After you filed your articles of organization with the Arizona Corporations Commission, your LLC begins its legal life.
But there are still a few other things you need to do for your LLC before you can take that celebratory trip to Cabo.
Here’s an outline of the steps that you need to take after you form your LLC. Some of them are legally required. Others aren’t mandatory, but are highly recommended by experts.
Step 1: Draft and Sign an LLC Operating Agreement
First up, let’s discuss the need to draft and sign an LLC operating agreement.
What’s an operating agreement?
Basically, it’s a legal document that establishes how your LLC is run.
- How decisions are made
- How money is distributed
- How disputes are resolved
There’s lots of details here, so take your time as you draft it, and really think about what you’re putting into your operating agreement.
All of the members of your LLC need to sign the agreement and agree to follow the rules that it contains. Obviously, if you’re the only member of your LLC, you’re the only one who needs to sign and follow it.
Do you really need an operating agreement?
An operating agreement isn’t mandatory, but it’s a great idea to have one in place, even if your LLC only has one member and you’re in charge of making all of the decisions.
Why? Well, having this written operating agreement lends credibility to your LLC.
It shows that your LLC is a legitimate business entity that’s separate from you, not just some sham that’s been created to avoid liability. This is really important for single member LLCs (SMLLCs) because, without the formality of an agreement, an SMLLC can appear like a sole proprietorship, which doesn’t provide limited liability.
Plus, lenders might ask to see an operating agreement before they’ll agree to issue a loan in your LLC’s name. If you’re planning on taking out loans to build your business, this simple document will definitely be helpful.
The good news is that your operating agreement doesn’t need to be complex or long, especially if you’re an SMLLC.
And, while you don’t need to file the agreement with the Secretary of State—or anywhere else, for that matter—you should keep this document with all of your other important LLC files.
Step 2: Get a Federal Tax ID (EIN)
Next up is the Federal Tax ID (or Employer Identification Number / EIN).
You should obtain an EIN from the IRS. This nine-digit number is used by the IRS to identify your LLC, so be sure to include it on all of your tax forms and communications with the IRS and the Arizona Department of Revenue.
If your SMLLC doesn’t have any employees, a separate EIN is, generally, not required by the IRS. Instead, you can use your personal Social Security number. But it’s still recommended that you get an EIN.
Why is an EIN an important part of doing business?
First off, it helps prove that your LLC is a legal entity separate from you personally, just like the operating agreement.
Plus, using your EIN rather than your Social Security number is a smart step in avoiding identity theft, which is frighteningly common today.
And, on top of all of that, many banks actually require an EIN to open up a business bank account in your LLC’s name.
Step 3: Get a Business License
Whether or not you’ll need to get a business license for your LLC depends on where your business is located and the work you do.
If you do need a business license to operate, you can get one from your city or county government.
The benefits of getting your business license
Just like an operating agreement and EIN, obtaining your business license helps prove that your LLC is legitimate. It also helps preserve your limited liability.
More importantly, if your local government finds out that you failed to get a required license to run your company, it could impose penalties and fines that are a lot more expensive than the cost of a business license.
Getting your business license is easy
If getting a business license sounds overwhelming, don’t worry. Obtaining a local business license is usually simple and straightforward.
The specific details for your particular license are available from your local government, so some research is required. Once you know what you need, you’ll have to fill out an application and pay a fee.
Just keep in mind that, in addition to a local business license, you might also need to get a license or permit from the State of Arizona, or even from the federal government. This will depend on the work that you do.
For example, real estate brokers and salespeople must be licensed by the state. Here’s more information about getting a business license in Arizona.
Step 4: Publish Notice of LLC Formation
Within 60 days after filing your articles of organization, you’re required to publish a Notice of LLC Formation three times with a newspaper in the county where your LLC is located.
Expect to pay a fee of $60 to $200 for the publication. A list of newspapers that can publish your notice is posted here.
This newspaper publication requirement doesn’t apply if your LLC is located in Maricopa or Pima counties. If this is the case, you can publish your Notice at the Arizona Corporations Commission website.
The approval letter you will receive from the Arizona Corporation Commission after your articles are accepted will include information on how to publish.
Step 5: Open a Business Bank Account
We highly recommend that you open a bank account in your LLC’s name, rather than use your personal bank account for business purposes.
Once again, it boils down to ensuring that your LLC is recognized as a separate, legal entity that’s a legitimate business. Combining your personal funds with your LLC’s funds in a single account is a bad idea.
If you use your personal bank account for business purposes, you might even lose the limited liability that you obtained by creating your LLC. You definitely don’t want that!
Setting up a business bank account might seem daunting at first, but you can read through our article, Freelancer’s Guide to Banking to learn more.
Step 6 (Optional): File a Trade Name Registration
Did you know that you aren’t required to operate your LLC under the legal name that’s listed in your articles of organization? It’s true; you can use a different name.
This name is referred to as trade name or dba, which stands for “doing business as.”
In order to operate under a different name than your LLC’s legal name, you have to file a trade name application with the Arizona Secretary of State.
Check the Secretary of State’s trade name and trademark records to be absolutely sure that the name you want to use isn’t already taken by another business. Then, file the online application and pay the required fee.
Step 7: Get a Sales Tax License
If your business does retail sales, or you’re involved in other activities, such as construction, you’re required to get an Arizona Transaction Privilege Tax (TPT) license.
This is Arizona’s version of a sales tax license.
Maintaining Your LLC Doesn’t Have to Be Complicated
Wow, those are a lot of rules! But breathe deeply and just take things one step at a time.
Also, know that Collective is here to help you through all of the important steps above.
With the right strategy and the right support, you can rest assured that your LLC will have everything it needs to operate legally and be recognized as the legitimate (super awesome) business that it is.
Stephen has dedicated his career as an attorney and author to writing useful, authoritative and recognized guides on taxes and business law for small businesses, entrepreneurs, independent contractors, and freelancers. He is the author of over 20 books and hundreds of articles and has been quoted in The New York Times, Wall Street Journal, Chicago Tribune, and many other publications. Among his books are Deduct It! Lower Your Small Business Taxes, Working with Independent Contractors, and Working for Yourself: Law and Taxes for Independent Contractors, Freelancers & Consultants.