How to Form an LLC in Arkansas
A Limited Liability Company (LLC), which can also be called a “Limited Company" in Arkansas is a business entity that many small businesses choose as a way to organize themselves when they are just getting started. An LLC has a few advantages for small businesses but may not be appropriate for larger ventures or startups that are seeking investors. In addition, LLCs have a unique business structure that can get very technical.
You should look closely at other business entities like partnerships and S Corporations, before launching the Arkansas LLC formation process.
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Advantages of LLCs:
- Limited personal liability for members for business debts and lawsuits.
- Fewer reporting and recordkeeping requirements than other kinds of entities, including corporations.
- Avoiding the double taxation—business and personal—of corporations if taxed as a pass-through entity.
- Unlike corporations, Arkansas LLCs do not have to file annual or biennial reports with the state.
Disadvantages of LLCs:
- An LLC is not a good investment vehicle for outside investors.
- LLCs and S and C corporations pay commercial activity taxes, unlike sole proprietorships and partnerships.
- LLC owners may pay self-employment taxes.
Step-By-Step: Forming an Arkansas Limited Liability Company
With all of that, you have decided to form an LLC in Arkansas. You have your members, your business plan, and a little startup capital, and you are on your way.
Here is a step-by-step guide for how to create a fully operational Arkansas LLC.
Registering Foreign LLCs in Arkansas
Any foreign (out-of-state) LLC that wants to do business in Arkansas must register with the Secretary of State. There is a $270 online filing fee (more for a mail-in registration).
Step I: Name Your LLC
Creating a legally proper LLC name and then protecting it is one of the first actions in LLC formation. This is a process that can be complex and time-consuming, but it is essential for the LLC to operate legally in Arkansas.
The first thing you have to do is create a great name (that's up to you). Arkansas law requires that the name be unique and different from any other company's name.
So your first task will be to search the Secretary of State Business Services business name search page (or the mobile site) to make sure that your chosen name isn't already in use for an existing business.
To start an LLC, the name you decide on must contain one of the legal suffixes:
- Limited Liability Company: L.L.C. or LLC
- Limited Company: L.C. or LC
- If the limited company is in the business of providing professional services, it must be a Professional Limited Liability Company, P.L.L.C. or PLLC; or
- Professional Limited Company, P.L.C. or PLC.
- A PLLC cannot contain the name of a person who is not a member unless that person is deceased.
The name cannot contain any other business entity indication, like “Co.", “Corp.", etc. However, Company can be abbreviated Co. and Limited can be abbreviated Ltd. when designating a limited company.
Reserve Your Name
Once you choose a name, you can reserve that name as you go through the proves. Reserving the name does not guarantee final approval, but no one else can use the name while you have it reserved.
Step II: Appoint a Registered Agent
The State of Arkansas requires an LLC to appoint a commercial registered agent for service of process before formally filing with the state. A registered agent is designated to receive process (legal documents) on behalf of the LLC. An Arkansas registered agent can be an individual or a company (domestic or foreign), but it must have a physical Arkansas street address. A forming LLC will often choose a professional registered agent service or may choose the company lawyer.
Step III: Legally Protect Your Business Name
Next, make sure that no one else can use it in business or on the internet. This means that you have to make sure that no one else is using that name. You do this by doing a name search to make sure that the Internet Domain Name is available. If it is available, grab it immediately (that will only cost a few dollars).
If you want to do business nationally, or you want to operate in several other states, you should trademark the nonprofit's name with the United States Patent and Trademark Office (USPTO). This process takes some time and money. The name is still protected as a common law trademark while that application is pending.
Once you receive your federal trademark, apply to the Arkansas Secretary of State to register it as an Arkansas trademark or service mark. You may also trademark the Arkansas LLC name with just the state, without a federal trademark.
If you are going to do business under a fictitious name—that is, a DBA, you must register that name separately.
Now that name is yours, you can keep anyone else from using it, and it conforms to Arkansas law.
Step IV: Structure the Business
An LLC has a particular, unique business structure.
To begin with, the stakeholders of an LLC are called “members." There is no stock issued, so they cannot be “stockholders." This is the primary reason that an LLC is not a good investment vehicle for either the founders or potential investors.
There is no number of members required. You can have a single-member LLC-- say, for a one-person office.
Secondly, an LLC can be (and should be) governed by an “Operating Agreement." This is similar to but different from “bylaws," “charters," or other forms of corporate organization. Arkansas does not require an Operating Agreement, but most LLCs will have one.
The Arkansas LLC operating agreement is a private business formation contract among the members/business owners. It is not filed with the state, but it is an important part of forming an LLC. It should include the following points, according to the Small Business Administration:
- Percentage of members' ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and loses
- Holding meetings
- Buyout and buy-sell rules (procedures for transferring interest or in the event of a death)
An LLC may be managed by the members, or it may hire an outside manager. You will indicate which you have chosen on your registration application.
Arkansas is one of the few states that allow what is known as a “series LLC." This structure has several LLCs operating under the corporate status of one main LLC. This is a very complex organizational structure, and should not be attempted without the help of an experienced Arkansas business organization attorney.
Step V: Write and File Your Arkansas Articles of Organization With the Secretary of State, Business, and Commercial Services
You are now ready to compose and register your new LLC as your business registration with the Arkansas Secretary of State Business Services Division.
Foreign LLCs cannot use this form. They must register separately, as noted above.
Your LLC Articles of Organization documents must contain the following information:
- Name of the LLC
- Address of the principal place of business
- The name and physical address of the registered agent.
- Management structure, designating the LLC as a member-managed or outside-managed company.
- Signatures and printed names of the forming members
- The duration of the LLC, if not perpetual
- The state filing fees vary.
You will also file a franchise tax form with the initial filing.
After You File Your Articles of Organization
You will have numerous state and federal requirements for your new LLC after you file with the state.
State Business Licenses
Certain kinds of businesses (professionals, construction, liquor businesses, etc.) must be licensed with the state of Arkansas. In addition, there may be local business licensing requirements, environmental impact requirements, etc.
State Employer Filing Requirements
Your LLC will be subject to state rules if you hire employees—even if the employees are also members.
- Employers should register with the Division of Workforce Services
- All new employees must be registered with the Arkansas New Hire Reporting Center.
- You must also register for Workers' Compensation Insurance and
- Unemployment Insurance.
LLC Taxation in Arkansas
If your company sells goods and collects sales tax, or has employees, you will likely have to register with the Arkansas Department of Finance and Administration (DFA).
You will be subject to both state taxes and federal income taxes. This is a job for your accountant, but here is a brief outline of your tax obligations.
You will be subject to both federal withholding tax if you have employees and, of course, to business income taxation.
You must file to receive an IRS Federal Employer Identification Number (FEIN) on the Internal Revenue Service website if you will have employees. You must also apply for your FEIN on the IRS website if the LLC has more than one member. You will be subject to all federal tax-withholding rules.
Note that Arkansas does not have a separate employer identification number from the Federal EIN. Arkansas does have a Sales Tax Identification Number, however.
LLCs also have very specific requirements for filing taxes. LLCs in Arkansas are taxed as either a corporation or as a partnership.
Annual Franchise Tax Reports
You will be filing an annual tax report with the state. Corporate taxes in Arkansas are called “franchise taxes."
Have Questions About Arkansas LLC Formation? Talk to a Local Attorney
Fortunately, forming an LLC in Arkansas can be a straightforward process with FindLaw's Business Formation Service. If you have questions about forming or operating your business, it's important to speak with an experienced professional who knows the law and how it applies to you. Get in touch with an Arkansas business and commercial lawyer today to get your Arkansas LLC started.
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