Choose the Best Form for Your Arizona Business
The following issues are likely to be of concern when choosing the best form of organization for your Arizona business: (1) formation and formalities (2) liabilities of owners to third parties (3) management and control (4) liquidity (5) dissolution and (6) taxation.
Corporations: (1) formation and formalities: must file articles of incorporation and observe ongoing formalities (2) liabilities of owners to 3rd parties: no liability (3) management and control: no direct control – delegate to Board of Directors (4) liquidity: shares easy to transfer (5) dissolution: unlimited life (6) taxation: double taxation except for S-Corp. (up to 75 owners, 1 class of stock, only U.S. citizens)
Partnerships: (1) formation and formalities: none for general partnership, modest for limited partnership (2) liabilities of owners to 3rd parties: general partners personally liable unless a registered Limited Liability Partnership (LLP) (3) management and control: general partners have control rights (4) liquidity: limit on transferability, general interest is illiquid (5) dissolution: limited life (6) taxation: pass-through taxation
Limited liability companies (LLC): (1) formation and formalities: must file articles of organization and operating agreement (2) liabilities of owners to 3rd parties: members have same limited liability as shareholders (3) management and control: members can manage or may delegate management power to team of managers (4) liquidity: members may transfer their interest only through the unanimous consent of all members or through consent described in the articles of organization (5) dissolution: must be some event of dissolution specified in articles or membership agreement (6) taxation: pass-through
For many small businesses, LLC is best choice because although they have limited liquidity and limited life, they have limited formalities, limited liability, some control and pass-through taxation.