In order to start a Limited Liability Company (LLC) in the state of Arkansas, you must file a Certificate of Formation with the Secretary of State. Along with your certificate, you will also have to provide a completed and signed Operating Agreement if the LLC has members.
An Arkansas LLC operating agreement establishes rules for managing an LLC and how profits should be distributed among its members. In addition to these requirements, filing fees are necessary to complete your formation process. This article provides step-by-step instructions on how to form an LLC in Arkansas.
How to Start an LLC in Arkansas
STEP 1: Name Your Arkansas LLC
The first thing you will need to do is name your LLC. Under Arkansas law, a name must contain the words “Limited Liability Company” or the initials “L.L.C.”
The Arkansas Secretary of State’s website includes a Name Availability Tool that will search for similar business names already in use by another business entity.
FAQ: Naming an Arkansas LLC
Q. Is there a difference between an Arkansas LLC name and an Arkansas Corporation name?
A. Yes. A corporation is generally formed under state law to conduct business, while an LLC is not formed for any specific purpose. However, some states require certain words (e.g. “Limited” or “Incorporated”) in the organizational names of corporations but not LLCs.
Q. Can I call my Arkansas LLC a “Corporation?”
A. No. The term corporation is legally defined in many states including Arkansas by reference to Section 87-7-101 (a) (2) CRS 1972 which reads: “‘Corporation’ means all public and private corporations, joint-stock companies, insurance companies, unincorporated associations, joint ventures taxable as a corporation, banking institutions or trust companies.”
Q. Are there any other requirements to naming my Arkansas LLC?
A. Yes. The name of your Arkansas LLC must be distinguishable from the names of other business entities already on file with the Secretary of State.
This means that if you choose a name for your LLC which is not unique, it will be denied by the Arkansas Department of Finance and Administration (DF&A) Division of Business Services because another business entity has already been given that name.
Also, you can’t use a federal or fictitious name as an LLC name in Arkansas without first registering the name with the Secretary of State’s office through a Name Reservation Request.
STEP 2: Appoint a Registered Agent in Arkansas
For a Limited Liability Company (LLC), the registered agent is the only person or business entity to whom service of process and official documents may be sent by the Arkansas Secretary of State.
The Secretary of State will not be able to forward any legal documents if you do not provide a valid address for your registered agent.
FAQ: Nominating an Arkansas Registered Agent
Q. Is there a difference between a Registered Agent, Resident Agent, and a Resident Agent in Charge?
A. No. All three terms refer to the same type of agent role within an LLC or corporation. The registered agent may have all the powers of a resident agent acting on behalf of a business entity to include accepting service of process, receiving legal notices, and forwarding them to the business entity’s address.
Q. What is Service of Process under Arkansas law?
A. Generally speaking, service of process is defined by case law as “the manner in which service upon parties within or without the state shall be made in actions at law,” but excludes garnishments, writs, and executions (Arkansas Code Annotated § 16-60-103(a) (4)).
Q. How often must I file the Registered Agent Address Change Form?
A. The registered agent address change form must be filed annually by January 15th of each year. However, there is no consequence for filing this document late.
STEP 3: File the Arkansas LLC Articles of Organization
The LLC Articles of Organization must be filed with the Arkansas Secretary of State.
The articles should include certain basic information such as:
- An LLC name
- The LLC formation date (consult your CPA)
- The LLC’s physical address
- A statement that the registered agent is the only person or business entity to whom service of process and official documents may be sent by the secretary of state, and an acknowledgment that failure to provide a valid registered agent will result in cancellation of the certificate of organization registration for non-compliance with statutory requirements under Ark Code Ann §4-26-307(f).
FAQ: Filing Arkansas LLC Documents
Q. How long will it take to file the LLC articles of organization?
A. The Secretary of State will file and index your Arkansas entity name, and you can expect to receive a certificate of formation in the mail after approximately 3-5 business days. You can also use our Express filing service for same-day processing if you choose.
Q. Is there any truth to the rumor that I need to have an EIN before I form my LLC?
A. No. An IRS Employer Identification Number is not required when registering an LLC in Arkansas which signifies that your business does not have employees or independent contractors working for it at that time.
STEP 4: Create an Arkansas LLC Operating Agreement
The Arkansas LLC Operating Agreement is not required by law but it’s important to create an operating agreement for several reasons. This document will govern your business affairs, protect the members’ interests, and set out rules of operation.
FAQ: Creating an Arkansas LLC Operating Agreement
Q. What should Operating Agreements include?
A. A solid Arkansas LLC Operating Agreement should include basic information such as:
- A list of all owners/members
- The percentage share each owner has in the company (that is if it is not 100% owned by one member)
- Information on how profits are shared between members
- What happens with any existing debts or pending liabilities when one member leaves the company
- A list of all voting members and a description of their votes
- A list of any non-voting members, including the percentage each member owns
- The percentage each member has to consent/affirm major company actions
- How new members are added or existing members are removed from the LLC
- Rules for filling vacancies that may occur among member positions in the LLC
- Member withdrawal rights if business operations end, assets transfer, or if there is a buyout offer
STEP 5: Get an Arkansas LLC EIN
An EIN is a nine-digit number the IRS issues to businesses. It’s similar to a social security number for an individual, and it’s used to identify your LLC for tax purposes.
FAQ: Getting an Arkansas LLC EIN
Q. Do I need an EIN?
A. If you plan on hiring employees soon, then yes. This is especially true if your business will have employees who will be members of the LLC such as a self-employed agent or contractor working with your company
Benefits and Drawbacks of an Arkansas LLC
- The ability to take advantage of pass-through taxation. This means that any profits and losses will be passed through the business and taxed on your personal income taxes, which saves individual members from the double taxation other types of businesses such as corporations suffer
- The ability to add or remove new members in an Arkansas LLC without disrupting its existence
- The benefit of having perpetual continuity (this does not mean you can live forever but it gives you a much longer period of time before your business is required to dissolve)
- There are limits placed on how many owners an LLC can have
- Although different states have varying requirements for how many votes each member requires in order to approve changes, generally, single-member LLCs do not require the consent of other members
How much does it cost?
The cost of forming a limited liability company can vary greatly depending on whether you choose an online service or hire a filing agent to help you.
Online services range from as little as $50 up to approximately $300, depending on the state and LLC type. Hiring a registered filing agent typically costs anywhere from around $100 up to over $500, again depending on the state and LLC type.
In Arkansas, there are different fees based on how long your articles will be available for public viewing:
- If you file online for 3 years, it costs $140
- If you file by mail/in person for 3 years, it costs roughly $250
There is also a fee if you indicate that you want entity search results to be sent to you via US mail (this fee is not required if you file online):
- If filing online for 3 years, it costs $10.75
If your articles of organization are filed with the Secretary of State on paper and they are not returned within 60 days, you must amend your application and pay another filing fee.
Considering Using an LLC Formation Service?
A common option for individuals who are considering forming their own LLC is to take advantage of an online company that specializes in this process, such as the Incfile’s formation service. By using a third party to do much of the work, you can save time and money while ensuring your LLC meets all requirements according to state law.
An experienced company will also be able to provide you with personalized assistance when it comes time to file your articles of organization and other documents or if you have any general questions about your limited liability company.
The prices charged by these companies are often significantly less than hiring a filing agent directly, making it even easier for individuals to form their business quickly.
Separate Your Personal and Business Assets
One way to protect your personal assets if your business should fail is to separate your personal and business assets.
The easiest method of doing this is by having a written operating agreement that clearly delineates which specific assets belong to the company, which belong to the individual members of the LLC, and which are shared between both entities. This agreement should also determine whether or not creditors have access to these shared assets in case the LLC fails.
1. Opening a business checking account:
You will need to open a business checking account for your company, which you can do at a local bank or credit union. Because there is personal liability protection associated with LLCs, you will want to make sure the account name reflects the name of your LLC and not your own name. You may also be able to get a debit card associated with this account so that you can access funds when on the go.
2. Getting a business credit card:
Just because you have a separate business checking account doesn’t mean that you can’t also get a business credit card for your LLC to use. By using the LLC name on this account it provides even more protection from personal liability related to business activities.
Once obtained, this credit card can be used by any member of the company to make purchases for their work-related needs and will help track expenses between multiple employees.
3. Hiring a business accountant:
It is highly recommended that you hire a professional business accountant to help you with the books on an ongoing basis. This can be particularly helpful during tax time, if your LLC has done some complex financial transactions, or if it is necessary for you to receive funding from outside sources.
By making sure your books are in order, you can save money by not paying unnecessary taxes on income and assets. Your accountant will also have valuable advice on how to set up your accounting system so that it works best for your company’s unique needs.
Get Business Insurance for Your Arkansas LLC
Regardless of whether or not you need to use your LLC for personal liability protection, it is highly recommended that you carry at least an umbrella policy on the business.
Umbrella insurance provides additional liability protection above what is included with your standard business liability coverage and is particularly useful if one of your employees gets into some type of legal trouble due to their work on behalf of your company.
You will need to make sure that you have a workers compensation policy in place if you hire employees for your LLC. This type of coverage helps protect both the employee and the employer from claims related to on-the-job injuries or illnesses.
These types of policies can vary widely by state, so it is important that you know what your company needs to do in order to remain compliant with Arkansas laws.
Commercial general liability:
This type of insurance provides protection for a wide range of different damages and losses, including those related to bodily injury. It is also common to see CGL policies include coverage for products that cause harm or damage, advertising injury, premises liability, injured employee coverage, and other types of additional protections that may be particularly important to your business operations.
In certain professions, it can be vital to have professional liability coverage in place as part of business insurance. For example, doctors and attorneys often need medical malpractice or legal malpractice coverage in order to protect themselves from being sued by their patients or clients. However, other professionals may also benefit from this type of policy as well.
If you plan on hiring employees at some point in the future, having access to group health and/or disability insurance through an employee benefits package can provide financial protection for both the company and the employees themselves. Many employers also opt to offer dental and vision coverage through these packages as well.
Create Your Business Website
Even though you probably won’t have a website for your LLC right from the start, it is never too early to begin planning out this project. A well-designed website can help bring in new customers and increase profits by giving people easy access to information about products or business and commercial services that they may be interested in purchasing.
In addition, having a professional website can also help protect you from being sued should one of your customers get hurt while using the product or service that was purchased from the site.
Send Out a Press Release
Part of marketing your business is getting the word out there, and one of the best ways to do this is by sending out a press release. Press releases are an excellent way to build brand awareness for your business. They should include detailed information about what you plan on doing, as well as any upcoming events or milestones that you expect to achieve in the near future.
- Targeted advertising: Advertisements can be targeted to specific audiences based on location, demographics, interests, and other types of details that help marketers effectively reach their target consumer base so they don’t spend money trying to sell things to people who won’t be interested. This type of targeted outreach can increase ROI (Return On Investment) significantly since it will help reduce wasted ad dollars.
- Social media marketing: Facebook, Twitter, Linked In, and other forms of social media are extremely popular with both businesses and consumers alike. They allow you to communicate directly with your customers, as well as target specific ads at groups of people who may be interested in what you have to offer through the use of various targeting methods such as keywords, demographics, interests, behavior strategies (such as retargeting), and more.
Arkansas Business Permits and Licenses
Before starting a company, it is important to know what type of business permits and licenses you will need. Business owners are required to have – but not limited to – the following pieces of paperwork in place before beginning operations:
- Local/municipal business permit
- Federal employer identification number (EIN) issued by the IRS
- Arkansas state sales tax license (if applicable)
- Arkansas state occupational tax for that industry (if applicable)
Each local municipality or city may also require additional documentation, such as zoning approval or building permits. Learning about any requirements ahead of time could save your company lots of time and money in fines in the long run.
Arkansas LLC Tax Filing Requirements
One of the most important things any business owner needs to know is how they will file their taxes. There are four primary business tax types that all LLCs in Arkansas will need to choose from:
- Sole proprietorship
- Single-member LLC treated as a sole proprietorship
- Multi-member LLC taxed as a partnership
- Multi-member LLC taxed as a corporation (Form 8832)
Arkansas State Tax Return Filing Deadlines and Dates
All of this information can be easily obtained by downloading or purchasing an Efile state income tax package directly from the company, such as Intuit or H &R Block. Individuals may also be able to use Google Calendar, Calorie Counter Pro, and other similar applications to track important dates and deadlines for their business.
Arkansas Sales Tax Rates
Arkansas does not have a state sales tax. However, residents are expected to pay all applicable local taxes. At the time of writing, there were four cities that had special local taxes that must be paid by residents within their respective jurisdictions:
- Bentonville City Ordinance 497 (2%)
- Fayetteville City Ordinance 1240 (3%)
- Fort Smith City Ordinance 2800 (1%)
- Hot Springs Village Tax on Retail Sales 2% or Use Tax 1.5% or Intrastate Motor Carrier Surcharge 0.75%
The rates for these additional taxes vary depending on city/location and range from less than 1% to over 5%. One should always check with their specific location to confirm the rates.
Arkansas Employer Taxes
The Federal Government, along with the Arkansas state government, requires employers to collect and submit several types of taxes and forms for each employee. The following is a list of common tax obligations typically associated with hiring employees:
- Federal Insurance Contributions Act (FICA): Social Security and Medicare contributions that both employer and employee must pay on wages earned.
- Federal Unemployment Tax (FUTA)
- Form I-9: A legal requirement under the Immigration Reform and Control Act needing to be completed for all employees hired after November 6th, 1986
- Employers may need to file a supplemental form if an employee’s N Number has not been entered correctly during initial submission or renewal.
- Wage and Hour Division: Regulations and requirements set forth by the United States Department of Labor for both employees and employers regarding minimum wage, overtime pay, recordkeeping of hours worked, and more.
- Fair Labor Standards Act (FLSA): A federal law requiring that employers pay employees no less than a federally established minimum wage and follow specific rules based on job classification such as salaried position versus hourly/non-exempt position.
FAQ: Additional Taxes
Q. Are there any other types of taxes I need to be aware of?
A. Yes! There are several miscellaneous state and federal taxes that may apply depending on your business type, location, and the volume in which services or products are provided. Following is a brief overview of some additional tax obligations you should be aware of when starting a new business in Arkansas:
- Ad Valorem Tax – Local property tax paid for business equipment or machinery used in an operating business
- Capital Gains Tax – Federal income tax paid when making certain profits from the sale or exchange of capital assets such as land/buildings, stocks/bonds, patents, etc
- Cigarette &Tobacco Taxes – Federal excise taxes imposed by the United States Department of Health and Human Services taxed at the state level
- Corporate Income Tax – Arkansas income tax imposed on members, including non-residents, of a corporation operating in or deriving income from sources within the State of Arkansas. This is separate from the federal corporate income tax imposed by the Internal Revenue Service.
Federal LLC Tax Filing Requirements
The IRS requires all LLCs to file an annual information return. This form is typically sent with the Federal 1040, but any estimated taxes, payments, and tax due must be entered on this form at year-end. A federal tax ID number (EIN) is required for most company transactions including opening a bank account.
Arkansas Annual Franchise Tax Report
All LLCs doing business in Arkansas must pay a franchise tax of $100 annually to the Secretary of State and file an annual report. There are limited liability companies (LLCs) that may be exempt from this requirement. For more information on filing requirements, contact the Arkansas Secretary of State at 479-682-5070 or online at: https://www.sos.arkansas.gov/filing/.
Arkansas LLC Annual Reports
All LLCs in the state of Arkansas are required to file an annual report with the Secretary of State. This amount is paid annually in advance at the time of registration, and it must be filed by February 15th each year.
Legal responsibility for this document rests with the registered agent. The Secretary of State provides a list of registered agents through their website here: https://www.sos.arkansas.gov/Business/Registered-Agent
Hiring Employees in Arkansas
Arkansas does not require employers to pay unemployment tax on new hires, but state law requires most companies to submit Form I-9 or an acceptable work authorization form with the Arkansas Department of Labor.
What is a foreign Arkansas LLC?
A foreign LLC is an out-of-state limited liability company doing business in Arkansas. Foreign LLCs are governed by the laws of the state where they were created and must register with the Arkansas Secretary of State to do business in Arkansas.
Foreign LLCs should follow the same procedures as domestic entities when it comes to filing their annual report or terminating their registration, except that foreign LLC must file a certificate of good standing from their home state when submitting annual reports or termination documents.
Do LLCs have to register with the Arkansas Department of Finance and Administration?
No. LLCs are not required to register with the Arkansas Department of Finance and Administration.
What should I do if I move out of state?
If your LLC is already registered in Arkansas, you must file a certificate of termination by submitting an Application for Certificate of Termination form along with the filing fee.
If your company will remain operational within the state, you can terminate your registration without closing your company. This termination takes effect after one year from the date you submit the notice to the Secretary of State.
After this date, all powers conferred upon your LLC shall be suspended unless an application has been filed for reinstatement or renewal.
While forming an LLC can seem complicated, the process isn’t as hard as it seems. The key is to keep track of your business expenses and ensure that you are saving enough for federal and state income taxes every quarter.
Following these guidelines will help ensure that your company is prepared for whatever tax filing requirements may come it’s way.