Mon 21 Sep 2015 | By:

Pros and Cons to Starting an Arizona Corporation

Pros and Cons to Forming a Corporation

Starting a Corporation in Arizona is an excellent idea if you want to safeguard you and your business from legal and financial liabilities. But like any other process, incorporating has its fair share of pros and cons.

In this article, I’m going to show you the advantages and disadvantages of incorporating your Arizona startup as a Corporation. By the end of this article, I hope that you’ll be able to make a decision and see the importance of having an Arizona Corporation. Let’s first start with discussing the pros.


Pros of an Arizona Corporation

1) Separation of Personal and Business Matters

This is the most important advantage that you will have if you form an Arizona Corporation. No entrepreneur wants to get tangled in lawsuits and financial issues, which is why if you want to rid yourself of personal liabilities, you need to form a Corporation.

Once you start a Corporation, your Arizona startup is considered a separate entity with its own rights and transactions. Whatever problems it may encounter in the future, you will not be personally held liable. Therefore, your personal assets will also be protected.

2) Allows You to get Investors

If you’re trying to raise funding for your Arizona business, you need to form an entity first before investors will invest capital in your venture. Also, a Corporation can issue stocks and sell shares, a strong indication that a business has what it takes to survive in the industry – a strong selling point to investors.

3) Leadership Structure is Well-organized

In a Corporation, the chain of command is clear and well-established. Authority is passed from directors to officers and shareholders. Every position has a well-defined job description and responsibilities are laid out in an organized manner.

Every employee has a specific role to play, decisions within the company are discussed by different heads and are implemented effectively. Unity of command is well-established in a corporation, allowing you to conduct business smoothly.

4) Enables You to Take Advantage of Tax Benefits

When you form a Corporation in Arizona, you’ll be able to enjoy numerous tax benefits. The IRS seems to offer better tax deductions for Corporations than individuals.

First, you can avoid double taxation by pass-through taxation into your personal expenses. You will also be able to save on operational costs and that includes a big chunk of your taxes like employee taxes and benefits, medical expenses and others.

5) Ensures Perpetual Existence

Incorporating your business in Arizona will help you establish perpetual existence. This simply means that in situations where a the death of an owner occurs, or a transfer and selling of shares happens, you will still be able to continue running your business.

These circumstances will not affect your business in any way and you’ll be able to ensure its lifelong continuation.

6) Establishes Business Credibility

It can be difficult to establish a business’ reputation, especially when it’s still new in the industry. The first step to developing your business credibility is to incorporate it under a legal structure.

An incorporated business is legally recognized by the state and federal government as a legitimate business that has the complete freedom to operate and conduct transactions.


Cons of an Arizona Corporation

1) Numerous Corporate Formalities to Follow

Corporate formalities are activities that you need to do so you can establish the fact that your business is a separate entity. These formalities include regular meetings of directors, keeping records of corporate activities, employee meetings and many others.

Following corporate formalities is required by Arizona state law, so you have to be keen in complying with this requirement.

2) Paperwork

When you have an Arizona Corporation, you’ll have a bit of paperwork. Examples of this paperwork is your Articles of Incorporation, certificates, bylaws, corporate minutes and other documents mandated by law.

3) Complicated Tax Filing

Starting an Arizona Corporation means that you’ll need to file a separate tax form and will not be given the right to claim personal tax credits. Apart from this, losses incurred by your business can only be applied to the business, no benefit will be be given to you for instance in your personal taxes.

After reading all the pros and cons of starting an Arizona Corporation, what do you think? Is it really necessary for you to form a Corporation in AZ? If you’re reading this guide, it probably is. If your business does not fit as a Corporation, look into filing an LLC in Arizona instead.

Please be aware that this is not legal advice – it is solely an informational guide. For details on how to form a Corporation in Arizona or starting a business in Arizona, a lawyer has the best answers for you. Be sure to create a solid game plan, then follow it.

About Liesha Petrovich

Liesha is a small business owner of 20 years, host of Startup Savant, the owner of a karate dojo in Maine, and creator of Work Mobly. During free time she's with her family and working on a Doctorate in Entrepreneurship.