Map of the United States highlighting Arizona

How to start a business in Arizona

Tuesday, August 01, 2023

If you want to experience the thrill and satisfaction of running your own business, Arizona is a great place to do it. Whether you're an experienced entrepreneur or just starting out, learning how to start a business in Arizona can open up a world of opportunity in the Grand Canyon State.

Arizona is home to a variety of business types, markets and booming locations, so you really have your pick. Some of the most popular locations are major cities like Phoenix, Tucson and Mesa, where you can reach a large and diverse customer base. But you can also succeed in smaller towns or niche markets — as long as you've done your research and set up your small business accordingly.

To do that, you'll need to know the basics of starting an Arizona business and the steps to create a legal entity. That's why we've prepared a detailed, step-by-step guide that will walk you through everything you need to know and do to launch your small business in Arizona with confidence.

What are the steps to opening a business in the state of Arizona?

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Step 1: Develop your business idea

The first step to starting your Arizona small business is to develop an idea or refine the one you already have. If you need help coming up with one, think about your passions and hobbies and how you can turn them into a profitable business. You can also research other successful businesses in your area that are in your industry, and learn from their strategies and achievements.

Don’t fall into the trap of thinking that you need a completely original idea to succeed. You also need to make sure there’s a market for your product or service. If you don’t see any competitors offering something similar, it could mean that there is not enough demand or that the audience is too small to support it.

There are a few actions you should take to finalize your idea:

  • Talk to family, friends and other trusted people about the type of business you want to start, and listen to their opinions and suggestions. They can help you evaluate whether your business idea is feasible and profitable.

  • Research your industry and niche to find out what other successful local businesses are doing. This can help you spot opportunities and generate new ideas for your own small business that may set it apart from competitors.

  • Think about your target audience and how your business will meet their needs. If you’ll have a physical location or serve a specific area, research the demographics to make sure they match your target audience and business goals.

  • Seek feedback from people you trust and be open to constructive criticism. Honest feedback can help you improve your Arizona business idea and increase your chances of success.

Step 2: Create your small business plan

A good business plan is essential when starting a new Arizona business, whether it’s an LLC or another type of legal business entity. If you write your business plan well, it can help you map out your business goals, strategies and finances — and set you up for long-term success.

Your business plan should cover all the important aspects of your business, such as your products or services, target market and financial projections. It should also describe your company’s structure, management hierarchy and marketing strategies.

The more detailed your business plan is, the better prepared you will be to face any challenges or opportunities that come your way. Your plan can also help you secure funding from investors or lenders, so it’s worth investing the time to make it good.

Here are the key elements to include in a thoughtfully crafted business plan:

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Executive summary

A short but powerful overview of your business, highlighting your unique value proposition and providing a summary of your company.

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Company overview

A summary of your business that includes your legal structure, physical location, history and any other relevant events or achievements.

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Mission statement

A clear and concise statement that defines your business’ purpose, core values, specific objectives and the passion that inspired you to start the business.

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Products and services

A comprehensive explanation of the products or services that your business offers to its customers, including any details about your suppliers or vendors.

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Management structure

Details about the business owners, partners and any key personnel involved, including their roles and responsibilities.

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Financials and funding

Detailed financial projections, including your projected revenue, expenses, funding needs and financial risk assessments.

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Market analysis

A detailed description of your target market, including their demographics, location, lifestyle and buying behavior. You should also include an analysis of your main competitors and any notable industry trends.

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Sales and marketing plan

A description of your proposed marketing approach, specific channels you plan to use and any promotional strategies or collaborations you may engage in.

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Appendix

Any additional materials or documents that are relevant to your business plan, such as customer surveys, permits or licenses you’ve applied for and obtained and logo and branding mockups.

Step 3: Secure necessary funding

Learning how to start a business in Arizona means understanding the need for startup capital. Your new business may need a lot of capital for expenses such as renting commercial space, purchasing real estate, buying inventory and setting up a storefront. If you need extra funds to start your business, it’s important to explore funding options carefully to make sure you have enough initial capital to get started.

Capital lending solutions are a popular choice for new businesses. Third-party lenders such as Heartland specialize in offering small business loans to new businesses to help cover startup costs and initial setup. Heartland has options ranging from $5,000 to $5 million, so you’ll have no problem finding a loan that fits your business needs. Working with third-party lenders can ease your stress and give you access to the capital needed to set up your business and get ready for your first customers to visit your business (or website).

Besides working with lenders, crowdfunding or personal investments can also be good funding options. However, no matter what the funding source is, your business will need enough cash flow to operate. Knowing how to start a business in Arizona with the right funding stream is essential because it can reduce the financial pressure and stress that is common among new business owners.

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Step 4: Choose your business name

Your Arizona business name is more than just a label. It's a powerful tool to attract and retain your ideal customers, communicate your values or the benefits you offer and stand out from a crowd of competitors. If you want to appeal to your local market, you can also use words that evoke the beauty, culture or history of Arizona that your customers will appreciate and relate to.

Once you've come up with a name, the next step is to make sure it's available. You can do this by performing a search on the Arizona Secretary of State's website. If the name is available, you can form your LLC or other business entity using that name.

If you're not ready to form your LLC or other business entity yet, you can request a name reservation for 120 days by submitting an application with the Arizona Corporation Commission (ACC). The cost of reserving a business name in Arizona is $45, ($10 filing fee plus $35 expedite fee). However, keep in mind that the reservation doesn't give you the exclusive right to use the name. Other businesses can still use the same or similar names, so it's important to secure your preferred name as soon as possible by registering your business.

Pro tip! Reserve your website domain name

Having a website is essential for any Arizona business, as it allows customers to discover and connect with your business online. Once you’ve picked a name for your business, you should secure the matching domain name as soon as possible so that your website’s domain matches your business name. You should also create social media accounts with the same name to boost your online presence and market your brand. Doing this consistently across all of your online profiles helps to increase brand awareness and makes it easy for customers to find and interact with you.

Step 5: Identify your business structure and business entity type

Selecting the right legal entity type for your Arizona business is a vital decision that will have significant consequences for how your business operates and is taxed by the Internal Revenue Service (IRS). The legal structure you choose will determine the level of personal liability you face, amount of paperwork and reporting required and how you can raise capital. This is why it’s so important to understand the different business structures so you can start a business in Arizona on the right track.

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General partnership

If you’re thinking about how to start a business in Arizona with a friend or other individual, forming a general partnership can be a suitable option. General partnerships don’t require state filings like LLCs while corporations do, which can make the setup process faster, cheaper and easier. However, general partnerships don’t offer any liability protection, which means that the personal assets of the partners could be at risk in case of legal action or creditor collection attempts.

General partnerships often use the names of the owners in the business name, but they can also choose to register a trade name or DBA (“doing business as”) to be known by another business name. However, it should be noted that there aren’t any required tax forms at the federal level, so all of the profits earned by the partnership are subject to personal tax. This means that each partner is required to file taxes annually based on income earned from the business. This can be a disadvantage for partnerships with high earning potential, as the partners may face a higher tax burden compared to other business structures.

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Sole proprietorship

In Arizona, a sole proprietorship refers to an unincorporated business that is solely owned by one individual. To operate within their city or local community, sole proprietors can either use their legal name or register a trade name or DBA ("doing business as") name. However, it's important to note that sole proprietorships do not provide liability protection, meaning the business assets cannot be separated from the owner's personal assets. Consequently, any financial difficulties that arise would be the responsibility of the owner, similar to a partnership.

From a tax perspective, sole proprietors face a similar situation as those in a general partnership, as any profits earned are declared on the owner's tax return and taxed as personal income. While sole proprietorships have the advantage of low startup costs, they may not be suitable for businesses with long-term plans for growth and expansion.

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Limited liability company (LLC)

One of the most common types of business entities for small business owners in Arizona is an LLC, which stands for Limited Liability Company. This entity is different from a corporation but still provides its owners with limited liability protection. This means that the business has its own assets that are separate from the owner’s personal assets, and the owner’s assets are not at risk if the business faces legal issues, debt or failure. LLCs use an operating agreement to define the roles and responsibilities of each member, which helps them maintain their limited liability status.

LLCs don't pay taxes as a separate entity, but instead, they use pass-through taxation. This means that the income generated by the business is distributed among the owners and taxed as personal income. For tax purposes, if you are the sole owner and operator of your LLC, you'll need to file Form 1040 with the IRS. If your LLC has more than one member or owner, you'll need to file Form 1065.

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Subchapter "S" corporation (S Corp)

An S Corp is a type of corporation that is registered in Arizona and can offer stock to its owners. The owners have limited liability protection, which means that their personal assets are not at risk if the corporation faces legal problems, debt or failure — just like an LLC. However, S Corps can only have one class of stock and a maximum of 100 total shareholders.

If you're looking to go big with your business and sell lots of shares to raise funds, an S Corp may be too limiting for the kind of business you're aiming to start. That said, for small businesses that want both the liability protection of a corporation and the tax flexibility of an LLC, forming an S Corp may be a good option. S Corps can choose to be taxed either as a separate entity or as a pass-through entity, depending on their preferences. To become an S Corp, the corporation must file Form 2553 “Election by a Small Business Corporation” with the IRS.

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Subchapter "C" corporation (C Corp)

A C Corp is a type of business entity that provides limited liability protection to its owners and is suitable for larger businesses that want to go public and sell lots of stock shares. Arizona C Corps have to elect a board of directors, hold annual meetings and file an annual report. The downside of forming a C Corp is double taxation. This means that the corporation has to pay corporate taxes on its income, and then the shareholders have to pay personal income taxes on any dividends they receive from the corporation.

Despite the double taxation downside, C Corps have many benefits, perhaps the greatest being that they can raise capital by issuing stock that can be owned by companies, organizations, investors and even the general public. C Corps have to file Form 1120 with the IRS.

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Nonprofit organization

A nonprofit organization is a special type of entity with a different purpose and mission than LLCs and corporations, which are primarily focused on making profits for their owners or shareholders. Nonprofits have a primary mission of serving or improving the public interest, and they are required to reinvest any net profit back into the organization to support its cause.

Nonprofits have limited liability protection like other entities, but they are exempt from paying federal taxes. This means that they have to keep accurate records and file required paperwork, including Form 990 “Return of Organization Exempt from Income Tax.”

Step 6: Register your small business in Arizona

To set up a small business in Arizona, you’ll need to choose or appoint a registered agent (sometimes called a statutory agent), file formation documents called articles of organization and pay the state filing fee to create a legal business entity. If you submit your application online, the filing fee to register with the government agency as an Arizona LLC or corporation is $50 (or $85 if you choose expedited processing).

What is a registered agent?

A registered agent is a person or entity that accepts legal documents, notices and other official documents on behalf of a business in Arizona. They must be available during regular business hours and serve as the contact point for any legal correspondence that the business may receive during the course of its operation. Registered agents need to have a physical address in Arizona, so no P.O. boxes are allowed. If you want to be your own registered or statutory agent, you can, or you can opt to hire a third-party service to act on your behalf.

What are articles of organization?

The state of Arizona requires new business owners to file formation documents to establish a legal business entity. These documents are called articles of organization (or sometimes, articles of incorporation), and they make the business both legal and official. Specifically, your articles of organization will provide key information about your business as well as define the obligations of the owner(s).

Your articles of organization must contain certain specific information that will be reviewed and approved by the Arizona Corporation Commission. This information includes:

  • The business name and physical address

  • The registered agent’s name and physical address

  • Names and physical addresses of all managers and members

  • A statement outlining the business’ purpose or mission

Entrepreneurs determining how to start a business in Arizona can file their articles of organization on the Arizona Corporation Commission’s website.

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Step 7: Apply for an Employer Identification Number (EIN)

The IRS gives a unique tax identification number to every registered business for tax purposes. This number is called a Federal Employer Identification Number (EIN). You’ll need an EIN if you want to register your business as a corporation, hire employees or open business bank accounts and credit card accounts. An EIN also helps you protect your personal identity, as you don’t have to use your social security number (SSN) for your business (sole proprietorships and partnerships need to use their personal SSNs if they haven't obtained an EIN).

An EIN can serve as a great benefit for your business. It can help you build business credit, which in turn makes it easier to apply for business loans, and it can help you avoid any tax penalties in the case that you need an EIN for compliance but don't have one. Getting an EIN is free and simple with the online application, and you can obtain your EIN right away with instant approval.

Step 8: Open your small business bank account

After you get your EIN, you may want to think about going to the bank to open a business bank account and maybe even apply for a business credit card. Keeping your personal finances separate from your business finances is extremely important for the financial management of your business, and it helps you prevent potential problems in the future. If you want to hire employees to assist you with your business activities, you’ll definitely want to have a separate business bank account to handle your payroll activities.

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Step 9: Obtain your business licenses and permits

There is no state-issued business license for Arizona businesses, but your business will need to follow all municipal regulations and requirements. You could be required to obtain multiple licenses or permits depending on what your business does and how your city or municipality operates and keeps track of local businesses.

As your business license obligations can vary and will depend on your business’ activities and location, be sure to research business resources and information on how to get the right permits and licenses through your local government's website.

Step 10: Understand your Arizona business taxes

Running your business in Arizona means there will be few taxes that you need to pay. Businesses with pass-through taxation will need to pay personal income tax on both a state and federal level, for example, but there are other taxes to consider.

Transaction privilege tax

Arizona businesses are required to pay a sales tax on physical products as well as some specific services. Arizona calls this tax their transaction privilege tax (TPT) and the rate is 5.6% across the state. However, local tax jurisdictions can impose an additional amount up to a maximum total of 11.2%. Businesses are required to obtain a TPT license from the Arizona Department of Revenue.

Corporate income tax

Corporations that do business in Arizona must pay a state corporate income tax of 4.9% on their taxable income. This is in addition to the 21% federal corporate tax rate. These corporations also must file an Arizona corporate income tax return every year, even if they have no income or don't owe any tax.

It's your responsibility to ensure that you are in compliance with all tax regulations for your business, which is why we recommend reviewing the information available from the Arizona Department of Revenue and seeking the advice of a licensed tax professional.

Frequently asked questions (FAQs)

A DBA (“doing business as”) is a business name that you can use to identify your business in Arizona instead of using your registered legal business name. A DBA can be useful for businesses that want to change their image or use a name that reflects the services they provide as they grow. If you plan to expand into other areas or related ventures, you may wish to register a more generic legal name, and then use a more specific name that better describes the services you provide for the time being (for example, ABC Maintenance LLC d.b.a ABC Commercial Landscaping).

To register a legal LLC or corporation in Arizona, pricing for the filing fee is $50, or $85 if you choose to expedite the service.

To form a legal entity, you'll need to choose a name for your business, designate a statutory or registered agent, file articles of organization and pay the state filing fee.

The state of Arizona doesn't have a generic business license, but your city or municipality will likely require you to obtain a local business license as well as other licenses or permits depending on the type of business you operate.

Absolutely. Arizona offers a skilled and diverse workforce, a low corporate income tax rate, no franchise tax and boasts strategic proximity to major markets such as California and Mexico.

Arizona is a business-friendly state that offers a supportive environment to hang out your shingle. With countless business resources, training programs and education available, there are many opportunities for new business owners to make their mark and run a profitable enterprise.

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Put your Grand Canyon State business on the path to greatness

Now that you know the technical steps required to start your Arizona business, we want to help you build the confidence you need to run and grow it. Check out the Start-Up Path for Entrepreneurs: It’s a free course designed for dreamers like you, packed with the resources you need to get your business from idea to day one (and beyond): interactive worksheets, planning tools and advice from real entrepreneurs who have been in your shoes.

Not ready to dive in but in need of some inspiration? Pop on some headphones and give The Entrepreneur’s Studio podcast a listen. You’ll hear from entrepreneurs like Milk Bar founder Christina Tosi and celebrity fashion designer Rebecca Minkoff, plus dozens of other business owners who — like you — had to start somewhere. 

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Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us