How to Form an LLC in Arkansas
A limited liability company (LLC), also called a "limited company" in Arkansas, is a business entity that many small businesses choose to organize themselves when they are just starting. If you've decided to form an LLC in Arkansas, here is a step-by-step guide.
Steps to Form an LLC in Arkansas
Name Your LLC
First, you must create a legally proper name for your LLC. Arkansas law requires that the name be unique and different from any other company's name.
The name you decide on must contain one of the legal abbreviations:
- 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 a 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.
Search for Name Availability. You want to search the Secretary of State Business Services business name search page to make sure that your chosen name is available and not already used by an existing business.
Reserve the Business Name. Once you choose a name, you can reserve that name as you go through the process. Reserving the name does not guarantee final approval, but no one else can use it while you have it reserved. The online fee for name reservation is $22.50, and the fee for mail-in registration is $25.
Check the Domain Name. Next, make sure that no one else can use your name on the internet. You do this by doing a name search to make sure that the internet domain name is available. If it is available, register it so no one else can use it for their website.
Trademark Name. If you want to do business nationally or 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.
Get a Registered Agent
The State of Arkansas requires an LLC to appoint a 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 Arkansas resident or a company (domestic or foreign) with a physical Arkansas street address.
You should choose a company or person that is available during regular business hours. You will list the registered agent's name and address of the registered office (a physical street address in Arkansas) in your certificate of organization. Entrepreneurs often choose a professional registered agent service to serve as the LLC's registered agent.
File Your Certificate of Organization
You are now ready to start your business registration with the Arkansas Secretary of State Business Services Division.
Your LLC certificate of organization must contain the following information:
- Name of the LLC
- Address of the principal place of business
- 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
- Duration of the LLC, if not perpetual
The state fee for the certificate of organization is $45 if filed online or $50 if filed by mail.
Draft an Operating Agreement
An LLC can be (and should be) governed by an operating agreement. The operating agreement is similar to the bylaws of a corporate organization. Arkansas does not require an operating agreement, but it is a good idea to have one.
The Arkansas LLC operating agreement is a private contract among the members/business owners. You do not file it with the state, but it is an essential document for your LLC. According to the Small Business Administration, an operating agreement should include the following:
- 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
The members may manage an LLC or hire an outside manager. You will indicate which you have chosen on your registration application.
Get an EIN
Unless you're a single-member LLC with no employees, you need an Employer Identification Number (EIN). An EIN is a unique number issued by the Internal Revenue Service (IRS) and used to identify your business for tax purposes. You can think of it as your business's Social Security number.
You use your EIN for:
- Filing payroll tax reports
- Opening a business bank account
- Applying for a company credit card or small business loans
You can apply for an EIN by mail, fax, or online with the IRS. There's no fee to get an EIN, and the process takes just a few minutes.
Set Up Business and Tax Accounts
When starting your Arkansas business, you must register for state taxes, withholdings, sales tax accounts, and necessary licenses and permits. Visit the Internal Revenue Service (IRS) website to learn about your federal tax requirements. Determine your state obligations by contacting your local officials and using the state resources discussed below.
Any business startup has numerous state and federal tax requirements. Start by accessing the Arkansas Taxpayer Access Point (ATAP) to register your new business.
State Business Tax
If you set up your LLC for pass-through taxation, the LLC does not pay corporate income tax. Instead, the profits go on the members' individual tax returns. The individual members pay a state income tax on their share of the LLC income. If you set up your LLC for corporate tax treatment, the LLC pays a state corporate tax. The corporate income tax depends on the LLCs profits.
Arkansas LLCs have an elective "pass-through entity" (PET) tax rate for owners, which is the highest individual income tax rate. In 2022, the income tax rate is 4.9%.
State Employer Tax
Your LLC will be subject to state rules if you hire employees, even if the employees are also members. Arkansas employers are responsible for withholding taxes and should do the following:
- Register with the Division of Workforce Services
- Report new hires within 20 days of employment date to the Arkansas New Hire Reporting Center
- Register for workers' compensation insurance
- Provide unemployment insurance
Sales and Use Taxes
If your company sells goods and collects sales tax, it must register with the Arkansas Department of Finance and Administration (DFA).
The Arkansas sales tax rate is 6.5% of the sales price for most tangible personal property and some services. The use tax rate is the same and applies to property purchased outside of Arkansas for use, storage, or consumption within the state.
In addition to the state sales and use tax, cities and counties within Arkansas can levy their own sales and use taxes.
Business Licenses and Permits
The state of Arkansas issues licenses for certain kinds of businesses (professionals, construction, liquor businesses, etc.). In addition, there may be local business licensing requirements, environmental impact requirements, etc.
Registration in Other States
If you sell goods and services online, you may need to collect and pay sales taxes in other states. The requirements vary, but most states in the U.S. require businesses to register and pay sales tax if they have a minimum dollar amount or number of transactions in the state.
Sales tax laws and nexus requirements can change quickly, so be sure to read up on the requirements for any state where you do business.
If you want to do business in another state, you will likely have to apply as a foreign LLC. You may need to show a certificate of good standing from the Arkansas Secretary of State to prove your LLC entity and its compliance with state laws. The fee for the certificate of good standing is $25.
To maintain your LLC's good standing, you must file an annual report with the state of Arkansas by May 1 of each year. Arkansas combines paying its annual franchise tax and filing an annual report into one form.