How to Incorporate in Arkansas vs. How to Start a Arkansas LLC
A Guide to Choosing the Best Business Entity in Arkansas
Have you always dreamed of starting a business in Arkansas, but you haven’t a clue about differences between an LLC and a corporation? Active Filings has the guide for you! We’ll walk you through the advantages and disadvantages of incorporating or forming an LLC in Arkansas. Throughout this Arkansas-specific corporation and LLC formation guide, you’ll discover exactly how to form either an LLC or corporation in Arkansas, and learn the disadvantages and advantages of each business type.
We’re a small business so we understand the needs of small business owners. Our professional staff will ease you through the business formation process, and pretty soon you’ll see why Active Filings is America’s most reliable business incorporation service.
LLCs vs. Corporations
Most people don’t know the difference between an LLC and a corporation? Active Filings is about to drop some knowledge. Below you’ll find the three factors we think will help you make an informed decision on whether you want to incorporate or start an Arkansas LLC.
Ease of maintenance
An LLC (limited liability company) is similar to a corporation, but with some slight differences. Think of an LLC as a Honda Civic. Not as sleek and fancy as a BMW, but it is super reliable, requires less maintenance, and it is generally cheaper to operate. An LLC offers limited personal liability but it is not required to hold regular stockholder or management meetings, and there are no requirements to comply with other corporate formalities.
Desired tax structure
LLC is generally organized as a pass-through entity, meaning its profits go directly to its members without being taxed by the government on the company level. Instead, they’re taxed on members’ federal income tax returns. This makes filing taxes easier than if your business were taxed on the corporate level. Corporate profits are subjected to what can be referred to as “double taxation,” which means that a corporations profits are taxed, and then they get hit with taxes at the personal income level. The Arkansas LLC is where it’s at on tax structure.
While LLCs are the most popular business entity, corporations carry far more prestige. The biggest companies on earth (Apple Inc., Walmart Inc., and ExxonMobil) are corporations. Investors love corporations not only for their stature, but also for their favorable taxation rules. LLC’s, while super popular, just can’t compete in terms of the prestige. Corporations are often able to deduct items like healthcare, travel, entertainment, and other costs that LLCs cannot. If you plan to raise capital for your business, then incorporation probably makes the most sense.
One final thought on LLCs and corporations. While the local toy store down the street is a fine upstanding company, their LLC just doesn’t have the prestige of a Nike, Inc or a Walmart, Inc. When you hear the word corporation, many people think of big multi-national companies with tons of resources at their disposal. While the LLC is perfect for the small to medium-sized business, the words Limited Liability Company (LLC) doesn’t carry the same weight as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.
AR LLCs vs. AR Corporations
Arkansas Franchise Tax
LLCs and corporations are required to file an annual corporate franchise report with the Business and Commercial Services Division of the Arkansas Secretary of State. LLCs pay a flat $150 fee, whereas Arkansas corporations pay 0.3% of the value of the corporation’s outstanding stock or $150, whichever is greater. So no matter what, a corporation in Arkansas has to pay as much as an LLC, but could wind up paying more. For example, if your Arkansas corporation has $1,000,000 in outstanding shares of stock, you’ll be on the hook for $3,000, which is a lot more than the minimum payment of $150 for an LLC.
Corporate Income Tax
The good news for corporations in Arkansas is that the state just passed SB 576, which seeks to lower corporate taxes. At it’s heart, the new law will lower corporate income tax rates while also extend the number of years businesses can carry over losses for tax purposes. A win win for anyone thinking of incorporating in Arkansas. The bill also allows more favorable treatment of income when Arkansas firms sell products to other states, where the receiving state does not levy taxes on them. Half of those sales will be exempt in 2021 and all income from those sales will be exempt in 2022. This reduction of Arkansas’s top corporate income tax rate from 6.5% to 5.9%, will be phased in over time, while making the state more competitive for corporations.
Arkansas ranks very poorly in terms of sales tax rates. The state’s rate is ninth-highest in the nation. Once the average local sales tax rates are included, Arkansas has the third-highest sales tax rate at close to 10%. For business who are looking to buy and sell items within the state, a high sales tax could mean the difference between being profitable and not. In terms of the overall state business tax climate, Arkansas ranks 39th according to the Tax Foundation.
Arkansas has low property taxes. 18.1% of the state’s revenue is derived from property taxes, which places Arkansas at the fifth lowest in the nation, according to the Tax Foundation. Low taxes, in any form, means that that state’s residents will have more money in their pockets. That means they have more money to spend. And spending is good, especially when it’s at your business.
Arkansas LLC or Arkansas Corporation? Our Final Answer.
For fees and tax purposes, the LLC is probably your best choice. An Arkansas LLC will only get taxed once, in the form of personal income taxes for each member. A corporation in Arkansas will be subject to double taxation: first through a state corporate tax, and second on the individual tax returns of shareholders. All that said, the answer to whether the Arkansas LLC or the corporation is better really comes down to whether you plan to operate a small business or intend to grow your business into something much larger. If you plan to go big with your business, and can handle some additional paperwork and tedium of organizational meetings, choose a corporation. If you’re just trying to gain some limited liability protections for your small business, the LLC will fit you perfectly.
How to Incorporate in Arkansas
To form an Arkansas corporation, you must complete and file the Articles of Incorporation with the Arkansas Secretary of State. The online state filing fee for Arkansas Articles of Incorporation is a super affordable $45. If you mail your Articles, the filing fee jumps to $50. Once filed with the state, the Articles of Incorporation formally creates your Arkansas corporation. As with everything in life, nothing is simple, and you’ll need to complete several additional steps before your corporation is ready to do business. If you choose Active Filings, we’ll make sure the process of incorporation is as painless and straightforward as possible.
Your Arkansas Articles of Incorporation must include the following details:
How to Start an LLC in Arkansas
You’ll form your LLC by filing Articles of Organization with the Arkansas Secretary of State. You can file the document online or by mail, $50 through the mail, or save $5 and file online for $45. If you hire Active Filings, we can do all of this for you.
Your Arkansas Articles of Incorporation must include the following details:
Pretty straightforward here. Add your company name. Active Filings offers a Free Company Name Search to help you double check your company’s name and to make sure someone else hasn’t legally used it. Of not, your company name must include some iteration of “Limited Liability Company,” “L.L.C.,” or “LLC.” Most people keep it simple with “LLC.” Example: Betty’s Machetes, LLC.
AR Annual Report Requirements
In order to keep your LLC or corporation in Arkansas in good standing, you’ll need to complete a couple tasks with the state to keep your business entity up and running.
- File Your Annual Report and Arkansas Franchise Tax
- File Your Arkansas Business Taxes
Below, you’ll find instructions and resources to help you accomplish all your maintenance and tax related upkeep.
What is the Arkansas Annual Report?
The purpose of Arkansas’s report is to keep your business records up to date with the state, which allows creditors and other interested parties to look up your business address in case they need to contact you. The IRS also uses this information to track the payment of your company’s taxes.
How do I file my Annual report?
You can file your Annual Report through the Business and Commercial Services Division website. You can also file your report by mail or in person.
Mail your Annual Report to:
Arkansas Department of Revenue
Business and Commercial Services Division
P.O. Box 8014
Little Rock, Arkansas 72203-8014
How much does it cost to file an annual report in Arkansas?
All Arkansas LLCs and corporations are required to file an annual report and pay a flat-rate tax of $150 every year. Together, this $150 tax and the annual report are known as the Annual LLC Franchise Tax Report. Corporations with large numbers of outstanding shares of stock will have to pay more than the $150 (0.3% of the value of the corporation’s outstanding stock).
When are Arkansas Annual reports due?
Reports are due on May 1st but you can file as early as January 1st. Late reports are charged a $25 fee which accrues daily interest. Not fun or frugal, so get those reports in early!
Arkansas Business Taxes
Tell me about Arkansas Business Taxes
Arkansas’s tax structure for corporations consists of six earnings brackets ranging from 1% of corporate earnings under $3,000 to a high of 6.5% for earnings of $100,000 or greater.
In Arkansas, do I also have to file an income tax return for my LLC?
All Arkansas LLCs are subject to the Arkansas Franchise Tax. The Arkansas franchise tax is $150 and is paid yearly with the Annual Franchise Tax report, due on the first day of May. Also, any profit your LLC makes passes through onto the members of the LLC and will then be taxed as personal income.
Okay, so what tax forms do I need to file for an LLC in Arkansas?
The two forms used for filing Arkansas Individual Income Tax returns are Forms AR1000F (for full year residents) and AR1000NR (for non-residents).
Your LLC income and expenses are reported on Form 1040, Schedule C, E, or F. If you prefer to file as a corporation, Form 8832 must be submitted. Income and expenses are reported on the corporation’s return, usually Form 1120 or Form 1120S. Most LLCs with more than one member file a partnership return, Form 1065.
What about a single member LLC?
If you’ve set your LLC up as a sole proprietorship, fill out Schedule C as part of Form 1040 to show your LLC’s income counts towards your personal income tax returns. If your business is considered “specialty income”, then you may have to file Schedules E, F, or J instead of Schedule C.
What if my LLC has multiple members?
If your LLC is a partnership, then you will file Form 1065 and distribute a Schedule K-1 to all members, showing their portion. Each member’s specific amount will reflect the LLC’s profits and their ownership share. This amount will count towards personal income and be taxed as that rate.
What information is required on these various LLC tax return forms?
If your LLC is characterized as a partnership for federal income tax purposes, you must file Form 6900.
Form 1065 gives the IRS a snapshot of the company’s financial status for the year. The partners must report and pay taxes on their shares of income from the partnership on their tax returns. Partners must pay income tax on their earnings regardless of whether the earnings were distributed.
A Schedule K-1 is a tax document used to report the incomes, losses, and dividends of a business’s partners or an S corporation’s shareholders. The Schedule K-1 document is prepared for each individual partner and is included with the partner’s personal tax return. An S corporation reports activity on Form 1120S, while a partnership reports transactions on Form 1065.
Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest
What tax form(s) does an Arkansas corporation need to file?
Arkansas C corporations file Form AR1100CT. S corporations file Form AR1100S.
What’s the Arkansas corporate tax income rate?
Arkansas taxes the net income of corporations at a range of rates, from 1% to a high of 6.5%
$0 to $3,000 1%
$3,001 to $6,000 2%
$6,001 to $11,000 3%
$11,001 to $25,000 5%
$25,001 to $100,000 6%
What’s the personal income tax rate in Arkansas?
When are my business tax returns due?
The due date for filing Arkansas Corporation Income tax returns is on or before the 15th day of the 4th month following the close of the tax year. For calendar year filers the due date is April 15th.
What if I need an extension?
If you will not be able to file your tax return by April 15th, you may receive an automatic six-month extension of time to file by requesting a federal automatic extension on Form 4868 by April 15th. This may include additional charges for interest and/or penalty. Because the penalty for not filing on time (5% per month) is greater than the penalty for not paying on time (1% per month), it is best to at the very least, file your taxes on time, as the penalty will be less.