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The Grand Canyon. Beautiful desert vistas. Delicious Southwestern cuisine. These are just a few of the reasons why Arizona is a great place to live and explore. Add easy and inexpensive business filing to the list and you also have a great place to start a business. Below are eight steps to launching your business in the state.
1. Choose a business idea
What’s something you’re good at or uniquely positioned to provide? Do you have a passion you’ve been waiting to turn into a career? Asking yourself these questions is the first step to shaping up a great business idea.
Once you’ve zeroed in on your business idea, the next step is to research your chosen market. Find out what it’s missing or new ways to offer an existing service. Be patient. Starting a business takes time, planning, and hard work.
2. Name your business
Naming your business can be a fun, creative exercise. The best names hint at the services provided and the tone of the brand while inviting potential customers to learn more—a tall order. As you work on choosing a name for your business, consider bouncing ideas off of friends and colleagues.
Then there’s the legal and bureaucratic side of naming your business. This part is less fun, but a necessary part of doing business in Arizona. In addition to making sure your name isn’t already taken—you can check the state’s registry—you also need to craft it such that it identifies your chosen business structure. For example, if you’re forming an LLC, the state requires you to include some iteration of “limited” or “liability company” in the name.
Note that your registered name doesn’t need to be the name you operate under. If this is the case, you need to file a DBA with the state. DBA stands for “doing business as” and simply means the business name you filed is different from the one you plan to publicize.
Once you’ve settled on a name and registered it with the state—or reserved it for future use, which you can do through the Secretary of State—lock down a website domain name as well as any relevant social media handles. Keep in mind: having a web address that’s radically different from your actual business name makes it much harder for potential customers to find you.
3. Create a business plan
All business owners—from first-time small business upstarts to serial entrepreneurs and seasoned operators—need a business plan to lay out their vision and attract investors. Effective business plans usually include the following elements:
- A basic description of what your company does
- Details on your business structure
- A breakdown of the market in which your business operates as well as why your business has a unique path to success within that market
- How you plan to reach your target audience
- A financial plan
4. Decide on a business structure and incorporate
The type of business structure you choose depends on, among other considerations, how you plan to raise funds and whether your company will take on debt in order to grow. You also need to work out which kind of tax entity makes the most sense for your business.
The simplest business structure is the sole proprietorship, a business with one owner (i.e., you), in which you take on and are responsible for all of your business’s risks and debts. In other words, the business is you. This also applies to taxes: a sole proprietorship’s income is considered to be personal income, and you pay personal income tax on it.
An LLC, or limited liability company, offers protections that a sole proprietorship doesn’t by separating the business owners from the business entity. If an LLC gets sued or falls into debt, its owners may not be personally on the hook, as long as they’ve kept their business finances separate from their personal finances. From a taxation perspective, most LLCs are pass-through organizations, meaning the business profits pass through to the owners as personal income—just as in a sole proprietorship.
On the more complex end of the spectrum, you can set up a C corporation. This allows you to sell shares of your company as a means of fundraising and comes with liability protection, as the business is an entity distinct from its owners. But corporations also have to pay their own income taxes, unlike pass-through structures. In Arizona, that amounts to a 4.9% corporate income tax, in addition to 21% on the federal level (as of 2021). Corporations also require more administration to maintain.
If none of the above suit your particular needs, there are still other structural options you can choose from when establishing your business.
Incorporating in AZ
Once you choose a business structure, it’s time to incorporate. This involves:
- Getting an EIN. Unless you opt for a sole proprietorship, for which you can file taxes using your Social Security number, you’ll need an employer identification number, or EIN, for federal tax purposes. Requesting one from the IRS is relatively straightforward, regardless of the type of business you are.
- Registering with the AZ Corporation Commission. At the state level, you need to register your business with the Arizona Corporation Commission in order to operate. The ACC provides prospective business owners with the formation documents they need, like articles of organization (in the case of an LLC) and articles of incorporation (in the case of a corporation), through this online portal.
- Choose a statutory agent. The state requires you to stipulate who will be your business’s statutory agent. This agent is who will receive any mail or legal documents from the state pertaining to the business.
5. Obtain a business license and permits
Arizona doesn’t issue statewide business licenses, but individual local governments may. For example, Phoenix more strictly regulates alarm businesses, massage practitioners, and amusement-related ventures (among several others), and requires you to obtain a practicing permit from the city. You can use the state’s checklist to figure out what those regulations are, as well as any other information you may need to comply with local governance.
Transaction privilege tax
The other licensing issue to keep in mind in Arizona is the transaction privilege tax (TPT), which the state levies in place of a sales tax. If you sell products, check with the Arizona Department of Revenue to see if you need a TPT license. Some businesses that need to have a TPT license include retail, hospitality, and contracting; applying for one costs only $12. If you do need to apply for one, you can register and pay your TPT online.
Depending on your profession, you may also need permission from a governing body to practice. In Arizona, these professions include nursing, lobbying, teaching, and real estate. If this is the case, your licenses need to be in order before you can begin practicing.
6. Look at business insurance options in Arizona
If you (the owner) will be your business’s sole employee, Arizona doesn’t require you to have business insurance. But if you plan on hiring employees, you become an employer and are required to pay for workers’ compensation insurance. The state keeps a list of insurers who offer this coverage.
Some other types of insurance that aren’t required but that you may want to consider include:
7. Understand financial considerations
Once your business plan is in order, you should have a sense of your costs and a path toward funding your operation. This might mean allocating money from your personal savings, crowdfunding your first product launch, or soliciting angel investment. If you’re short on startup money, Shopify Capital provides funding for small businesses with flexible repayment plans.
8. Market your business
When it comes to marketing, word of mouth is a great start. But to really grow your business, you’ll need a marketing plan. This will cover all the strategies you’ll use to attract potential customers. These include:
- Advertising and promotion. Advertising your brand and product(s) via digital or in-person means.
- Social media. Using social channels like Instagram to promote your product(s).
- Public relations. Reaching out to local—or even national—media outlets to broaden your reach.
- Customer acquisition and retention. Building relationships with your customers using channels like email.
Remember, the state of Arizona wants you to start a business there. That’s why it offers resources like this convenient checklist to help you through the process. With a systematic approach and a solid plan, getting your company off the ground isn’t just possible, it’s imminent.
Starting a business in Arizona FAQ
What are the requirements to start a business in Arizona?
Arizona requires new businesses to file with the Arizona Corporation Commission and identify a statutory agent. This person acts as the point person for state correspondences and legal matters.
Do I need a business license to start a business in Arizona?
The state of Arizona doesn’t require a general business license, but your local municipality may require permits to operate certain kinds of businesses within the city, like liquor stores, massage parlors, and betting operations.
What are the advantages of starting a business in Arizona?
One reason to think about starting a business in Arizona is that the state filing fees are quite low. In some cases, you can expect to pay under $100 to set up your business with the state. Additionally, the state doesn’t require a business license to operate.