Setting Up an LLC in Arkansas: Everything You Need to Know
Setting up an LLC in Arkansas is a relatively simple process that provides several benefits to business owner(s), including assisting in the operation and development of the business.3 min read
Setting up an LLC in Arkansas is a relatively simple process that provides several benefits to business owner(s), including assisting in the operation and development of the business. An LLC is a business in which the owner is not liable for a business's debts, or any judgments against it.
To benefit from the specific legal status and protections that operating as an LLC provides, business owners follow a process of naming their business and filing the required paperwork with the Arkansas Secretary of State.
Benefits of Forming an LLC in Arkansas
In addition to protecting business owners' personal assets, turning a business into an LLC affords business owners other financial protections and tax advantages, including:
- The ability to open bank and credit accounts in the LLC's name, which helps keep the business owners' finances separate from the business
- Avoiding double taxation because the LLC is not taxed separately
- Simpler tax reporting because all the profits and losses are “passed through” to the owner(s) or members of the LLC, making it easier to comply with tax liabilities
The process of setting up an LLC in Arkansas is quite simple and requires five steps:
Step 1 – Choose an Approved Name for the Business
Considered the most important step, the business owner must choose a name. Through research, the business owner identifies and submits a name that:
- Is available for use
- Is relevant to the purpose of the business
- Is easily identifiable to customers
- Contains the phrase Limited Liability Company, L.L.C., or LLC
- Does not contain restricted or prohibited words, which require additional paperwork or may confuse the public, such as University or Treasury
Step 2 – Identify a Register Agent
Arkansas law requires that an LLC identifies a person or entity that will act on behalf of the LLC in certain business transactions, such as sending and receiving state filings and legal notices. The registered agent cannot be the LLC itself but can be any individual who is a resident of the state and is authorized to conduct business in Arkansas.
Step 3 – File the Articles of Organization
After the business has nominated an appropriate registered agent, the business then files the Articles of Organization with the Arkansas Secretary of State. The process can be done in person, by mail, or online. To complete the process, the business owner pays a non-refundable fee of $50 and gathers the following documents:
- The name and address of the LLC
- The name and address of the registered agent
- The type of management that will govern the LLC
- The Execution date, if other than the date filed
- The Organizer's name and signature
- The LLC franchise tax registration form
Step 4 - Draft an Operating Agreement
An operating agreement is also known as the legal document laying out the ownership and operating practices of the LLC. Although it is not required by Arkansas law, it is good practice for a business to have one because it provides an organized financial and operational foundation for running the business.
Step 5 - Obtain an Employer Identification Number or EIN
Issued by the Internal Revenue Service (IRS), the EIN is used to identify a business entity required when filing state and federal taxes. An EIN enables the business to open lines of credit and accounts with banks and credit card companies. The process can be completed by mail or online.
Maintaining LLC Status and Avoiding Dissolution
As simple as the process of setting up an LLC is, thousands of LLCs are fined or dissolved yearly for missing required annual filings. Dissolution is when the LLC loses its limited liability protection. Submission of annual reports and forms are required to maintain LLC status. To maintain good standing and avoid penalties, LLCs should ensure that the following are filed yearly:
- Annual (or biannual) report. A report that contains basic information about the business and payment of a fee.
- Franchise tax. All LLCs are required to file and pay an annual franchise tax, as per Arkansas law. As of 2018, the tax is $150.
- Federal income reports. Since the IRS classifies LLCs as partnerships, they are required to annually file Form 1065 U.S. Return of Partnership Income.
By setting up a business as an LLC and completing the process, business owners gain valuable protections and advantages that can help grow and strengthen their business.
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