Are you looking to form a limited liability company (LLC) in the state of Arkansas, but you’re not sure how the formation process works? There are several important steps when it comes to creating an Arkansas LLC that is compliant and able to do business in the state.
What is an Arkansas LLC?
The Arkansas LLC is one of the most popular business structures in state. It's a more casual and flexible type of business than a corporation, but includes 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.
Forming an LLC in Arkansas (in 6 Steps)
Step One) Choose an LLC 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 take into consideration when selecting a name for your business:
Legalities: In the state of Arkansas, every limited liability company is required to have either the initials “LLC” or the phrase “limited liability company” in the name. In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Explanatory Naming: Another aspect to consider is including language that explains what your business does ― for example, if you’re a plumber, put the word “plumber” or “plumbing” in your LLC name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like It?: At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your LLC name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LLC is to not get too attached to any one business name until you have either reserved the name with the state of Arkansas, or you’ve officially formed your business. You can search the Arkansas database of state businesses to see if your desired name has already been claimed or not. If you’ve decided on a name but need some time to get other paperwork in order, you can fill out an Application for Reservation of a Corporate Name. This process will protect your chosen name for 120 days.
Step Two) Designate 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.
According to the Arkansas Secretary of State,
An individual or a domestic or foreign entity may become listed as a commercial registered agent by filing with the Secretary of State a commercial registered agent listing statement signed by or on behalf of the person which states: (1) the name of the individual or the name, type, and jurisdiction of organization of the entity; (2) that the person is in the business of serving as a commercial registered agent in this state; and (3) the address of a place of business of the person in this state to which service of process and other notice and documents being served on or sent to entities represented by it may be delivered.”
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, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
Our Recommendation: At the end of the day, we recommend designating a Registered Agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record. Incfile and Northwest Registered Agent both offer a free Registered Agent service when you utilize their services to form an LLC. Both are fast and affordable. In fact, they’re the best available.
Step Three) File Formation Documents with State
Once you are ready to form your Arkansas limited liability company, you will fill out the articles of organization.
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
- Name and address of your registered agent
- Management style (member-managed or manager-managed)
- Name(s) and address(es) of the LLC’s manager
- Name and address of the LLC’s organizer
- Signature of organizer and registered agent
- Effective date
You can find both the online and paper filing forms for the articles of organization here.
Cost to Form an LLC: The state of Arkansas charges a $45 fee by mail or a $50 online fee to form an LLC.
Processing Time: It takes 2-3 business days for the state to process your Arkansas LLC formation paperwork if you file online. Paper filings require one to two weeks for processing. Please note that the estimate of business days begins once ALL required paperwork is in order and filed correctly.
Step Four) Create 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 here, 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) Handle Taxation Requirements
The vast majority of LLCs require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LLC functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LLC for free through the IRS.
When it comes to state-level taxes, Arkansas levies several different types of taxes. First, each LLC pays income taxes in one of three ways. Sole proprietorship LLCs are taxed as such, and the owner of the LLC pays the income taxes as part of his or her personal income taxes each year. Partnership LLCs pay income taxes by filing an Arkansas Partnership Income Tax Return. You can find the form and instructions for partnership income taxes here. LLCs acting as corporations will pay the Arkansas Corporate Income Tax.
Arkansas businesses must also pay a Franchise Tax to the Secretary of State each year. The fee varies depending on how your franchise is classified. LLCs pay $150 each year for the Franchise Tax, and you can pay online or via mail. Find the right form here.
Every LLC with employees must withhold income taxes from their employees working within the state. Visit the Arkansas Department of Finance and Administration’s withholdings page to learn more about how to register and withhold. Arkansas also maintains an unemployment tax to fund its unemployment insurance program. You can learn more about the state’s unemployment policies here.
Arkansas LLCs that sell goods or offer services subject to sales and use taxes must register for Arkansas Vendor Services. There is a one-time $50 fee. Apply here. In addition to the state’s 6.5% sales tax, you may also need to pay some additional taxes if your business offers certain goods or services. Some of these include mixed alcoholic beverages, rental cars, and short-stay lodging and accommodations.
Want more details? You can find the state’s full guide to taxes for new businesses here.
Depending on where in Arkansas your business is located, you could also need to pay some local taxes. Thankfully, Arkansas makes it easy to learn what taxes apply to your region. Just search their Local Tax Lookup Tool.
Step Six) Obtain Business Licenses and Permits
Beyond applying for sales and use tax, the state of Arkansas does not have a general business license that each LLC needs to acquire in order to do business.
However, Arkansas does uphold the licensing requirements of any federally-regulated industries. Check here to determine if your business must be licensed by a federal agency.
Arkansas also requires state licensure for certain industries beyond what is federally regulated. Some of these industries include contractors, professional athletic trainers, dietetics, court reporters, and more. We recommend that every LLC owner search the professional licensing boards on Arkansas.gov to determine what industry licenses you’ll need.
Would you prefer to have a professional form your LLC?
If you would prefer to have a professional handle the paperwork for you, consider hiring an online incorporation service like LegalZoom and Incfile. To see which is the better option for you, check out our side by side comparison.
Next Steps: What to do After Creating an Arkansas LLC
Open a business bank account: We highly recommend that you establish a separate business banking account so that your business and personal finances are maintained completely separate. This is important because it helps protect your personal assets and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
Get Business Insurance. Arkansas requires that any business with 3 or more employees offer worker’s compensation insurance (with a few exceptions). This insurance will help protect your employees in the event of a work-related accident. You can read more about these requirements with the Arkansas Workers' Compensation Commission. The state of Arkansas does not require Commercial Liability Insurance, but it is a good idea to pursue general liability insurance. Arkansas is a modified comparative fault state, so an injured party will only receive compensation will only receive compensation if more than half of the fault lies with the other party. General liability insurance can help protect you and your business. You may also find it helpful to obtain industry-specific policies. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Understand income reporting. Income reporting is just what it sounds like – reporting the income you made from your business. It’s important to note that you must file this form whether you made or lost money over the course of the year. Income reporting is just what it sounds like – reporting the income you made from your business. The state of Arkansas has a form you access here, or you can visit this link to file completely online.
Understand annual reporting. As part of the Franchise Tax process, Arkansas requires that each LLC file an annual report. You can find, download, and file your report here. Please note that there is an additional $15 fee for filing by mail. This report serves to let the state know about the status of your business, including any important changes such as a change in your registered agent and more.
Find an accountant. We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how best to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.