How to Start an LLC in Arkansas
If you have chosen an LLC for your business structure, likely for its liability protection, you can have your own Arkansas business established by following this step-by-step guide.
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The goal when forming an LLC is to be officially recognized by the state of Arkansas. The steps to achieve this are straightforward, but it is important to take these steps at the beginning of your journey to ensure you have all the necessary information. Before going ahead and calling your business entity official, you will want to take care of these few necessary tasks.
Name your LLC
Have a name in mind? Run a name search through the state’s business directory.
The name of your business is one of the most important tools you have for branding and marketing your company, so it makes sense that this decision should be made early. There are also formal requirements surrounding LLC names that mean you will need to lock down your name as the first step in your process.
Name reservation in Arkansas
The most common reason that an Arkansas LLC is rejected is that the submitted name does not follow state guidelines. To avoid this, the first thing you should do is check name availability through the Secretary of State’s website. If your name, or something almost identical, shows up, then you will need to choose another option as Arkansas does not allow indistinguishable names to be shared between businesses. Otherwise, business owners can claim the name.
If you are not ready to immediately claim the name by forming your LLC, it can be beneficial to reserve the name. This can be done by mail for $25 or online for $22.50 and ensures that no one else can use the same name for the next 120 days.
Other naming guidelines
There are other reasons a name may be rejected, even if it is in fact unique. Arkansas has a series of rules related specifically to how LLCs are named, and these are equally important.
Some examples of these rules include:
- The name of every LLC must include either the phrase “limited liability company” or an abbreviation like “L.L.C.” or “LLC”.
- No words can be included in the name that may confuse the LLC for a government entity, like FBI, State Department, etc.
- Certain restricted words may require additional paperwork and a licensed person, like a doctor or lawyer, to be a part of the LLC before they can be used.
- Names can never imply that a business was formed for unlawful purposes or contain obscenities.
- The name cannot contain the name of a person who is not a member, unless it is a former member who is deceased.
Before committing to a name, it is recommended that you do a search on a national search engine to see what comes up. You may find that other states have a business with that name that has already taken the domain name or social media handles that you plan to use. This exercise can help you consider whether customers may be confused or you are comfortable differentiating yourself from these companies.
You can reserve a business name in Arkansas for 120 days.
Select a registered agent
You need to name a registered agent that will accept important documents, like service of process, on behalf of your LLC.
- This agent must be named as a part of your LLC formation so that the state always knows someone has been designated for this role. If you do not have a registered agent in place, you could miss important documents and face penalties, including lawsuits.
- Any individual who is over 18 and has a street address (not a P.O. box) within Arkansas can be named as a registered agent. This includes employees and owners of the LLC, as well as those close to them.
- The only other requirement is that the person keeps regular business hours and is onsite at the listed address during this time.
If you don’t want to commit to this availability, it is possible to hire a registered agent service to act on behalf of your startup. For a small fee, LLC owners can be sure that someone is always available to receive mail without the inconvenience of doing so yourself.
File Certificate of Organization
Once you know your business’s name, registered agent, and other basic information, you will be able to register it with the state of Arkansas. The mechanism to do this is by submitting Form LL-01, also known as the Certificate of Organization for Limited Liability Company. In addition to forming your LLC, this will automatically register each business for Arkansas’s Corporate Franchise Taxes.
The Certificate of Organization can be filed by mail or online. Before submission, you must fill out the following information:
- Entity name and mailing address
- Name and address of your registered agent
In other states, these formation documents are called Articles of Organization.
You can fill out and submit your LLC formation documents here.
The cost to file a Certificate of Organization online is $45. If you file paper documents by mail, the cost is $50. Both fees are not refundable for any reason, including if the LLC is rejected.
Arkansas processing time
When filed online, a Certificate of Organization can be processed and approved within 48 hours. For those sent in by mail, the expected time is one week.
Create an LLC operating agreement
You may find that Arkansas previously required every LLC to create an operating agreement. This is no longer the rule, but it is a critical document that you should consider having in place, even when it is not required. This simple legal document has a number of benefits:
- It ensures everyone is on the same page and offers a guidebook for any questions that may come up about the operation of your business.
- Having an operating agreement helps delineate you and your business, which can ensure you retain personal asset protection.
- If there is a dispute in the future, Arkansas will use its default LLC laws in the absence of an operating agreement. These rules may not be in the best interest of your small business.
Operating agreements do not need to be complicated. In fact, you can often find free templates online to help you craft one. The most common provisions you will see are:
- LLC ownership and profits: Many LLCs will assign ownership based on the total funds invested into this type of business, but you can specify any other split that works for your business. You can also designate how profits will be split, which can be the same as ownership allocation or different.
- Management structure: You will need to set up your LLC as either member-managed, manager-managed, or as a single-member LLC, which dictates who is responsible for daily activities and decisions. It is also important to spell out the roles and responsibilities of members and managers, including what authority they have.
- Decision-making: For any decision that requires a vote, your agreement should spell out whether a majority is needed or a unanimous decision. You can also give certain people decision making power and not others, or differentiate between types of decisions.
- Member exit and entrance: If you want to bring on new members, the agreement should specify what that process looks like and what it may change. You should also account for what happens if a member leaves, either by choice or by something like an untimely death.
- Dissolution: In the event that your business is ever going to be dissolved, you should lay out what each person’s role is and how remaining assets will be allocated.
The operating agreement is an internal document, so you can keep it on record internally without worrying about filing it with the state.
Having an official LLC registered with the state of Arkansas is the first big step toward owning your business. You will need to take care to ensure that you maintain all the other requirements that allow you to operate smoothly and maintain good standing with the state.
Get your EIN
An EIN, or Employer Identification Number, is a nine-digit number issued by the Internal Revenue Service that is used for business tax tracking purposes. The EIN acts similarly to a personal Social Security Number but is in relation to the business rather than an individual. It is free to obtain an EIN and any business can do so easily online.
Not every business will need an EIN. You must obtain this number if any of the following are true of your LLC:
- You have any employees
- You file excise taxes
- You withhold taxes for non-wage income paid to a non-resident alien
Whether you meet these criteria or not, having an EIN is beneficial to all businesses. Doing things like opening a business bank account can require you to provide a tax ID. In some cases, you can provide your personal SSN, but this might open you up to security risks. Using an EIN also helps to establish the separation between you and your business, which adds further protection to your assets.
You can get your EIN by visiting the IRS website.
Get Arkansas business licenses
Businesses in Arkansas do not need to obtain a general business license from the state. But any business that operates in Arkansas that intends to sell or lease tangible personal property subject to sales and use tax does need to have a seller’s permit, or sales tax permit. You will be required to pay a $50 fee to obtain this license, which allows your business to collect and pay state sales tax.
There are other scenarios where you may need to obtain further licensing, such as:
- Some businesses are required to have additional licenses to perform their services, like those that serve alcohol or offer professional services. A full listing can be found at the Arkansas Division of Workforce Services website.
- Each city and county in Arkansas has their own rules surrounding licenses and permits. You can contact your local government offices to determine what you may need to obtain.
- Any activity regulated by the federal government will require an appropriate business license at the federal level.
- If you have a physical office, it is also important to look into local zoning permits.
These licenses must all be obtained before you can begin operations lawfully.
Open business bank accounts
One of the primary reasons entrepreneurs choose an LLC for their business structure is the protection of their personal assets. However, if you cannot demonstrate that you are acting as a different financial entity from your LLC, this protection can be eroded. When this happens, it’s known as piercing the corporate veil.
Having a business bank account is protection against this phenomenon. In addition to this protection, a separate account also makes your taxes easier and can help you keep track of accounting throughout the year.
A checking account is the most important bank account you can open for your business. You can also choose to have savings accounts and even credit cards in the name of your business.
File an annual franchise taxes and annual reports
One unique requirement in Arkansas is the annual franchise tax and the associated report. Each LLC must pay an annual franchise tax of $150 to the Secretary of State. LLCs will otherwise enjoy the tax benefits of being a pass-through entity, with all profits and losses being reflected on the owners’ personal tax returns.
LLCs will also need to file an annual franchise tax report each year. This can be done online or by printing out and mailing the report. This document, along with the $150 tax payment, is due each year by May 1st with penalties levied for late payments.
Get insurance for your LLC
An LLC is designed to protect your personal assets in the case of a claim against your business, but you may need separate protection for business assets. This will come in the form of insurance, though the kind of insurance varies based on your business.
Any business in Arkansas with three or more employees, excluding LLC members, must have workers’ compensation insurance in place. This insurance provides coverage for employees who suffer from illness, injury, or even death because of their job.
Though it is not required, liability insurance is what most LLCs will have in place. General liability insurance covers common claims like bodily injury, personal injury, and property damage. For those in certain occupations, professional liability insurance can also be helpful as it protects against claims of malpractice.
Additional resources to help you set up a business in Arkansas
The Secretary of State in Arkansas is responsible for the formation and maintenance of all businesses, including LLCs. Their website offers a variety of helpful pages for those looking to start a business.
What is the Arkansas Franchise Tax?
LLCs in Arkansas are subject to a flat tax known as the franchise tax. This is a $150 payment due each year, regardless of the profits and losses reported by the company and its other tax elections. This is separate from state sales tax or income tax.
Is business insurance required for Arkansas LLCs?
Any business in Arkansas with three or more employees (excluding LLC members) must obtain workers’ compensation insurance under state law. No other insurance is required, though businesses may choose to purchase general and professional liability insurance and other plans.
Do Arkansas LLCs have to file their operating agreement?
In the past, Arkansas required all LLCs to complete and file an operating agreement. However, this is no longer the law and there is no need to file. It is still advisable for all businesses to have an operating agreement in place, but it will be an internal document.
Who can be a registered agent in Arkansas?
Any person over 18 years old with a physical address in Arkansas can be named as a registered agent for an LLC. By agreeing to the role, this person is also agreeing to be available during all normal business hours. Registered agent services must be able to transact business in the state of Arkansas to be named in the Certificate of Organization.
How are federal taxes and state taxes handled through an Arkansas LLC?
All taxes, including federal and state taxes, are passed through to the LLC owner’s personal income tax return. For tax purposes, owners pay taxes, as opposed to LLC taxes. If you’re doing business as an LLC or a sole proprietorship, you can decide how your entity is taxed, but this setup is the most common.
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