Starting a business is exciting, but it can take a lot of time and energy. Choosing the type of business entity you want to operate is important. If you believe the best option for you is a sole proprietorship, Arizona has regulations you should know about. Read on to learn more.
Please note that this article is not intended to be legal advice. You should always talk to a civil law attorney about your unique situation.
What is an Arizona sole proprietorship?
Before you get your business off the ground, you may be wondering, what is a sole proprietorship in Arizona?
The U.S. Small Business Administration defines a sole proprietorship as an unincorporated business owned and run by one individual with generally little to no distinction between the business and the owner. You keep all profits from your business, but you are also responsible for all debts, losses, and liabilities.
A sole proprietorship is the easiest type of business to establish. In fact, you could be operating as a sole proprietorship already without realizing it. Some examples of sole proprietors include freelance writers, tutors, financial planners, and many other professions.
What are the benefits of a sole proprietorship?
There are several reasons why a sole proprietorship is the most common of all business entities. In short, it is perhaps the simplest type of business to create.
You generally won’t have to pay any fees, complete any paperwork, or file any registration paperwork with state or other agencies. However, you may have to purchase certain licenses or permits. In addition, you have complete control over your business. You are the sole owner and can make any and all decisions. There is also no need to file separate tax returns for your business.
What are the disadvantages of a sole proprietorship?
Unfortunately, a sole proprietorship comes with a much higher level of liability. For most people, this is the biggest disadvantage.
You and your business are one and the same, which means you’re responsible for any financial issues that may arise. If your business is in trouble, there is a lot at stake. If someone sues your company, your personal finances, as well as your personal property, will be at greater risk than in another type of business form.
Further, if you have employees, you are also responsible for any of their actions that lead to questions of liability.
Sole proprietorship vs LLC in Arizona
LLC stands for “limited liability company.” In Arizona, an LLC gives you some of the benefits of a corporation, but keeps your personal liability to a minimum. Like an Arizona sole proprietorship, an LLC may be owned and operated by only one person. Unlike a sole proprietorship, an LLC permits additional owners, called members, to also be included. The number of members in an LLC depends upon your goals, as well as your preferred business and tax structure.
Also, unlike a sole proprietorship, establishing an LLC requires a little leg work. You will need to file an application with the Arizona Corporation Commission and pay a few basic fees. You will also need an official name for your LLC. Even if you have another name to conduct business, the legal name of your LLC must meet certain requirements. For example, it must contain “limited liability company” or the abbreviation “LLC” or “L.L.C.”
How do I start a sole proprietorship in Arizona?
To start a sole proprietorship, Arizona doesn’t require you to formally file any paperwork to register your business. However, you will need to complete a few steps to make sure you are following federal and state laws. Generally, you should follow these tips to get started.
Get an Employer Identification Number
An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number (TIN). You can operate under your Social Security number as a sole proprietor with no employees.
However, an EIN can be helpful in some situations. For instance, many banks will require an EIN if you want to open an account for your business.
Register to pay state taxes
If you are selling a product or offering a service, you’ll be subject to an Arizona transaction privilege tax (TPT).
The Arizona Department of Revenue collects this tax for all Arizona counties and cities. However, tax rates differ based on your location and the type of business you have.
Apply for necessary licenses
From licenses to registrations and permits, some types of businesses have a lot of requirements. On the other hand, some have none at all. This can vary quite a bit based on your line of work, as well as your specific county or city.
The Arizona Commerce Authority has an easy tool to determine exactly what you need for your specific business. Just complete the checklist with details about your industry, location, and business model.
Consider registering a trade name
While it is not required, you may want to consider registering a trade name with the Arizona Secretary of State. A trade name is how customers, clients, and the general public refer to your business.
Also known as a DBA or “doing business as,” this name usually appears on promotional materials or a storefront. In the case of a sole proprietorship, a trade name can provide you with a certain level of privacy from your personal name.
Why it’s important to work with an attorney
Starting a business can be daunting. There are more entity options than the ones discussed here, each with their own advantages and risks. An attorney can help you sort through your choices and determine what will help you meet your professional goals.
At ARTEMiS Law Firm, we can talk to you about your options and help you decide what is best for your specific situation. We can also help you file the necessary paperwork.
Our attorneys at ARTEMiS Law Firm have extensive experience in business related matters. Contact us to get started today.Contact Us