How to Form a Professional Corporation in Arizona

Are you considering starting a professional corporation in Arizona? Congratulations! Establishing a professional corporation is an excellent choice for entrepreneurs and professionals alike who seek to benefit from a business structure that provides limited liability protection, tax advantages, and enhanced credibility. However, navigating the process of forming a professional corporation in Arizona can be daunting.

This article aims to provide a comprehensive guide on how to form a professional corporation in Arizona, covering everything from understanding the basics of this business entity to the essential steps and requirements you must comply with to launch your new venture successfully. Let’s dive in and explore the ins and outs of forming a professional corporation in Arizona!

What is a Professional Corporation in Arizona?

A professional service corporation (PSC), sometimes called a professional corporation (abbreviated as PC), is a type of organization authorized by state law to allow owners of particularly licensed professions in Arizona. The owner of a professional corporation is responsible for their own negligence or misconduct, but they are not held personally accountable for the actions of other owners. PC or P.C. is a regularly used abbreviation to identify professional corporations.

PCs and LLCs provide personal asset protection; that is, the personal assets are free from business debts. However, they do not have similar tax benefits. There is no secret formula as to which type of business structure is better than the other. It solely depends on the requirements of your business. However, forming an LLC is easier than setting up a PC in Arizona.

– LLCBuddy Editorial Team

Unlike other types of corporations, owners of Professional Corporations get two types of citizenship. One is where they incorporated the corporation, and the other is where they conduct the business. This benefit is not available for other types of corporations. You can form a free LLC in Arizona if you hire a professional service that provides LLC formation at $0.

How to Form a Professional Corporation in Arizona

To form a Professional Corporation for the professional service you provide, you must follow a few steps that include verifying if you are qualified for a PC, naming your business, hiring a Statutory Agent, filing the Articles of Incorporation, outlining an operating agreement, requesting for an EIN, opening a bank account, getting a business license, and filing for an annual report and taxes.

Step 1: Verify If You Are Qualified for a Professional Corporation

In forming a professional corporation in Arizona, you should know if you are qualified. There are specific professions that are allowed to form a professional service corporation, including-

• Doctors
• Architects
• Engineers
• Accountants
• Lawyers and others

You should be qualified to have a license to provide your service. In most cases, once you have graduated with your studies, passed the exam, and got your license, you may now form a professional corporation. However, if you work in an industry that doesn’t offer a license or professional certification, you should consider forming a corporation or limited liability company.

Step 2: Name your Professional Corporation in Arizona

After you have decided on the idea to form a professional corporation in Arizona, deciding the name for your corporation is significant. There is a complete guide on Arizona LLC name guidelines for you to have a proper business name. Here are some regulations you must follow while naming your professional corporation.

• The business name should have the word PC, frequently followed by the name of the principal owner in place of Inc or LLC. (Example. John Doe, MD, PC)
• No confusion with a government entity name.
• A unique name is needed with no match
• Limit of restricted words that need a license.

In Arizona, if you do not wish to file your professional corporation right away but want to hold the name that you have decided on, then you can reserve your corporation name for 120 days. To keep the name, you must file a name reservation application with Arizona Secretary of State.

A professional corporation, professional association, service corporation, or professional service corporation must be present in the name if it doesn’t already. You might opt to register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for a DBA (doing business as). In this manner, you can choose any name you desire to run a clinic or law firm.

Step 3: Choose the Arizona Statutory Agent

The next step in forming a professional corporation is hiring the Arizona Statutory Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents, all notices of lawsuits, and other official government correspondence in Arizona. Forming a professional corporation for your service will be easier if you have Statutory Agent in Arizona.

Alternatively, you can serve as your own Arizona Statutory Agent if you have the time. However, you must stay compliant to avoid missing any important documents from Arizona.

Step 4: File the Articles of Incorporation in Arizona

After you hire a Arizona Statutory Agent to form a professional corporation, the next step is to file the Arizona Articles of Incorporation. In writing the Articles of Incorporation, the business name, owner’s contact information, corporation address, and Statutory Agent contact information should be written. You should also include the names of all co-owners. All owners have to prove they have the proper license to practice the specific profession they intend to.

Filing the Articles of Incorporation in Arizona may be done with two ways, in-person and by mail. The Articles of Incorporation fee may vary from different states. However, in Arizona, it costs $60 for filing in-person and by mail. There’s no online filing available.. For offline filing, Send the form by mail or drop it in person to Arizona Corporation Commission, Corporate Filings Section, 1300 W. Washington St., Phoenix, AZ 85007.

Step 5: Write an Operating Agreement in Arizona

An operating agreement is a document that contains all of your company’s organizational details. It is not required to draft an operating agreement in most states. Yet, having one as an internal document is strongly advised. The Arizona operating agreement includes information like-

1. About Business
2. Members and management
3. Capital contribution
4. Profit Distribution
5. Change of membership
6. Dissolution

Step 6: Designate the PC Board of Directors in Arizona

The next step is to appoint the initial board of directors in your PC in Arizona. All the initial directors must submit their details to the owner. The owner must keep the records and submit them in accordance with the Arizona SOS. When writing the By-laws, as a shareholder and owner, you must make sure there is a point mentioned about appointing a new director later.

Step 7: Write the Corporate Bylaws

Now that you are done forming the team of the board of directors, the next step is to draft corporate bylaws. Corporate bylaws are the basic rules that control a corporation. It includes the organization’s structure, processes, laws, and rules. As a result, all personnel, managers, and corporation members must obey the firm’s rules.

In creating corporate bylaws, you should include the following on how the decisions will be made.

• The responsibilities are given to each officer.
• How will judgments in business be made?
• Where and when are the annual shareholder meetings?
• The minimum number of shareholders required for decision-making.
• Location and timing of dividend payments.

Step 8: Hold the First Board of Directors’ Meeting

After drafting the corporate bylaws, gather all the board of directors for the first meeting. This meeting will be finalized by appointing directors to manage the company’s daily operations, approve the bylaws, choose the corporation’s accounting year, and approve the stock issue. All board meetings should have minutes taken and stored with the company’s records.

Step 9: Request an EIN in Arizona

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your professional corporation. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in Arizona can be through the following:

• Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
• Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in a number of ways. It will give your professional corporation the final advantage necessary to operate at full capacity without encountering legal or judicial issues.

Step 10: Open a Bank Account and Prepare for Taxes

Once you have filed and received your Employer Identification Number, you should open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Arizona might be simpler by having a US business bank account because it boosts your company’s legitimacy and liquidity. For firms other than sole proprietorships, most banks demand an EIN to create a business bank account. Also, keeping separate finances helps you avoid combining personal and professional finances. Also, having an EIN makes tax preparation easier. With a professional corporation, you can anticipate paying employment and corporate taxes.

Step 11: Get a Business License in Arizona

Before your professional corporation operates in Arizona, you need to have a business license first. A business license is a formal document issued by the state government agency that allows you to operate your business in the geographic region that that agency governs. In Arizona, business license and permit costs depend on the business’s nature and type. You must check with the local authorities if any special licenses or city-based permits are needed.

Step 12: File Your Taxes in Arizona

Finally, you are down to the last step. After getting a business license and being ready to operate, do not forget to file your taxes first. You should start paying taxes quarterly as soon as possible to avoid a large tax bill. Each state has different tax requirements. Go through the Arizona classification of taxes for the taxes an LLC in Arizona has to pay.

Important Information

Maintaining Professional and Business License in Arizona

Now that you have established your professional corporation, you must maintain or renew your professional license every now and then. Even if your business is established but you don’t have a valid license to operate, your business is irrelevant. And, even if your professional license is still valid for a year or two, but your business license is already expired, it is still irrelevant.

Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Filing an Annual Report in Arizona

In Arizona, you will be required to submit a report each year. The owners’ and Statutory Agent’s names and contact details are listed in the annual report. Also, it should include all of your yearly financial activity. You must submit one yearly in Arizona, and you can do it yourself or hire someone else to handle it. Everything must be precise and up to date.

Advantages of Forming a Professional Corporation in Arizona

A professional corporation takes a lot of time to process and pursue. However, with the help of the Arizona Statutory Agent, everything will become easier. In fact, there are advantages that will help you form a professional corporation in Arizona.

1. Limited Liability: The biggest advantage of setting up a professional corporation is that the owners are not held personally responsible for the debts and obligations of the company. This indicates that only the company’s assets will be confiscated to settle claims and creditors if the business is sued or declares bankruptcy. Additionally, this protection exempts corporate owners from being held accountable for other owners’ reckless or criminally negligent acts.

2. Tax Deductions: Similar company expenses, such as employee fringe benefits, startup and operating costs, and equipment purchases, can be written off by professional companies in the same ways they can be for other kinds of firms. However, there are several tax deductions professional corporations can take advantage of that other types of businesses can’t. For example, the salaries and bonuses paid to owners and employees are tax-deductible.

3. Retained Earnings: Professional corporations can keep a portion of their profits under the corporate tax system to grow their companies.

FAQs

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Why Arizona Professional Corporation is So Important

One key reason why the Arizona Professional Corporation is essential is that it offers liability protection to its members. Professionals in fields like medicine and law often deal with high-stakes cases where mistakes can have severe consequences. By operating under the umbrella of a professional corporation, individual members can shield their personal assets from lawsuits or claims related to their professional services. This protection is crucial in allowing professionals to focus on their work without the constant fear of personal financial ruin hanging over their heads.

Another important aspect of the Arizona Professional Corporation is the flexibility it provides for professionals to structure and manage their businesses. Each profession has unique requirements and regulations that must be followed to operate legally and ethically. Professional corporations allow members to form a cohesive entity that aligns with their industry standards while still maintaining a level of autonomy in decision-making and management.

Additionally, the Arizona Professional Corporation fosters a sense of professionalism and accountability within the business community. By adhering to the rules and regulations set forth by the state, professional corporations demonstrate a commitment to upholding ethical standards and providing quality services to their clients. This reliability and integrity are essential in building trust and credibility with the public, leading to long-term success and growth for the corporation and its members.

Moreover, the Arizona Professional Corporation promotes collaboration and specialization within the professional community. Professionals from different backgrounds and specialties can come together under a shared corporate identity to leverage their collective knowledge and expertise. This collaboration can lead to innovative solutions, improved client outcomes, and enhanced professional development opportunities for members.

Overall, the Arizona Professional Corporation is a vital institution that supports professionals in delivering high-quality services while ensuring their legal and ethical compliance. By providing liability protection, flexibility, professionalism, and collaboration opportunities, these entities play a crucial role in the success and prosperity of professionals in various industries. The Arizona Professional Corporation is not just a legal entity; it is a vital tool for professionals to navigate the complexities of their professions and achieve their goals while upholding the highest standards of integrity and excellence.

Conclusion

In forming a professional corporation in Arizona, having someone to help you build it is not necessary but suggestible. Even though it is easy because of the listed benefits and advantages above, forming your group of professional individuals will make it somehow successful. Just make sure to be guided by the steps and ensure that every one of the details and records is accurate and precise. And if you have any questions, share them in the comment section below.