Are you looking to form a limited liability company (LLC) in Arkansas, but you’re not sure how the process works? There are several important steps to create a compliant Arkansas LLC that can do business in the state.
To get started, please reference our 6-step guide below or hire an affordable online LLC formation service.
What is an Arkansas LLC?
The Arkansas LLC is one of the most popular business structures in the state. It’s a more casual and flexible type of business than a corporation, but includes the personal asset protection that’s lacking from sole proprietorships and general partnerships.
LLCs in Arkansas have simple formation and maintenance requirements, several options for how they can be taxed, and flexible management. From one-person businesses to multi-member LLCs with several owners, the LLC is a popular choice for a reason.
Setting up a brand-new Arkansas LLC in 6 Steps
For the first part of this guide, we’ll cover the 6 essential steps to setting up an Arkansas business that doesn’t have employees yet. These steps also apply to businesses with employees, but we’re keeping things streamlined to start. If you do have employees, make sure you complete these steps and the steps for employers (which we’ll cover later in the guide).
Step One: Choose a business name
Your LLC’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to consider when naming your business.
Legalities
In the state of Arkansas, you’re required by law to meet several requirements for your business name. Here’s a quick glimpse at the rules for LLCs:
- Your name must include the phrase “Limited Liability Company,” “Limited Company,” “LLC,” “L.L.C.,” or some variation of these
- Your name may not include the name of a person unless that individual is also a member of the LLC, with the exception of a predecessor or former member of the business
- Your name must be “distinguishable on the record,” or distinct from the names of other businesses in the state
For more information on naming rules in Arkansas, please consult the Permitted Names Section of the Arkansas Uniform Limited Liability Company Act.
Explanatory Naming
Another aspect to consider is including language that explains what your business does ― for example, if you’re starting a coffee shop, put the word “coffee” or “brew” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.” This helps potential customers know exactly what to expect from your business.
Matching Business Domain
Behind every successful business is a user-friendly website, which means you need a URL. A website is not a legal requirement, but we highly recommend it, and the best URLs match or closely reflect their business’s name.
To register a URL, we recommend GoDaddy. They make it easy to build a website for your company, guaranteeing that no one else can use or take the URL you want.
Once you’ve picked the perfect name for your business, you don’t want to lose it to another aspiring entrepreneur. Thankfully, Arkansas allows you to reserve your business if you’re not quite ready to register your business. To do that, you’ll need to file the Application for Reservation of Entity Name form. If you file by mail, it costs $25, but filing online takes it down to $22.50.
No matter how you file, the application grants you exclusive rights to that name for 120 days. You can only renew it once, so you’ll want to act somewhat quickly. Learn more about name reservations here.
Step Two: Appoint a Registered Agent
Every LLC in Arkansas is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
When you appoint an Arkansas registered agent, here are the state requirements to be mindful of:
- Every entity must maintain a registered agent who can accept service of process on behalf of the entity
- The agent can be an individual resident of the state or a business entity with authority to do business in the state
- If the business fails to appoint an agent, or the agent is not available to accept it, the Secretary of State will act as the registered agent
- An agent must be continuously maintained
You can find a full rundown of the state laws here.
Without a registered agent, you could lose your good standing with the state of Arkansas, and the state also has the right to dissolve your LLC if they decide to. In a worst-case scenario, you could miss the alert regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Guru Tip: We recommend designating an online service to handle these requirements. This eliminates junk mail and keeps your personal and/or business address off public record.
Step Three: File Formation Documents
Once you are ready to form your Arkansas limited liability company, you will fill out the Certificate of Organization. You can either do this on your own or hire an Arkansas LLC service. Some services, like ZenBusiness, even offer discounts on their service.
This is THE document that will register your LLC with the state. You’ll want to ensure all of the following information is correct on the form:
- Your chosen business name
- Principal office address
- Name and address of your registered agent
- Name and title of at least one officer of the LLC
- Signature(s) of Organizer(s)
There aren’t a bunch of extra bells and whistles included in the Arkansas form. However, there is one step that you might not be expecting: the last page of the form, the Limited Liability Company Franchise Tax form. Don’t be alarmed; you won’t owe any tax at the time of the filing. But this portion of the form ensures that you’ll receive your franchise tax form when filing time approaches. We’ll discuss that tax more in a moment.
Like most states, Arkansas does not require you to file a copy of your Operating Agreement, so as long as you include the Certificate of Organization and your franchise tax form, you should be set to go. You can also file online to save time and money.
- Total cost: $45 online, $50 by mail
- Processing speed: 2-3 days for online, up to 2 weeks for mail
- Expedited processing: $50 extra
Step Four: Draft an Operating Agreement
After you register an LLC in Arkansas, create a detailed outline that explains how you will run and manage your new business. Even though it doesn’t need to be filed with the state, put one together and keep it for your records.
When you open a bank account, you may be asked for this document in order to open an account. You’ll also want to keep in mind that any future business partners or managing members may also be interested in seeing your Operating Agreement before joining your company. After all, this document essentially serves as your overall plan for success.
An attorney can help you outline your Operating Agreement or create one from a free template online. You can read more about Operating Agreements, but some of the basic information you’ll want to have includes:
- Individual members’ ownership percentages
- Rights and responsibilities
- Voting powers and meeting guidelines
- Allocation of profits and losses
- Management rules for the LLC
- Provisions for buying a member owner out, or transferring their shares in the case of illness or death
Step Five: Get Licenses & Permits
Arkansas law requires an LLC to obtain all necessary licenses and permits before starting operations. State law also decrees that an LLC can only provide one specific type of service. All owners of the LLC must be licensed or registered to provide the specific service under which the LLC was assembled.
The type and cost of the permits that your business may require varies depending on the nature of the services your LLC offers. Some businesses won’t even need licenses. That’s especially true since Arkansas does not have a statewide business license.
That said, we recommend that every LLC owner checks the Directory of Licensed, Certified, and Registered Occupations in Arkansas guide. This directory extensively details all of the occupations that require licensure in Arkansas, and it even lists the training and examination requirements. Even better: the guide includes the license fees and renewal fees. It’s quite comprehensive, which we really appreciate.
Last but not least, you should check with your city or county to see if they maintain any licensure requirements.
Obtain a Business Bank Account
One of the most important aspects of running an LLC is ensuring that your business funds remain separate from your personal finances. And to do that, you’ll need a separate bank account for your business.
Obtaining a business bank account is pretty simple, and you can choose the financial institution you like best. Some banks will ask to review your LLC’s operating agreement, and some also ask to see your EIN (see the Employers section below). Once you have your account, you’ll be able to get checks, make payments using your business card, and so on.
If you failed to get a business bank account, you would technically be blurring the line between your personal accounts and your business accounts. That compromises your personal asset protection.
Next Steps for Newly-Formed LLCs
1. Prepare for tax time
Regardless of how far away April 15th is, it’s never too soon to prepare for tax time and setting up accounting software. As an LLC owner, the exact tax rates you’ll pay depend on the taxation structure you choose for your business. If you choose to be taxed as a corporation, the LLC itself will pay taxes from its own funds. Meanwhile, LLCs taxed as pass-through entities don’t technically pay taxes; its members do. The profits are distributed to the LLCs members, and each member reports that income on Schedule C of their personal taxes.
If you choose to be taxed as a corporation, you’ll pay the following rates:
- Federal: 21%
- State: 1-6.5%
Meanwhile, LLCs taxed as pass-through entities pay these rates:
- Federal: 10-37%, rising on a fixed-bracket scale
- State: 5-6.9%
In order to compliantly file and pay your taxes, you’ll fill out a complete copy of federal Form 1065 including all federal K-1s, statements, and attachments. Arkansas makes it pretty easy to access your tax forms through Arkansas TAP, or the Taxpayer Access Point. Here, you’ll find instructions for your income tax forms, whether you pay as an individual or an LLC.
This portal will also help you file your Franchise Tax, which is a tax you’ll pay in addition to your income tax. The franchise tax is levied regardless of whether or not your business makes a net profit, and it is due every year by March 1st.
Then there’s sales taxes to collect (6.5%) along with industry-specific taxes for areas like hard cider, paid fantasy sports, and more. For more information about both generic and specialized taxes, we recommend consulting the Arkansas Department of Finance and Administration.
Because taxes can be incredibly complicated, we highly recommend consulting with a business attorney or accountant to ensure that you cover all requirements on the state and federal level.
2. Be ready to file your annual report
Remember how we mentioned the franchise tax earlier? That tax is especially important because it doubles as your annual report each year. Not only does filing this report keep your tax filed compliantly, but it also updates the state about some basic but vital business information, such as your registered agent, your contact information, and your business leadership.
This report costs $150 to file, and it’s due by May 1st. If you file late, there’s a $25 late fee (plus interest for each day it’s late).
3. Consider business insurance
The big advantage to the LLC is that it offers you personal asset protection. But that doesn’t mean that mishaps won’t happen along the way. We highly recommend obtaining a general liability policy with the right coverage for your business.
In the event of a mishap or natural disaster, an insurance policy can help you navigate unexpected expenses. Be sure to compare your different options to get the best coverage for your particular type of business.
Extra Steps for Businesses with Employees
When you’re operating as a one- or two-person show, operating a business is relatively streamlined. Things get more complicated when you bring employees into the picture, but employees also help raise your business to new heights. But to reach those heights, you need to comply with employee-related legal requirements.
Step One: Address employee-related taxes
Any business with employees must obtain an EIN, or an Employer Identification Number. This is a free registration with the IRS, and the number acts a lot like a social security number for a business. Obtaining the number also lays the groundwork for other taxes, such as social security and withholding taxes. For example, you’re required to withhold income taxes from employee paychecks, make social security and medicare tax payments, and pay unemployment fund taxes. For more information on employer taxes at the federal level, look here.
There are similar taxes on the state level. For example, Arkansas requires withholding taxes, contributions to the unemployment insurance tax fund, and more. We recommend consulting with the Withholding Tax Branch and the Division of Workforce Services to learn what taxes apply to you and your business.
Step Two: Obtain additional insurance
Arkansas businesses with employees are required to get a workers’ compensation insurance policy. For more information on this requirement, check out the Arkansas Workers’ Compensation Commission.
If you haven’t already obtained a general liability policy, we highly recommend that you do so when you bring employees into the business. The more people you have involved in a business, the higher your risk of needing general liability insurance.
Of course, proper care and discretion will eliminate most problems, but incidents happen—from faulty products to an employee slipping and falling and theft and many places in between. And in some cases, insurance can be the difference between a minor hiccup and a budget-breaker.
Step Three: Enlist Help
For some entrepreneurs, part of the fun of running a business is the opportunity to wear lots of different hats: accountant, manager, marketer, quality control expert—it’s a near-endless list. And if your business is still pretty small, you might be able to handle many of these tasks yourself, especially if you’re prepared with a business administration degree.
But if you aren’t (and it certainly isn’t a prerequisite), some of these tasks may leave you feeling overburdened or out of your depth. For instance, navigating employer-related taxes might steal valuable time that you’d rather spend promoting your business or developing a new product. An accountant or tax attorney, however, knows those tasks like the back of their hand. You may decide it’s worth the added expense to enlist their help.
Ultimately, it’s your decision whether to bring in professionals or DIY. But in our opinion, it’s often worth it to get help from specialized pros.