How to start a business in Arizona
If you are considering Arizona as a place to start your business, this guide will give you reliable and up-to-date information on the steps you need to take and explain how to:
- Develop your business idea,
- Choose your legal business entity,
- Register your business,
- Secure funding and licenses,
- Promote your business — and so much more.
This guide also provides answers to some frequently asked questions regarding small businesses and offers some professional tips for your Arizona business endeavor.
In the end, you’ll find links to important government websites that you should consult to get the information and documentation necessary for starting a business in Arizona.
Is Arizona a good state to start a business? Key takeaways
Arizona has made a sustained effort to become a pro-business state, cut red tape, and relax regulations.
Based on the Arizona small business profile 2022, there are 641,025 small businesses in Arizona — they make up 99.5% of all the businesses run in the state.
When it comes to the Cost of Living Index in the US for 2023, Arizona is below the baseline (i.e. 100.0) only in terms of transportation and miscellaneous expenses. The baseline is perceived as the national cost of living average — and being above the baseline means that Arizona is among the more expensive states to live in the US.
For comparison, the same source ranks Mississippi as a state with the lowest cost of living index (83.3), whereas Hawaii has the highest score (193.3).
In the table below, you’ll find additional information about Arizona’s cost of living, measured against the average score of 100.0 — information that can help you decide whether you want to start a business in Arizona.
|Arizona’s Cost of living score and USA ranking*|
|Cost of living index||103.2*||33rd|
|*Scores above 100.0 indicate cost above the average|
Despite its middle ranking in these categories, Arizona has a few advantages that enable small businesses to start and grow. Let’s see what they are in the following lines.
Advantages of starting a business in Arizona
One of Arizona’s advantages for starting a business is its easy access to the 3 of the biggest world markets — California, Mexico, and Texas. Arizona’s excellent infrastructure connects the state with many other regions and allows the constant circulation of products and labor.
Next, Arizona offers a highly skilled workforce. The Arizona university system is dedicated to educating students for in-demand profiles dealing with technology and innovation.
As stated in the Arizona 2022–2024 Projected Employment Report, total employment in this period will grow by 1.4% on an annual basis. It is projected that 10 out of 11 Arizona supersectors will experience growth and bring new jobs.
With projected annual growth of 3.4%, the leading supersector is Manufacturing. It is followed by:
- Information (3.3%),
- Leisure and Hospitality (2.4%),
- Professional and Business Services (1.8%), and
- Trade Transportation and Utilities (1.5%), and so on.
The only supersector to experience a drop is Financial Activities (-0.6%).
Knowing what sectors are expected to grow and get job openings can help you decide where your business might fit in.
Arizona’s favorable tax system and tax relief programs can also attract entrepreneurs to invest.
We shall discuss these in more detail below.
Arizona tax system
On January 1, 2023, Arizona joined a group of states with flat individual income tax rates. Now, after individual income tax brackets consolidation, Arizona has an income tax rate of 2.5%. This way, Arizona prevents tax increases for both entrepreneurs and the workforce.
The new tax rate of 2.5% is the lowest income tax rate in the US. Furthermore, Arizona doesn’t impose franchise tax, inventory tax, estate tax, and gross receipts tax.
According to the Tax Foundation, Americans tend to move at an interstate level from high-tax to low-tax states.
A study on tax-friendly states by MoneyGeek ranks Arizona as 8th among the 10 states with the lowest tax burden. On a scale from A to F, Arizona got a B grade in terms of tax-friendliness.
The data from the 2023 State Business Tax Climate Index shows that — with an overall score of 5.26 — Arizona ranks 19th among all US states when measured against a maximum score of 10.0, where a lower score indicates higher taxes.
Other tax scores are given in the table below.
|Arizona’s tax score and USA ranking|
|Unemployment insurance taxes||5.47||14th|
Arizona tax relief programs
Arizona strives to become a haven for entrepreneurs. This is why its government has worked on simplifying the Arizona tax system in recent years.
For instance, the additional depreciation program was created with the aim of reducing taxes for personal properties used for commercial, agricultural, and industrial purposes in the first 5 years.
Another interesting program is the Quality Jobs program, which stimulates constant employment. This is done by offering $9,000 over a 3-year period for each net new qualifying job.
At the moment, there are 13 tax relief programs in Arizona, and it is highly recommended to check them out if you are thinking about starting your own business. You might easily come across the one that suits your business plans.
These programs have already attracted some of the most innovative companies in the fields of Advanced Manufacturing, Technology and Innovation, Renewable Energy, Bioscience and Healthcare, and others.
How to start a business in Arizona in 17 steps
On your way to making the dream of your own business come true, you may come across many hurdles.
Therefore, you should carefully consider the steps you need to take in this exciting adventure of starting a business in Arizona — and here they are, in all the necessary details.
Step #1: Develop your business idea in detail
If you have been toying with the idea of starting your own business in Arizona, there are several questions you should ask yourself at the beginning:
- What are the reasons for starting your business?
- Is the business you want to start profitable?
- Are you ready to tackle all the procedures required to start a business?
- Do you have a unique product/service that you can offer?
- Can you offer a more refined version of a certain product or service?
- Do you need to hire employees?
- Do you need office space?
One more important point to mull over is whether you want to go into a business that doesn’t require much investment — or a start-up company or small business in one of the industry sectors stimulated by the Arizona government.
If you’re not sure yet about what you can do, here are some great business ideas for Arizona.
Arizona business idea suggestions
If you don’t want to invest a lot of money but still want to start a potentially profitable business, here are some popular types of businesses in Arizona you can consider:
- Delivery service,
- Lawn maintenance service,
- Pool maintenance service,
- Event planning,
- Online tutoring,
- Gift basket service,
- Arts and crafts, and
- Financial planning.
On the other hand, if you already know what kind of business you want to start, you should know that Arizona offers many programs and resources to support the start-up culture.
Also, there are several key industries your business can find its niche in the Arizona market:
- Aerospace and defense,
- Bioscience and healthcare,
- Business and financial services,
- Film and digital media,
- Technology and innovation,
- Vineyards and wine,
- Renewable energy,
- Mining industry, and
In any case, it’s always a good idea to test your product or service.
For example, you can try online tutoring with someone you know or prepare gift baskets of your products for your neighbors. Ask them for feedback and suggestions. This will certainly help make the initial improvements to your business idea.
When it comes to unique technology solutions, you can test your product through the Arizona PropTech Sandbox program. Arizona was the first US state to launch this program to support innovation. The program allows awardees to test their product/service without being required to get state licenses and the authorizations that are usually required. This program ends on July 1, 2029.
Step #2: Research the business potential of your idea
Once you have your business idea, test the waters to see if the business you’d like to run is worth your time and effort.
Your research should concentrate on the market and provide answers to the following questions:
- Is there a demand for your product or service on the local or state level?
- Who is your target market?
- Who are your competitors and what makes them successful?
- How can you make your product/service catch the eye?
Make sure the market is not oversaturated with the same product/service. If your product or service is something everyone is offering, you might want to think of something else people really need. After all, a more unique idea will give you better chance of success.
However, a large enough demand can make even a less innovative product or service a great idea.
Let’s take the pool maintenance service as an example.
According to the Pool and Hot Tub Alliance swimming pools data for 2020, there were 331,598 residential inground pools and 10,034 commercial pools installed in Arizona that year.
So, if you’re looking to start a pool maintenance service in Arizona, you’re probably not the first person to think of that — but, the target market is huge!
For all business ideas, before you put them into motion, always conduct research on a local level and look into:
- How many competitors there are,
- What they offer, and
- What the online reviews of their services have to say.
At the end of this step, when you are sure that there is potential for your business on the market, grab the opportunity — and move on to the next step!
Step #3: Choose your legal business entity
Depending on the plan you have for the future of your business, you should carefully choose your business entity. To find out what legal and tax obligations your business entity has, it is highly recommended to consult a legal and/or tax professional to help you make the best possible choice.
We’ll get you covered in detail with all the business structures available in Arizona — and these are:
- Sole proprietorship,
- Limited partnership,
- Limited liability partnership and limited liability limited partnership,
- Limited liability company,
- S-corporation, and
- Non-profit corporation.
Entity type #1: Sole proprietorship
With a sole proprietorship, the business is owned by an individual. So, legally speaking, you and your business are much the same.
It should be noted that Arizona is one of the 9 US community property states. Therefore, a husband and wife can operate a sole proprietorship.
However, in this case, they are obliged to fulfill the requirements for a qualified joint venture.
For a sole proprietorship, you are not required to file any state documents. However, you are still obliged to pay taxes and, depending on your business type, pay for licenses and permits.
As a sole proprietor, you (the owner) get the profit. However, should any debts or lawsuits arise, you are responsible for solving the issues — and your personal assets might be in danger.
A sole proprietor works under their social security number. You are allowed to have employees as long as you have an Employer Identification Number (EIN). The application for EIN is submitted through the IRS website, and you get the number for free.
Since you are the business, you are obliged to pay both income tax and self-employment tax. You can see your profits and losses within a separate schedule of your personal tax return.
Those who usually opt for this type of business are freelancers, artists, musicians, etc.
Entity type #2: Partnership
A partnership is an informal business entity owned by two or more persons.
Partnerships don’t have liability protection, and each partner shares in the business’ profits and losses. Also, partners pay taxes through their individual tax returns.
This type of business structure doesn’t require any specific documentation. However, it is advisable to sign a partnership agreement — an excellent way to agree on the following details:
- How much each partner invests in the business,
- What percentage of ownership each partner has,
- Who signs documents and contracts,
- How they make decisions,
- How they share the profits and losses,
- How they resolve disputes, and
- How they deal with departures of current partners and arrivals of new ones.
When we talk about partnerships, we usually refer to a general partnership. But, there are other types of partnerships besides that one:
- Limited partnership (LP) — a type of partnership that limits the responsibilities of partners. Limited partners usually provide finances while the general partner controls business activities.
- Limited liability partnership (LLP) — a type of partnership that allows an equal share of finances and obligations among partners. A partner cannot be held responsible for any debts and liabilities of other partners. Mostly reserved for lawyers, accountants, and architects.
- Limited liability limited partnership (LLLP) — a business entity recognized in Arizona and some other US states. General and limited partners are protected from personal liability if any debts or legal issues turn up. The real estate industry and asset management often choose this type of business structure.
LPs, LLPs, and LLLPs have to be registered with the Arizona Secretary of State.
Entity type #3: Corporation
A corporation is a complex business formation that functions as a separate entity from its owners and is usually formed to attract investors. Owners and their personal assets are legally protected.
The owners of a corporation are shareholders, and the unit of ownership is a share of stock. For example, if a company issues 100 shares and you own 50, this means that you own 50% of the company.
A corporation is run by a board of directors and has corporate bylaws. Bylaws represent a set of rules and usually include information on:
- How decisions are made,
- When meetings are organized,
- How to organize daily operations and appoint officers,
- How to keep track of important documentation,
- How to issue stocks and shares, etc.
There are 3 forms of corporation — and each has different obligations when it comes to taxation:
- C-corporation — a traditional type of corporation that most companies choose. If you don’t specify the type of corporation you want to form, your corporation will be considered a C-corp. These entities pay corporate income tax.
- S-corporation — also known as Subchapter S corporation. Represents a combination of a partnership and a corporation. Unlike C-corps, S-corps don’t pay corporate income tax. Shareholders are subject to personal income tax payment on their share of a profit. To become an S-corp, a company needs to meet several requirements, and one of them is having a maximum of 100 shareholders.
- Nonprofit corporation — a form of the corporation established with a certain purpose such as religious, charitable, literary, and others. To get tax-exempt status, these entities need to apply through the IRS (Internal Revenue Service). The IRS issued Publication 557 with all the rules and regulations regarding this procedure.
Entity type #4: Limited liability company
A limited liability company (LLC) is one of the most popular business entities.
LLC offers both the benefits of a corporation and those of informal business structures. This means that:
- It is a separate legal entity,
- The personal assets of the owners are protected,
- The profit goes to the owners,
- Each owner pays tax for their share of the profit.
LLC may be a single-member or multi-member structure.
This type of entity doesn’t require much paperwork. The registration process is quite simple, but it is a good practice to consult a lawyer or an accountant.
Step #4: Name your business
Having decided on the business entity, it is time to think about the appropriate name for it.
Since the name you choose will be the bedrock of your business, it is important to choose it wisely.
Do some brainstorming to come up with a catchy and simple name — and think about how to make it visually attractive.
After you brainstorm potential names, make sure the one you opt for is available. To check the availability, you can search the Arizona business name database.
If you need a trade name, known as DBA (“Doing business as”), you can check availability at the Arizona Secretary of State Business Entity database.
Also, in case you want to have a trademark for your business, you can check if it is available in the US Trademark Electronic Search System.
An online search can also be beneficial to check if anyone uses the same or similar name to the one you want.
Depending on your business entity, there are certain Arizona Corporation Commission Naming Standards you need to stick to when choosing a name for your business. For instance, LLCs must contain “limited liability company”, or “limited company”, or one of the abbreviations “L.L.C”, “L.C.”, “LLC”, or “LC”, (e.g. Gemstone, LLC)
Step #5: Reserve and register your business name
Once you are sure that the name you want for your business is available, you can proceed to the reservation or registration part.
It is always good to consult a professional to help you with the registration process.
In Arizona, you can secure your business entity name online by creating an eCorp account through the Arizona Corporation Commission website. After you check the availability, you can proceed to the name reservation process.
Your name reservation is valid for 120 days and this is the time you have to submit documentation and form your business. The online name reservation fee is $45 ($10 filing fee plus $35 expedite fee). If you file online, you get the name reservation immediately.
In case you don’t want to pay the fee for the expedite option, you can submit paper documents by mail, fax, or in person.
Bear in mind that separate forms are used to apply for an LLC name reservation and a corporation name reservation.
To make sure you have all the necessary documentation, such as the Cover Sheet, please read the LLC name reservation instructions or corporation name reservation instructions.
Additionally, trade names and trademark registration is done through the Secretary of State’s website. Trade names are held for 5 years, and the filing fee for your trade name registration application is $10.
When it comes to trademarks, they last for 10 years and the filing fee for a trademark registration application is $15. To proceed to the registration, you are required to check name availability for both trade names and trademarks. Also, check the Trade Name and Trademark Handbook for more information on the procedure.
Your application processing time is 2–3 weeks.
Bonus step: Consider the URL domain for your business
Nowadays, most businesses consider having an online presence a must. With this in mind, you can think about securing yourself a web domain (URL), even if you have left your website plans for later.
You can register your domain with providers such as Bluehost, GoDaddy, and Ionos — but make sure you check the availability first.
As US Small Business Administration recommends, you can register your domain with a registrar service and consult accredited registrars to help you.
Step #6: Make a clear business plan
Whatever you do in life, you should have a plan, especially if you are planning to start a business.
A business plan is your roadmap to success and, therefore, it is essential to give careful thought to everything you need to do.
Your business plan might be useful when applying for funding and grant programs, so make sure it represents your business idea in the best possible way.
To help you create a best-laid plan, we suggest the following substeps:
Substep #1: Pick an appropriate business plan format
Your plan can be simple or detailed — and depends a lot on the business entity you choose.
For example, a sole proprietorship doesn’t require as much planning as a corporation does.
Make sure your plan covers the major phases of your business and serves as a guide on your entrepreneurial journey.
You can opt for some ready-made templates found online, check some videos on the SBA Learning Centre page on how to write the plan or write your plan from scratch.
Substep #2: Draft an executive summary
A well-written executive summary is crucial for potential investors and funding programs because it comprises all the important information on your business.
The summary should introduce your business and provide its full name, location, and information on your product/service.
Also, it should include the information on:
- Your business goals,
- Your target audience,
- Your financial requirements,
- Your business legal structure, and
- Your projected profits.
Substep #3: Describe your business
In this section of your plan, you are expected to provide more concrete details about your business. These are some of the elements you should include:
- A mission statement of your business,
- Legal structure information,
- Long- and short-term goals,
- Target market information, and
- Industry details.
In our pool maintenance service example, the owner should mention that the mission of their service is to:
- Keep pools clean,
- Prevent any user accidents, and
- Help people spend quality time at pools.
Although you may start as a sole proprietor, your long-term goal might be to:
- Open a chain of pool maintenance services, or
- Start the production of your own cleaning chemicals for pools.
In the end, describe your market and the need to start this kind of business in the pool maintenance industry. Nowadays, many hotels, private homes, health centers, schools, and modern apartment complexes have pools that need maintenance — so it’s an in-demand business.
Substep #4: Describe your product(s) and/or service(s)
The description of your products or services should explain why you believe they are worth selling. In addition to this, try to explain what benefits your products or services will bring to customers.
It is also important to describe the production process and if the business requires cooperation with suppliers.
The pool maintenance industry is popular in Arizona, so this sort of business should score a bullseye. You’ll just need to specify the services you provide — such as checking filters, skimming off leaves, adding chemicals, etc.
Substep #5: Make conclusions on the target audience based on market analysis
The analysis of your target market is important because your product/service needs clients to earn profit.
Conduct research on your market potential and try to figure out the prices of your product/service and put them in your plan.
A pool maintenance service will usually take care of commercial pools and also have private homes as clients.
Substep #6: Outline your management and organization structure
Your plan needs to explain how your business will be organized and how you will delegate responsibilities among employees.
The number of employees should be provided, and it is good practice to include résumés of the employees and describe their roles.
With a pool management service, there might be one person doing all the work — or the owner(s) can hire employees.
Substep #7: Carry out customer segmentation
At the start of your business, you can do some basic segmentation based on the common characteristics of your target group. However, as your business expands and you get more clients, you will be able to refine your segmentation.
Customer segmentation is a valuable substep in your business plan — because it allows you to group your customers based on:
- Who they are, and
- How often they need your services or products.
In the pool maintenance example, you may divide your customers in the following way:
- Private homes,
- Spas, and
- Commercial pools.
Substep #8: Make a marketing plan
The way you are going to promote your business should also be a part of the plan.
To prepare your marketing strategy for pool maintenance service, you’ll need to know:
- The pool service industry and its size,
- The pool service industry trends, and
- The ways your competitors promote their businesses.
Knowing all these factors will help you determine the best way to attract customers. You might decide to offer a limited-time price reduction or give some branded gifts.
Substep #9: Make a logistics and operations plan
Another important part of the business plan is how you are going to organize the flow of your product/service — from the start of the production to the moment it reaches the end user.
Also, the plan should describe all the procedures you have to follow and tasks you need to fulfill.
So, if you own a pool maintenance service, you can describe the way customers can reach you, book the service, and pay for the service.
Substep #10: Make a financial plan
Last but not least, your business plan should include the finances — calculate how much money you need to start your business.
For example, starting a pool maintenance service in Arizona doesn’t demand large-scale investment — and you can cover most expenses for less than $2,000.
Also, provide a forecast for profits and losses in the first year of business.
If you are planning to apply for funding, grants, and some tax-relief programs — check the eligibility requirements for that as well.
Step #7: Secure the necessary funding
There are various funding options you can consider when starting a business in Arizona:
- Friends and family loans,
- Loans and loan programs,
- SBA loans and grants
Funding option #1: Bootstrapping
Bootstrapping implies starting a business with your own capital.
It is usually difficult at the beginning, but as the business grows, the money you invest returns, and you can reinvest it. This type of funding gives you the benefit of making all business decisions on your own and having full control over finances.
Funding option #2: Family and friends loans
Your family and friends can also lend you some money and help you get your business off the ground. This is a good option if you need some financial help — and the repayment conditions are usually easier to lay down.
However, make sure you have a written agreement on the repayment period to avoid any misunderstandings that could damage your personal relationships.
Funding option #3: Partnership
A partnership is a clever way to start your business.
Join finances with someone, and you can run the business together under the agreed conditions.
Funding option #4: Crowdfunding
Crowdfunding refers to the process of obtaining smaller amounts of money from a large number of investors.
This is typically done through online crowdfunding platforms such as Kickstarter, GoFundMe, and StartEngine.
According to Arizona’s crowdfunding law, if they fulfill the criteria to be exempted from registration, companies are allowed to offer and sell securities in the aggregate amount of up to $5,000,000.
Funding option #5: Loans and loan programs
This is another funding option to consider when you need a sizable investment.
Loans vary in their size, and you’ll be expected to prepare your legal business documents to get them.
In Arizona, there are several loan options and loan programs to choose from such as microloan programs, commercial bank loans, and SBA Loan programs.
Loan option #1: Microloan programs
Microloan programs grant loans ranging from $500 to $500,000. You might need to undergo a training and/or planning process as a pre-requirement. Some of the loans are available in all parts of Arizona whereas some are area-specific. Some of the microloan programs for Arizona are suggested on the Arizona Commerce Authority website.
Loan option #2: Commercial Bank loans
Commercial bank loan programs offer different types of loans, and you can check with your bank what they recommend for your business. You can apply for letters of credit, SBA-guaranteed loans, commercial real estate loans, etc.
Loan option #3: SBA loan programs
US Small Business Administration (SBA) offers various funding options for small businesses. You may consider some of these:
- 7(a) loans — the most popular funding option for small businesses with special requirements (maximum loan amount is $5,000,000).
- 504 loans — long-term loans with fixed rates for equipment, facilities, land, etc., provided by Certified Development Companies (maximum loan amount is $5,000,000), and
- Microloans — loans intended for repairing and improving small businesses (maximum loan amount is $50,000).
SBA also offers loans for exporters. To find out more about these programs, you can contact your local SBA International Trade Specialist or SBA’s Office of International Trade.
To check what is best for your business, you can visit SBA offices in Phoenix, Show Low, and Tucson.
Funding option #6: Venture capital investors
Venture capitalists are investors that offer funding to young companies in exchange for equity stakes.
The capital is usually at the disposal of those companies seeking ways to expand their market and commercialize their product/service.
These investors can also provide mentorship and share knowledge with businesses they invest in with the aim of stimulating faster growth of those businesses.
The major disadvantage of this type of funding is that investors may pressure companies to return the investment before the long-term plan is accomplished.
Some of the VC businesses operating in Arizona are Arizona Founders Fund, Phoenix Ventures Partners (PHX), and AZ-VC.
Funding option #7: Angel investment
In June 2006, the Angel Investment program became active in Arizona, and it will be effective until June 2031. This program gathers qualified investors and qualified small businesses.
Angel investors are typically wealthy individuals, LLCs, S-corporations or partnerships. They get income tax credits in return for their investment in small businesses.
Qualified small businesses are corporations, LLCs, partnerships, or any other but sole proprietors. These businesses are in their growing phases, run in Arizona (partially at least), and they have 2 full-time employees minimum.
If they invest in a rural or bioscience company, angel investors get a tax credit up to 35% of the investment amount and up to 30% for other types of qualified small businesses. Tax credits are distributed over a 3-year period.
Klein Financial, Black Dog Venture Partners, and Social Equity Partners are some Arizona-based angel investors.
Funding option #8: SBIR and STIR funding programs
SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs are aimed at stimulating technological innovation through awards worth $2 billion on an annual basis.
Awardees enter the Federal Research and Development circle — and, in this way, they open the door to funding and commercialization.
Through SBIR and STIR programs, businesses cooperate with nonprofit research institutions.
To check if your business is eligible for any of these funding programs, check this SBIR and STIR program eligibility guide.
Funding option #9: Various Arizona-specific funding options
Arizona Commerce Authority lists various funding programs that encourage small businesses. We shall mention some of these:
- Arizona Loan Guarantee Program — supported by SSBCI (State Small Business Credit Initiative) and aimed at small businesses for eligible purposes such as inventory, equipment, renovation, etc.,
- Arizona Innovation Challenge — a competition launched to support innovations in industries such as clean-tech and renewables, IT-Hardware, aerospace and defense, and others. Grants are up to $150,000 per company.
- Arizona Advanced Manufacturing Facilities Grant (AMF) — a grant that includes cooperation with Arizona State University to support semiconductor and hard-materials startups.
Step #8: Choose an appropriate location for your business
Choosing a location for your business demands a bit of time and effort. Before picking the perfect location, you need to think about many factors — such as:
- Cost of rent and renovation,
- Nearby competitors,
- Zoning requirements,
- Customers’ needs, etc.
Ask yourself about your business needs and factors that are the most important for your business growth — then, think about how these factors tie in with your ideal location.
For instance, if you want to open a bakery, you’ll need a location that has a lot of foot traffic. On the other hand, if you open a warehouse, your location should be close to major roads.
If we take location in a broader sense, such as a city, note that Chandler, Mesa, Phoenix, and Tucson are listed in the Doing Business North America report for 2021 that ranks cities with regard to how easy it is to start and operate a business:
- Chandler is praised for its quality of life and well-known for its strong economy. Technology companies such as Intel, PayPal, and Microchip are located here, and one of the advantages for startups is a business incubator named Innovations.
- Mesa has great infrastructure, and its economic activities are mostly connected to health care, education, tourism, technology, and aerospace and defense. Meta, Apple, and Boeing are some of the major employers in the city.
- Phoenix is a state leader in business services, and it strongly encourages the growth of the hi-tech industry, bioscience, and manufacturing.
- Tucson is the second largest city in Arizona famous for supporting the aerospace and defense industry and research in renewable energy and natural resources.
You can read more about each Arizona community and their main economic activities and quality of life on their online profiles provided by Arizona Commerce Authority.
If you are not sure what location to choose and how to undertake research, you can contact the Arizona Commerce Authority to get in touch with a location project manager.
Step #9: Register your business
Now that you have a business name, location, and business plan, you are set to officially register your business.
It is advisable to choose a statutory agent to represent you and take care of the legal formalities. Basically, it is good to have someone who is a dab hand.
Every business entity has some specific requirements to meet, so let’s check each of them.
Register a sole proprietorship in Arizona
A sole proprietorship is considered a simple business — and that is one of the reasons why Arizona doesn’t require any sort of unique registration.
However, no paperwork doesn’t mean there are no details to think about — such as:
- Business name,
- DBA, and
- Employer Identification Number (EIN) — if you are planning to hire employees or open a business bank account.
Register a partnership in Arizona
There are no special requirements or organizational documentation to submit in case of general partnerships.
However, limited partnerships are required to appoint a statutory agent and file a registration.
In Arizona, limited partnerships are filed with the Arizona Secretary of State.
The filing fee for a Certificate of Limited Partnership is $10 + $3 per page. Other fees and forms for both domestic and foreign limited partnerships are found in the Partnership Form Directory.
The usual processing time is 2–3 weeks. If you need to speed up the filing process, the additional fee is $25, and the process is done within 3–5 business days.
Limited partnerships that would like to have paper copies of the agreement need to submit a Public Record Request Form (filing fee is 10 cents per page + an additional $5 for certified copies).
In addition to the Public Record Request Form, it is possible to put in for a “certificate of existence”. The fee is $5.
Register an LLC in Arizona
Naming your LLC is the first step in the formation process. Then, you are obliged to appoint a statutory agent. When this is arranged, the steps that follow are:
- Create an eCorp account,
- File Articles of Organization with the Arizona Corporations Commission,
- Fulfill LLC Publication Requirements,
- Draw up an LLC Operating Agreement, and
- Obtain an EIN.
Step #1: Create an eCorp account
This is a practical step to take if you prefer to send documentation online and register your business in this way.
You can create an eCorp account at the Arizona Corporation Commission website and follow the instructions.
Step #2: File Articles of Organization with the Arizona Corporations Commission
To apply for a reservation, you are required to fill in the Articles of Organization. The filing fee is $50. The link to the instructions on how to fill in is provided in the form.
Along with this form, you should submit 3 more documents:
- Cover sheet,
- Statutory Agent Acceptance, and
- Manager Structure Attachment or Member Structure Attachment.
Foreign LLCs may apply for approval and submit the Foreign Registration Statement. The filing fee is $150.
If you decide to send the documentation via email, you can send hard copies to this address: Arizona Corporate Commission, Corporate Filings Section, 1300 W. Washington St., Phoenix, AZ 85007.
It takes up to 30 days for approval. It is possible to arrange expedited processing for an additional $35.
Step #3: Fulfill LLC Publication Requirements
In Arizona, it is obligatory to publish a notice of forming an LLC in a local newspaper. You have a period of 60 days for publication.
LLCs established in Pima and Maricopa counties are excluded from this rule.
You can find a suitable newspaper in the Arizona Corporation Commission newspaper listing.
Step #4: Draw up an LLC Operating Agreement
An operating agreement acts as a cornerstone of every LLC. This agreement displays important information about the business, ownership structure, distribution of profits and dividends, etc.
It also arranges voting rights of LLC members, responsibilities, and business procedures.
Step #5: Obtain an EIN
LLCs are required to obtain an EIN because this allows them to hire employees, pay taxes, and open bank accounts.
The application is free, and it is available on the Internal Revenue Service (IRS) website.
Register a corporation and a nonprofit corporation in Arizona
Establishing a corporation and a non-profit corporation is a bit more complex. The registration documentation and process are very similar for both entities, but nonprofits have a few more steps to take.
Assuming that you already have a business name and a chosen statutory agent, you can proceed with the following steps that apply to both entities:
- Create an eCorp account,
- File Articles of Incorporation with the Arizona Corporation Commission,
- Hold an organizational meeting, and
- Obtain an EIN.
Step #1: Create an eCorp account
To easily register your corporation, open an account and follow the instructions at eCorp on the Arizona Corporation Commission website.
Step #2: File Articles of Incorporation with the Arizona Corporation Commission
Both corporations and nonprofit corporations have to complete a document called Articles of Incorporation, but the forms differ for each entity.
To apply for registration, corporations complete the Articles of Incorporation for profit or professional corporation. The filing fee is $60, and you can find instructions on the link provided in the form.
Nonprofits file the Articles of Incorporation (Nonprofit Corporation) with the Arizona Corporation Commission. The filing fee for nonprofits is $40. The instructions are incorporated in the document.
Along with the Articles, there are other documents to be submitted:
- Cover sheet,
- Director attachment (if applicable for nonprofits),
- Statutory Agent Acceptance,
- Incorporator Attachment (if applicable for nonprofits), and
- Certificate of Disclosure.
If you want to send hard copies or submit them in person, you need the following address: Arizona Corporation Commission, Corporations Division – Examination Section, 1300 W. Washington St., Phoenix, AZ 85007.
It is possible to arrange expedited processing for an additional fee of $35.
Step #3: Hold an organizational meeting
The aim of this meeting for corporations is to elect the initial director whose name and data will be provided on important documents.
The initial director is in charge of the corporation’s operations until the first shareholder meeting.
And, in terms of nonprofits, this step implies the organization of the first meeting and securing of a quorum to make decisions regarding:
- Bylaws adoption,
- Appointment of temporary staff, and
- Important policy adoption.
Step #4: Obtain an EIN
Corporations and nonprofit corporations have the same requirements as LLCs when it comes to EIN, and they register with the IRS as well.
Nonprofit corporations need to obtain an EIN to apply for tax-exemption status with the Internal Revenue Service (IRS).
All the above steps apply to both entities, but when it comes to nonprofit corporations, there are a few more steps to follow:
Step #5: Choose board members and officers
Officers in a nonprofit corporation have their own daily responsibilities. Directors control all the operations and they also constitute a board.
Both directors and officers need to agree on the organizational structure of a nonprofit corporation.
Step #6: Create bylaws and the conflict of interest policy
Nonprofit corporation business structure is based on bylaws and the conflict of interest policy, and these should be agreed on and accepted by board members.
Step #7: Apply for tax-exempt status
To qualify for nonprofit status, the purpose of your business should be charitable, scientific, literary, etc.
The main requirements are:
- EIN number,
- Accepted registration as a nonprofit corporation,
- Adopted bylaws and conflict interest policy, and
- Minimum 3 directors not related to one another.
If you meet these, you can apply for 501(c)(3) tax-exempt status. Before filling the Form 1023-EZ with the IRS, you must complete Form 1023-EZ Eligibility Worksheet, which is found in the Instructions for Form 1023-EZ.
Next, you need to register at Pay.gov. After the registration, you enter “1023” in the search box to find the Form 1023-EZ and complete it.
When your nonprofit corporation is accepted for tax exemption, the IRS sends an approving determination letter.
Step #10: Obtain federal and state tax IDs
The first stop for business owners to check what taxes they need to file is the Arizona Department of Revenue (ADOR).
According to a Guide to Taxes for Arizona Businesses, there are various taxes imposed on businesses that they must pay to keep their enterprise in legal status:
- Individual income tax,
- Bingo Tax,
- Transaction Privilege Tax,
- Corporate Income Tax,
- Luxury Tax and Tobacco Luxury Tax,
- Personal Property Tax,
- Use Tax, and
- Unemployment Insurance and Withholding Tax.
Individual Income Tax
Sole proprietors pay this tax through their individual tax returns. The return is based on the federal adjusted gross income of an individual.
Partnerships are obliged to pay this tax as well. Each partner needs to report their share of the partnership income. You can find the Arizona Partnership Income Tax Return Form 165 on the ADOR website.
Bingo games are legal in Arizona, and they are either performed as a recreational activity or used by nonprofits to collect money for their operations. Businesses that conduct bingo are obliged to pay tax according to the Arizona bingo tax structure.
Transaction Privilege Tax (TPT)
Transaction Privilege Tax (TPT) is imposed on various types of vendors for having the privilege of running a business in the state.
Tax rates differ, and they depend on the city, county, and type of business, as you can see in the Transaction Privilege and other Tax Rate Tables.
Businesses operating in the following industries are subject to TPT in Arizona:
- Restaurants and bars,
- Hotel/motel (temporary stays),
- Commercial lease,
- Retail sales,
- Personal property rentals,
- Severance (metal mining) and non-metal mining,
- Job printing,
- Communications and publishing,
- Utilities, and
- Private (rail) car.
Businesses subject to TPT need to obtain licenses, and those that have more locations can choose to have a separate license for each or to obtain a consolidated license.
Follow this guide for completing the TPT form where you can find all the necessary steps.
Corporate Income Tax
This tax applies to all profit and nonprofit corporations. According to ADOR’s Guide, a Corporate Income Tax rate for 2021 is 4.9% of taxable income or $50, whichever is greater.
In case the taxpayer’s income tax liability for a particular year is $1,000 or more, estimated tax payments are applied.
Corporations that have a 2021 corporate income tax liability predicted to be $500 or more must pay by EFT (Electronic Funds Transfer). Make sure you get the Authorization for Electronic Funds Transfer and Disclosure Agreement from ADOR first.
Luxury Tax and Tobacco Luxury Tax
A Luxury Tax in Arizona is levied on:
- Wholesalers of spirituous, vinous, and malt liquors,
- Domestic microbreweries,
- Domestic craft distillers,
- Domestic cider producers, and
- Domestic farm wineries.
Tobacco Luxury Tax refers to the taxing of all those businesses that deal with tobacco products whether they sell them, produce them, or transport them.
You can check the Arizona tax rates on luxuries on the Arizona State Legislature website.
Personal Property Tax
This is the tax businesses pay for all personal property they make use of excluding motor vehicles. This tax is reported to a local county assessor’s office.
As stated by ADOR, the use tax is complementary to the TPT tax, and it applies to:
- Out-of-state retailers selling tangible personal property in Arizona,
- Arizona residents who buy goods using a resale certificate and use them in Arizona despite their purpose stated on the certificate,
- Arizona residents who buy goods from an out-of-state vendor who didn’t collect the use tax, and
- Arizona residents who buy goods already taxed by another state and the rate of that tax doesn’t exceed the use tax rate applied in Arizona.
Unemployment insurance and Withholding tax
These taxes apply to all businesses that have employees.
Businesses need to register with the Department of Economic Security and submit reports on employees.
It is vital to mention that you must register with the ADOR to deal with taxation requirements for your business.
To register, you need a Federal Taxpayer Identification Number (TIN). This number is either your social security number, EIN, or individual tax identification number (ITIN).
The ADOR provides the Joint Tax Application (Form JT-1) to ease filing and payments. You can use this form to apply for the TPT, Use Tax, and Unemployment and Withholding insurance taxes.
Step #11: Get the necessary licenses and permits
Arizona doesn’t require any state business licenses. However, depending on the business entity you have registered, you need to obtain the necessary licenses.
Arizona recognizes 3 different types of business licensing:
- Transaction Privilege Tax (TPT) License,
- Business licenses, and
- Regulatory license.
Transaction Privilege Tax (TPT) License
TPT license is also known under the names sales tax license, resale license, wholesale license, and vendor or tax license.
This license is obligatory for all businesses that deal with sales or provide services subject to TPT or Use Tax.
There are 4 ways to apply for a TPT license in Arizona, and you can choose the one you find most suitable:
- AZTaxes.gov account,
- Business One Stop,
- Paper Form, and
Business licenses in Arizona aren’t required at a state level, but rather at a city/town level. The majority of cities/towns issue different licenses for businesses operating within their jurisdiction.
Certain license requirements are imposed by Arizona city/town offices and/or by Arizona county offices, and it is advisable to check with them about your business needs.
If your business is regulated by offices on a federal, state, or local level, you may need to obtain specific licenses, certifications, and permits to keep your business running.
Some examples of industries that comply with federal licensing requirements are:
- Fish and wildlife, etc.
SBA provides a full federal licenses and permits list for each industry.
Some industries that usually fall under state regulations are:
- Construction contracting,
- Child care,
- Pest control, etc.
To check whether your business falls under state regulations, you can contact Arizona state regulatory agencies in charge of helping you with the licensing procedures. Also, you can search through the Arizona Administrative Code and find information on the industry your business belongs to.
Local regulations should also be met in the case of businesses such as:
- Food establishments,
- Street vendors,
- Massage salons,
- Pet shops, etc.
It is recommended to contact city/town/county departments administering a particular sector such as planning and zoning, environmental health, and police office to find out information on the licensing and special permits.
For more information on state licensing agencies and offices, please consult the Arizona Licensing and Taxing brochure.
Step #12: Open business banking and credit accounts
It can be tricky to use your personal bank account for both your private and business expenses. Not to mention that in case of any legal disputes, your private money and assets are at risk.
That is why it is highly recommended to separate your business and private accounts.
To open a business account with a bank, you need to have an EIN. Sole proprietors can open bank accounts using their Social Security Number.
The main advantages of a business account include the fact it’s easier to keep track of all payments and file taxes.
If you’re considering taking loans or grants, make sure you get a business credit card and start building your company credit profile.
Take some time to research banks and their offers and choose the one that suits your business needs.
Step #13: Get the insurance you need
You have probably secured your health and the home you live in, but it is also advisable to secure the business you own.
An insurance policy protects your business and your employees from various unfavorable scenarios that might occur, such as natural disasters, injuries at work, lawsuits, etc.
There are 2 types of business insurance required by the State of Arizona:
- Worker’s compensation insurance — mandatory insurance for employers to secure their employees. It covers job-related illnesses and injuries, and it is a “no-fault” system — meaning that employees receive medical help no matter who caused the accident. This insurance is paid via an insurance provider.
- Unemployment insurance — insurance that is mandatory but paid to the state in the form of a tax. It protects those employees who lost their jobs due to reasons beyond their control.
There are many other types of business insurance that you may opt for to secure your company. You may take some of the following into consideration:
- General Liability Insurance — a type of insurance applicable to all business entities. It protects you from claims for property damage, bodily injuries, copyright issues, and others.
- Professional Liability Insurance — an insurance option that covers legal defense costs for experts such as attorneys and accountants. It is known as Errors and Omissions Insurance (E&O) due to the fact that it protects you in case a client blames you for malpractice and negligence. This insurance is a common choice of businesses that provide customer services.
- Business Owners Policy (BOP)— a combination policy that includes business property insurance and business liability insurance. It can be customized to suit your needs.
- Cyber Liability Insurance — a special type of insurance that can be custom-made depending on the business. It covers risks related to information breaches.
Step #14: Hire employees
Finding a quality workforce can be quite a challenging task, but not in Arizona.
According to the seasonally adjusted data, provided by Arizona Commerce Authority, the Arizona labor force size is more than 3,600,000. In addition to this, the labor force participation rate by educational attainment for 2021 is as follows:
- Less than a high school diploma — 60%,
- High school graduates — 71.1%,
- Some college or associate degree — 77.8%,
- Bachelor’s degree or higher — is 85.2%.
The Arizona Commerce Authority (A.C.A) offers many services and programs to help companies find skilled employees. Through a network of one-stop centers, businesses can get various services — such as:
- Access to workforce resources,
- Employee recruitment, and
- Training and advice.
Another way of finding labor market opportunities is via the Arizona Job Connection platform, which gathers job seekers, employers, and training providers.
It should be mentioned that Arizona takes part in the Navigator program. This program was developed with the aim of handling workforce programs on a federal level and building partnerships between companies and important organizations.
Step #15: Build an internet presence
An internet presence should be an integral part of your marketing campaign and one of the easiest means to attract clients. With this in mind, let’s consider some of the options you have:
- Open a Google profile for your business,
- Build a business website,
- Create social media profiles for your business, and
- Start an advertising campaign.
Option #1: Open a Google profile for your business
Opening a Google business profile is a great way to put your business on the map.
You can provide information on your company such as an address, phone number, and email. Also, you can attach photos that show your business in a good light — and your clients can do it as well.
Along with adding photos, your customers will be able to rate your company and leave comments.
Option #2: Build a business website
If you have secured your desired domain as we discussed earlier, you can create a website to represent your company and your brand.
The website should offer relevant information on your business — such as products/services, the expertise of your employees, prices, etc.
You can hire a professional for this purpose or create a website on your own using website builders such as GoDaddy, WordPress, and Zyro.
Option #3: Create social media profiles for your business
The popularity of social media is enormous, and many companies use them to promote their business activities.
You can choose Facebook, LinkedIn, Instagram, and the like to share information on your company, attract new clients, and your services/products will be gaining in popularity.
You can even plan your posts in advance by making a social media content calendar or scheduling your posts for an upcoming period.
Option #4: Start an advertising campaign
The Internet is a great tool to promote your business, but you shouldn’t underestimate the power of TV and radio commercials.
Also, press releases are an effective way to attract clients. You can hire a press release distribution service to help you with the content of your press release and do the distribution part of the job.
Step #16: Additional education and training
When you are new to the industry, extra help is always welcome.
The Arizona Commerce Authority offers many programs for growing businesses, which include making contacts with field experts, training, education, etc. Here are some of them:
- SBIR/STIR training program and training modules,
- Arizona Small Business Digital Academy, and
- Arizona Small Business Bootcamp.
SBIR/STIR training program and training modules
The Small Business Innovation Research Training program was developed with the aim of increasing commercialization opportunities and attracting investments.
The program is aimed at entrepreneurs, small business owners, and startups. It includes a series of webinars that enable attendees to find local resources and mentors that can help them apply for funding.
Training modules refer to a group of online tutorials created to provide more information on SBIR and STIR programs. They also cover the topics on the application process for federal funding.
The Arizona Small Business Digital Academy
The Small Business Digital Academy is created for small businesses aiming to enhance their digital strategies and literacy.
It is organized 4 times a year and lasts for 6 weeks. Entrepreneurs and small business owners will be introduced to e-commerce, social media, SEO tools, and much more.
Arizona Small Business Bootcamp
Launched by the Arizona Commerce Authority, this program provides support in planning and growing businesses.
It offers virtual webinars and hands-on workshops that are held by business leaders and field experts.
Step #17: Get the necessary business software
When you start your business, it is vital to keep tasks organized and manage team members.
Depending on the needs of your business, you should take business software into account and start using it right from the outset.
You can find various types of business software on the market such as:
- Task management software — a type of software that can help you organize your tasks, prioritize them, and manage projects and teams. For example, you can try using Plaky task management software that allows unlimited users and projects for free.
- Team management software — it helps you manage your team, track their work, and communicate with them. Also, it allows you to share up-to-date information and keep everyone on track.
- Sales management software — a tool used for businesses that include sales. It helps salespeople analyze, get reports, track deals, and much more.
- CRM software — it is essential for all those who take care of customer satisfaction and want to build customer relations.
FAQ about starting a business in Arizona
There are certain questions that usually pop up when you consider starting a business in Arizona.
To help you, we provide clear answers to a few most frequent questions.
How much does it cost to start a business in Arizona?
Depending on the business entity you opt for, registration fees range from $10 to $60. If you want to speed up the registration process, it’s an additional $35.
Be aware that various city/town/county licenses and permits also need to be purchased to start your business.
How much is a business license in Arizona?
The State of Arizona doesn’t require a general state business license.
However, depending on the industry, you might be required to obtain business licenses on a local level and different regulatory licenses.
You can check mandatory requirements and prices with your city/town and county offices.
Is Arizona a good state to start a business?
Small businesses in Arizona make up 99.5% of all businesses in the state.
Arizona is a business-friendly state with many tax relief programs that enable young businesses to start and grow.
What are the advantages of starting a business in Arizona?
The State of Arizona has many tax relief programs for businesses and offers many ways to seek funding. Also, the state doesn’t require a business license.
In addition, Arizona has an income tax rate of 2.5% — which is the lowest in the US.
Additional tips for starting a business in Arizona
Starting a business can be highly stressful and time-consuming.
To help you start without fear of failure, we reached out to Melissa DiGianfilippo, Co-founder and President of PR at Serendipit Consulting.
Together with her best friend, she started Serendipit Consulting with only a few pennies in the middle of the 08–09 recession — and here are the tips she shared with us:
- “Get over your imposter syndrome. You can do it, it’s just a mind game.
- Find your network. Build a circle of heavy hitters who you can go to for expertise. Phoenix has an incredible Entrepreneurs Organization tailored to both young and seasoned entrepreneurs.
- Delegate. It sucks paying other people at the start, but it’s what is going to help you scale.
- Always have a pulse on the industry.”
Another expert we reached out to is Lyle Solomon, Principal Attorney at Oak View Law Group.
Lyle highlighted the importance of figuring out finances and growth strategies for your business:
“Most new businesses in Arizona fail as they do not engage in business activities in a standardized manner and deal with issues, especially finance-related ones. You should be looking at least five years into the future and planning out your growth strategies and financial management if you want to be on the correct growth trajectory.”
He also provided advice on how to handle your finances:
“An optimal way of maintaining finance management is by implementing certain norms and habits, which could be as simple as reviewing your finances daily. While it is understandably quite difficult to do so given the time crunch as you would be trying to grow your business, such practices will surely help in the future, especially as you grow and hire more employees and expand your business.”
Arizona business resources for further reading
A part of this guide is also a list of authoritative websites to refer to when you start a business in Arizona:
- Guides to the Arizona tax system — an excellent source of information for both taxpayers and tax experts.
- Recommended Reading for Small Businesses — these suggestions are provided by IRS and provide all the necessary details for running small businesses.
Starting a business in Arizona — Conclusion⧵Disclaimer
We hope you found this guide useful and helpful. We advise you to pay attention to the links we have provided because they will lead you to the official government websites and relevant documentation you need to file.
This Arizona guide serves for informational purposes only and should not be treated as an official document.
Please note that this guide was written in Q1 2023 and most likely does not contain any changes of requirements imposed after this period.
We kindly advise you to consult qualified officials and the appropriate institutions before acting on any legal matters.
Keep in mind that this guide refers to the state of Arizona only. Legal requirements for other states may differ significantly.
Plaky is not responsible for any losses or risks incurred, should this guide be used without further guidance from legal, tax, or other advisors.