Choice of business entity: foster growth of your new Arizona business

On behalf of Richard Murphy at Murphy Cordier PLC

Arizona law allows for the choice of several different business entities, including the corporation, limited liability company, partnership, sole proprietorship and more.

Not since before the recession has Arizona’s unemployment rate been almost as healthy as the national average, which finally happened when the state rate reached 5.8 percent in April 2015, according to a June 23, 2015, article in the Phoenix Business Journal. The article went on to say that bankers from the Phoenix area at the June Arizona Bankers Association conference believed that the state’s economic recovery could be even more successful than economic measurements suggest.

As support for this positive proposition, bankers cited the optimism of their commercial customers; a healthy number of professional and technological job openings; and Arizona business customers “doing more hiring and expanding.”

Accordingly, it is reasonable to expect that entrepreneurs will decide to open new businesses in this improved economic climate. One of the first, most important decisions a new business needs to make is what kind of business entity should be chosen to best enable the business to meet its goals.

The type of business entity will impact issues like control and decision-making power, taxation, personal liability of owners and more.

To thoroughly understand the choices available and their pros and cons, an entrepreneur should enlist the help of an experienced business law attorney for guidance and representation. An Arizona business entity lawyer can educate the commercial client on all aspects of business entity choice, draft and file required documents and advise the new business on how to comply with applicable laws and regulations.

From their offices in Phoenix, legal counsel at Murphy Cordier PLC advises business clients from birth of a business, through operations and to dissolution, throughout the Phoenix metro and across the state.

Business entities are created under state law and Arizona offers a number of options. Here are some of the most popular:

• Sole proprietorship: This business model does not involve the creation of an artificial business entity, rather it occurs anytime one person begins conducting business for profit on his or her own. The owner has complete control over business decisions, is personally liable for debts and obligations of the business and handles business profits and losses on his or her personal tax returns.
• General partnership: A partnership is formed when at least two people go into business together. Generally, control, profits, losses, taxes and other kinds of liabilities are shared equally, unless this arrangement is altered by a negotiated partnership agreement.
• Corporation: The corporation is a fictitious entity that takes responsibility for liability from taxes, debts and other obligations away from the owners and operators. A corporation is owned by the stockholders who buy shares of stock and managed by a board of directors appointed by the shareholders. The directors also choose officers to help run the business. A corporation may be closely held by one or only a few shareholders, sometimes called a closely held corporation, or potentially very large. Shares may be either privately held or publicly available for purchase. With a corporation, you can elect to be taxed at the corporate level (C-corp) or at the individual level (S-corp). That election depends on the size, type and nature of the business, as well as the personal circumstances of the stockholders.
• Limited liability company: The LLC is a relatively modern business entity that combines aspects of the partnership related to taxation with the corporation’s limitations on liability of individual owners, called members. An LLC decides whether management and control stay with the members or are transferred to managers.

Other Arizona business entities include the limited partnership, limited liability partnership and more.

Consult with an experienced business attorney at Murphy Cordier PLC. Our firm can help you achieve your business goals, while also minimizing your personal liability. Contact us today.

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