc.”) (f) the use of Arabic numerals (1,2,3,etc) and words representing these numerals (“One Stop LLC” vs. “1 Stop LLC”) and (g) the use of the articles “a”, “an” and “the” (A Birdcage vs. The Birdcage).

The company name may not include the term “bank”, “banker”, “banking”, “banc”, “banco”, “deposit”, “trust”, or “trust company” without first obtaining authorization from the Arizona State Banking Department. 

LLC:  The LLC name must contain the words “limited liability company” or “limited company” or the abbreviations “L.L.C.”, “L.C.”, “LLC”, or “LC”

CORPORATIONS:  The Corporation name must contain the corporate ending which may be “corporation,” “association,” “company,” “limited,” “incorporated,” or any abbreviations of these words.

We recommend that you check with both the Arizona Corporation Commission (ACC) ACC Name Availability and the United States Patent and Trademark Office to make sure that your desired name is available, not in use by anyone else and your name choice does not infringe on any existing name.

If you are the holder of a tradename that you want to use as your company name, you must provide the ACC  with a copy of the tradename certificate. The AZ Corporation Commission requires the permission of the tradename holder to use a tradename as a company name.

What is the purpose of the LLC?

The LLC may designate in the Article of Organization that the company is formed for a specific purpose and then identify that purpose.  If the LLC is formed for a specific purpose, then the LLC operates in accordance with this purpose.  If the LLC desires to operate for multiple purposes or not be limited to a specific purpose, it can elect to be organized to transact any and all lawful business for which a limited liability company may be organized under Arizona law.

What is the LLC’s know place of business?

At all times, the LLC must maintain a known place of business in the state of Arizona.  The LLC may change its known place of business in Arizona at any time.  It is important that the LLC keep the AZ Corporation Commission informed of its current known place of business at all times.

What is a member?

A member is an owner of an LLC.  A member is the equivalent to a shareholder in a corporation or a partner in a partnership.  A member is not restricted to being an individual.  A member can be an individual, partnership, trust, corporation, or other type of entity.  If the LLC is going to be taxed as an S corporation, then the member is restricted to the requirements related to an S-corporation, for instance, an S-corporation cannot be owned by another S-corporation so if the LLC is going to elect to be taxed as an S-corporation, the LLC’s member cannot be an S-corporation.

What does it mean to be member managed or manager managed?

In Arizona, LLC’s are either “member managed” or “manager managed.”  If the LLC is “member managed,” then all the members are responsible for the management of the company.  Generally, in a “member managed” LLC, no one member can bind the company, rather all members are responsible for managing the LLC, including entering into contracts and incurring debts and obligations.  If the LLC is “manager managed,” then only the designated manager or managers have the authority to manage the LLC.  The members of the LLC designate one or multiple managers to manage the LCC.  The title “manager” is a bit misleading since most people think of a manager as someone responsible for certain duties within a business, such as an officer manager or a marketing manager.  However, the manager role in an LLC is equivalent to a President or high level officer in a corporation since the manager or managers are directly responsible for the management and control of the entire company. 

What is a Statutory Agent?

A statutory agent is the individual or entity that receives any legal notice on behalf of the LLC or Corporation.  Arizona law requires all LLCs and Corporations to identify the name and physical address of the company’s statutory agent and the address must be an Arizona address.  It is very important to select a responsible statutory agent since it is the statutory agent’s responsibility to receive legal notices on behalf of the LLC or the Corporation and make sure the notices are then forwarded to the appropriate individual at the Corporation or LLC.  Most legal documents served on the company’s statutory agent are time sensitive and there are consequences for not meeting the deadlines, such as being served with a lawsuit which must be answered in 20 days or subject the party to a default judgment.  For more information about our statutory agent services, call us at  480.763.4161.

What is the duration of the LLC?

LLC’s may be set up for a specific duration and, if that is the case, then you may want to designate in the Articles of Organization the date by which the LLC will be dissolved, or terminated.  If the LLC does not have an end date, then you may want the LLC to have a perpetual existence, which means it lasts forever or until the members decide to dissolve, or terminate, the company’s existence.

What is the ownership interest and capital contribution to an LLC?

An ownership interest is the percentage of the LLC that the member owns.  For example, if there are two members and they each own half of the LLC, the ownership interests would be 50% each. Capital contributions consist of the cash, property and services contributed by the member into the LLC. The ownership percentage of the members in an LLC do not have to be proportionate to the amount of money they contribute.

Do limited liability companies have to file annual reports with the corporation commission?

No, the statutes do not require LLC’s to file annual reports, but AZ corporations do have to file annual reports. However, LLC’s must report to the AZ Corporation Commission any changes to theicompany’s known place of business address, statutory agent, or members/managers. Changes to the LLC’s address or its statutory agent appointments may be done on the LLC statement of change form.    Adding or removing members/managers must be done as an amendment to the company’s documents.

What is the difference between a “C” Corporation and an “S” Corporation?

The “C” and the “S” are references to the IRS tax code which provides extensive guidance and regulation of these corporations.  Very simply stated, a “C” corporation is a complex entity structure that is subject to double taxation – it is taxed at both the corporation level (for revenues) and the shareholder level (for profits and dividends).  

Very simply stated, an “S” corporation is a “pass through” entity which does not have a corporate level federal income tax.  The shareholders claim the corporation’s profit (dividends) and losses as part of their personal income tax. The S Corporation does have to file an informational tax return, which is form 1120S. The Internal Revenue Service imposes specific requirements upon each form of corporation. For assistance in determining the criteria and implications of each and which best suit your needs, please contact an accountant.

What are the taxation options for LLC’s?

A single member LLC can be taxed as a sole proprietor, a C-Corporation or an S -orporation.  A multi member LLC can be taxed as a partnership, a C-Corporation or an S-Corporation.  If the LLC does not make any tax elections with the IRS, then the default tax classification for a single member LLC will be taxed as a sole proprietor and the default tax classification for a multi member LLC will be taxed as a partnership.  Please discuss your options with your accountant to determine which tax structure is best for your business.

What is a “Tade Name”?

A tradename, also knows as a DBA (Doing Business As) or a fictitious name, is a name under which a business may operate irrespective of its actual legal name. A sole proprietor, partnership, corporation or LLC may use a trade name. A trade name is the name that the company does business under if it does not use the actual legal name or a name a sole proprietor or partnership may use since they don’t have an entity with a corporate name. For example, if “Smith Designs, LLC” does business as “Smith’s Creative Websites,” then “Smith Designs, LLC” is the Legal Name of the entity and “Smith’s Creative Websites” is the trade name. Since a trade name is not a corporation or an LLC, the trade name cannot include the word “incorporated” “limited liability company” or an abbreviation thereof. Trade names can be registered with the AZ Secretary of State’s office.  If you would like our assistance to register your trade name, please call us at 480.763.4161.