Are you looking to start a professional corporation in Arizona, but you’re not sure where to start?
Professional corporations are those owned and operated by licensed professionals, like doctors, lawyers, and architects. There are quite a few important steps you’ll need to take to create your Arizona professional corporation and maintain it, so this guide will outline the rules and regulations involved with this process.
We’ll cover everything you need to know, from picking names, choosing a board, navigating taxes, and more. To get started, please reference our guide below or hire a professional online incorporation service.
What is an Arizona Professional Corporation?
On the surface, a professional corporation and a regular corporation look very similar. Both businesses can issue stock, both have bylaws, and both are governed by a board of directors and an executive team. Both pay corporate income taxes, too.
And more importantly, both corporation types offer personal asset protection. Simply put, a shareholder or member of the business isn’t liable for the business’s debts. So a member of the corporation can’t be sued; the corporation is sued. However, in a professional corporation, there’s one exception: individual members can be sued for malpractice.
That’s especially important because professional corporations usually offer professional services, such as lawyers, dentists, doctors, chiropractors, and more. All of those trades can be sued for malpractice. But in a PC, only the person responsible for the malpractice can be sued. That makes it a better option for most professionals.
In Arizona, a corporation may offer professional services and form a professional corporation. However, this only applies as long as at least 51% of the shareholders are licensed in the profession offered by the corporation. Simply put, your PC must be largely funded by licensed professionals.
7 Steps to Start a Professional Corporation in Arizona
Now let’s jump into the specific steps you’ll need to take to form a professional corporation in Arizona. Later on in this guide, we’ll discuss the steps you need to take in order to maintain your corporation in Arizona. But let’s start at the beginning.
1. Select Your Board of Directors
A professional corporation is only as good as its board of directors, so you’ll want to appoint carefully. And while the bulk of people involved in the day-to-day operations of your business will be licensed in your profession, we recommend having your board be a bit more diverse.
For example, a dental PC might want a director with legal experience, one with business growth expertise, a financial expert, and so on. This gives you diverse input to help the business succeed.
Arizona also makes it pretty simple to choose your board because there isn’t a long list of rules for your board. The only explicit rule is that you must have at least one director at all times, and at least half of your directors and the PC’s president must be licensed. As long as you meet those minimums, you’ll be set to dictate the remaining terms in your bylaws, such as how directors can resign, how they’ll be replaced, their duties, and more. For a full look at Alaska’s rules for a board of directors, please consult the Governance section of the Professional Corporations chapter.
2. Designate a Registered Agent
Every Arizona professional corporation—and even other entity types—must appoint a registered agent. This individual accepts “service of process” from the state on your behalf. Basically, if the state ever needs to notify you regarding a lawsuit or an upcoming annual report due date, they’ll contact your registered agent. Your agent forwards that notice to you.
Arizona has a few legal requirements for your registered agent, though:
- Every entity that files with the Arizona Corporation Commission (both domestic and foreign) must appoint a registered agent
- The agent must be a resident of Arizona OR a corporation or LLC with authority to do business in the state
- An agent must be continuously maintained
You can find a full rundown of the state laws in the Arizona Revised Statutes.
Technically, you can serve as your own registered agent, but we don’t recommend that. First, you’ll be busy running the day-to-day affairs of your corporation. It’s also important to note that the registered agent’s address goes on the public record; some entrepreneurs are uncomfortable with that idea. Because of that, it’s a good idea to appoint a third party, like an individual you trust or one of our top registered agent services.
3. Choose a Name for Your Corporation
Technically, you can complete this step at any point during the process, but we’ve put it here—depending on how involved your board of directors or fellow incorporators are, they may want to be involved in the naming process.
Choosing a name can be one of the most fun—and challenging—parts of starting a PC. There are a few things to keep in mind when picking a name.
Meet Arizona’s Legal Requirements
The trickiest part of naming a business is adhering to the state’s legal requirements for naming a business. Thankfully, Arizona keeps its laws relatively simple:
- Your name must include the words “professional corporation,” “professional association,” “service corporation,” “limited,” “service corporation, “chartered,” or their abbreviations
- Your name must adhere to any statutes prescribed by the industry you operate in
- Your name cannot include words like “Bank” “Trust” or “Union” unless you are actively involved in those trades and have the appropriate licensure to accompany it
- Your name must be “distinguishable on the records of the commission,” or distinct from the names of other entities, unless you have express written permission from the name’s owner
Pick a Descriptive Name That You Like
As long as you meet legal requirements, you have a lot of leeway to pick the perfect name for your professional corporation. In general, you should choose a name that’s memorable, describes what your business does, and is easy to say and remember. More importantly, you should pick a name that you and your team likes. You should feel good when you tell other people about your business, and your name is a big part of that.
You can also reserve your name with the Reservation of Corporate Name form. This procedure costs $60, but it protects your name for 120 days. That buys you time for other business start-up steps. After all the work to create a name, you don’t want to lose it to another business.
4. File your Articles of Incorporation
Now that you have your board, agent, and name all lined up, you’re all set to file your Articles of Incorporation. This three-page document is what officially forms your business in Arizona, and it requires some foundational data about your business. This is the information you’ll need to provide:
- Confirmation that you’re filing a PC
- Your corporation’s name
- The services your PC will offer
- Character of the business you’ll be conducting
- Classes and shares of stock you’ll be issuing
- Address for your primary place of business
- Name and address of your registered agent
- Name and address of each director
- Name, address, and signature of each incorporator
- An attachment with your agent’s acceptance and a Certificate of Disclosure
Long story short, your Articles are pretty easy to submit. Just be sure to include the extra paperwork linked on the form itself, and you’ll be compliant. If you’d like, you can also file online. Either way, you’ll need to have $60 on hand for the filing fee.
5. Establish Your Corporate Record & Hold Your First Board Meeting
Now that your professional corporation officially exists, it’s time to establish your corporate record. Your board of directors will help you do this during your first board meeting.
The very first step you’ll take is drafting your bylaws. Arizona doesn’t dictate a lot of legal requirements for the day-to-day operations of your business, so that’s where your bylaws will come in. Your bylaws are basically the operating manual for your business: how the board is appointed and maintained, shareholder policies and distributions, how officers are appointed, and much more. Every PC will have slightly different bylaws, but it’s essential to have them.
In addition to creating bylaws, at your first meeting, you’ll want to appoint someone to take minutes at each meeting. These minutes form another vital part of your corporate record, summarizing all important activities and decisions.
Other important tasks for your first meeting include appointing officers, drafting a conflict of interest policy, establishing committees (if applicable), and more. No two board meetings are exactly alike, but the first one is a crucial (and busy) one.
6. Obtain Business Licenses
As a professional corporation, you won’t be a stranger to the licenses required by your industry. But we’d be remiss not to remind you of them!
In Arizona, a majority of your shareholders (at least 51%) must have a license in your industry, along with half of your directors. Employees of your PC only need to be licensed if they’re also administering the PC’s service. A receptionist, for example, is not required to have a license. If anyone in your organization needs to renew or obtain a license, then the Arizona Commerce Authority is a great place to get started.
Some states also require a general business license on top of professional licenses, but Arizona is a bit different: they require a Taxation Privilege License. Technically, this is more of a taxation requirement, but it’s still a license you need to obtain and maintain. If you’d like more information on licenses in general, a good starting point is our guide to Arizona business licenses.
7. Set up a Business Bank Account
If you don’t already have one, it’s time to get a business bank account. This enables you to ensure that your business funds and personal funds are always separate—an essential distinction to maintain your personal asset protection. Most banks will ask to see your bylaws (and maybe even your formation documents) as part of this process.
You can also look into getting a business credit card if you feel your company is ready for that step.
3 Steps to Maintain Your Arizona Professional Corporation
Now that your business is up and running, it’s time to maintain it compliantly. There are three major areas you’ll want to tackle (or plan ahead for): taxes, insurance, and annual reporting.
1. Prepare for Taxes
Taxes are a fact of life for a corporation. Before you do anything else, we recommend obtaining an EIN, or an Employer Identification Number—even if you don’t have employees. That’s because an EIN acts like a social security number for a business. What’s more, it’s free (and quick) to obtain through the IRS.
After that, if you have employees, you’ll want to anticipate your contributions to unemployment insurance taxes and withholding taxes on the state and federal levels.
And of course, there are corporate income taxes to account for (21% for federal taxes and 4.9% for state ones). These taxes are arguably the biggest expense a corporation will face in a given year. Income taxes are supplemented by Arizona’s miscellaneous industry taxes: liquor and tobacco are just a few examples. You can find more information on miscellaneous taxes with the Arizona Department of Revenue.
Not every tax will apply to your Arizona PC, and this is not an exhaustive list. Taxes are complicated and vary significantly depending on your business. We highly recommend consulting with a tax professional to ensure that you’ve covered all of your responsibilities.
To keep things organized and simple for all things tax, we recommend setting up an accounting software and working with a qualified professional.
2. Obtain Business Insurance
In addition to the malpractice insurance that each practitioner maintains, we highly recommend maintaining a general liability insurance policy for the business as a whole.
Lots of things can go wrong: fallen trees at your physical location, a fall on your property, malfunctioning equipment…it’s a long list. This general policy isn’t required by Arizona law, but we recommend it so you’re protected no matter what. Accidents and natural disasters can be very expensive.
Arizona does require one insurance policy, though: workers’ compensation. Any Arizona business with employees must obtain one of these policies. For more information on this requirement, please consult the Industrial Commission of Arizona.
3. Anticipate Your Annual Report
All businesses in Arizona are required to submit an annual filing called the annual report. This document updates the state regarding any information about your business that might have changed over the course of the year. It’s a very simple online filing.
The due date varies from one corporation to another; you can find it by logging into eCorp and checking your records. The filing fee is $45 (plus $35 if you want expedited processing). This form doesn’t seem like much, but don’t overlook it; delinquent filings can cause a lot of hassle. If you’d prefer to have a service handle this obligation for you, there are a handful of reliable report filing services.
Getting Help With Your Arizona Professional Corporation
Feeling overwhelmed or just need an extra hand? Here are some of our favorite resources for Arizona professional corporations.
Online Incorporation Services
If you would like to hire an affordable business incorporation service to create your professional corporation for you, services like LegalZoom, Rocket Lawyer and Swyft Filings can help you out. These service providers can handle most of the formation process, while still charging much lower rates than a business attorney’s fees.
There isn’t the same level of personalization that a lawyer can provide, but online incorporation services can still be a tremendous help. The only major issue with these service providers is the fact that they can’t provide any actual legal advice, so you need to know what you want ahead of time.
Arizona Business Attorneys
There are some situations where hiring a business lawyer is a preferable route to using an online incorporation service. The professional corporation as a business structure can be highly complicated and specialized, and if you want to have the peace of mind that every single step was taken care of by a true expert, hiring a business attorney to form your Arizona professional corporation is the way to go.
If you would like to pursue this route, there are some convenient services that can help you choose the right lawyer for your business. We like to use Avvo, which has extensive reviews and ratings for hundreds of Arizona business lawyers, which can make it much easier to select an attorney who has your best interests in mind and also has the expertise to get the job done right.
Frequently Asked Questions
Can I speed up the process?
Processing speeds for Arizona are a bit slow; paper filings can take as long as 4 weeks, and online filings or expedited documents are usually completed within 12 days. Expediting a document costs $45 for business formation documents. We recommend filing online, as this streamlines the process and automatically speeds it up.
Can an Arizona professional corporation elect S-corporation status?
In most states, there’s a big advantage to electing S-corporation status, which allows a corporation to be taxed more like a pass-through entity. Since individual income taxes are often lighter than corporate ones, this election can reduce your tax burden. To qualify for this status, a corporation must have 100 or fewer shareholders and only one class of stock.
Arizona PCs can apply for this status with the IRS using Form 2553. Since Arizona has a 4.9% corporate income tax, this status can change a decent amount of your annual budget.
Do I have to file my corporate record with the state?
Arizona does not require you to file your corporate record with the Secretary of State (excluding the annual reports and formation documents). You’re simply required to keep one. Most professional corporations choose to keep a classic binder with these records, but you can pick the method that works for you. Just ensure that it’s accessible somewhere onsite, and you’ll be able to add to it or consult it as needed.
What’s the difference between a PLLC and a PC? Can I form one in Arizona?
A PLLC, or Professional Limited Liability Company, is an LLC formed by professionals in regulated industries. Arizona offers the PLLC as an alternative to the PC, giving you a lot of options to run a business that renders professional services.
Are incorporation services like ZenBusiness and Northwest worth it?
That depends on what your needs are. If you want to keep your expenses as low as possible, then you might find yourself bewildered by the state fee and the service’s package fees put together. But if you don’t want to endure the hassle of dealing with paperwork, or you simply want a teammate to help you through the process, a service may be a big help to you.
Another important note is that neither ZenBusiness or Northwest file professional corporations. Yes, they are ideal if you’re looking to form a regular corporation or an LLC, but not professional corporations.
Should I hire a business attorney to help with my PC?
Ideally, yes (if you can afford it). But a business-lawyer relationship is a very important one, and you’ll want to find a lawyer that fits your budget, your personality, your industry, and so on. One of our favorite tools for Arizona businesses is Avvo.com, where you can find lawyers in your city, based on the best customer reviews, and several other helpful filters. It’s a helpful tool.