Arizona vs. Delaware LLC: What You Need to Know

When it comes to forming a limited liability company (LLC), choosing the right state is crucial for the success and protection of your business.

In this comparison, we will explore the key differences between forming an LLC in Arizona and Delaware.

Both states offer distinct advantages and considerations, ranging from formation requirements and taxation to legal regulations.

By understanding the nuances between Arizona and Delaware LLCs, entrepreneurs can make informed decisions based on their specific business goals and needs.

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Arizona vs. Delaware LLC

Arizona

Filing fee: $50

Annual report fee: No

Registered agent requirement: Yes

State tax: None

Foreign qualification requirement: Yes, if you do business in Arizona

Asset protection: Strong

Tax treatment: Pass-through

Delaware

Filing fee: $90

Annual Franchise Tax: $300

Registered agent requirement: Yes

State tax: None

Foreign qualification requirement: Yes, if you do business in Delaware

Asset protection: Strong

Tax treatment: Pass-through

Arizona LLC	Delaware LLC
File Articles of Organization with AZ Corp. Commission	File Certificate of Formation with DE Division of Corporations
$50 formation fee payable to AZ Corp. Commission	$90 formation fee payable to DE Division of Corporations
Arizona offers privacy protection for LLC owners by not requiring the disclosure of owner information in formation documents	Delaware requires the disclosure of member names and addresses in the Certificate of Formation, which becomes part of the public record
Arizona follows a pass-through taxation system,progressive income tax rates ranging from 2.59% to 8.00%	Delaware imposes a flat corporate income tax rate of 8.7% on corporations and certain business entities
Arizona does not have the same reputation as Delaware in terms of its legal infrastructure and corporate law expertise	Delaware is renowned for its well-developed legal system and extensive experience in corporate matters
Arizona does not have a specialized court system for corporate matters	Delaware has a dedicated Court of Chancery that handles corporate disputes and provides expertise in business law
Arizona has a growing economy with diverse industries, business-friendly policies, and a supportive startup ecosystem	Delaware has a favorable business environment with a strong legal framework, established corporate presence, and access to financial services

Cost Breakdown of The Two

You may use our free LLC cost calculator by state to find out filing fees, tax percentages, income taxes, and more.

Arizona LLC:

Formation Fee: The formation fee for an LLC in Arizona is $50, payable to the Arizona Corporation Commission.

Annual Report Fee: The Arizona Corporation Commission (AZCC) doesn’t require an Annual Report (or fee) for an Arizona LLC

Delaware LLC:

Formation Fee: The formation fee for an LLC in Delaware is $90, payable to the Delaware Division of Corporations.

Franchise Tax: Delaware imposes an annual franchise tax on LLCs, which starts at $300 and varies based on the number of authorized shares and gross assets of the company.

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Similarities Between Arizona and Delaware LLC

Limited Liability Protection: Both Arizona and Delaware provide limited liability protection to LLC owners.

This means that the personal assets of the owners are generally shielded from the liabilities and debts of the business.

Separate Legal Entity: LLCs formed in both Arizona and Delaware are considered separate legal entities from their owners.

This separation allows the LLC to conduct business, enter into contracts, and acquire assets in its own name.

Flexible Management Structure: Both states offer flexibility in choosing the management structure of an LLC.

Owners can decide whether the LLC will be managed by its members (member-managed) or by designated managers (manager-managed).

Pass-Through Taxation: LLCs in both Arizona and Delaware are generally taxed as pass-through entities.

This means that the LLC itself does not pay federal income taxes.

Instead, the profits and losses “pass-through” to the individual owners, who report them on their personal tax returns.

Additional Resources:

Steps to Form LLC in Arizona

Choose a Name: Select a unique name for your LLC that complies with Arizona’s naming requirements.

The name must include the words “Limited Liability Company,” “LLC,” or “L.L.C.” It should not be confusingly similar to existing business names in Arizona.

Appoint a Registered Agent: Designate a registered agent who will receive legal and official documents on behalf of your LLC in Arizona.

The registered agent must have a physical address in the state.

File Articles of Organization: Prepare and file the Articles of Organization with the Arizona Corporation Commission.

This document includes basic information about your LLC, such as the name, address, and purpose of the LLC, as well as the name and address of the registered agent.

Create an Operating Agreement: Although not required by law, it is recommended to create an operating agreement.

This document outlines the internal operating rules, ownership percentages, member roles, and other important details of your LLC.

Obtain an Employer Identification Number (EIN): If your LLC will have employees or if you choose to be taxed as a corporation, you will need to obtain an EIN from the Internal Revenue Service (IRS).

Register for State and Local Taxes: Depending on the nature of your business, you may need to register for state and local taxes, such as sales tax or withholding tax.

Visit the Arizona Department of Revenue’s website for more information and to register.

Comply with Ongoing Requirements: After forming your LLC, you will need to fulfill certain ongoing requirements, including filing an Annual Report with the Arizona Corporation Commission and paying the associated fee.

Steps to Form LLC in Delaware

Choose a Name: Select a unique name for your LLC that complies with Delaware’s naming requirements.

The name must include the words “Limited Liability Company,” “LLC,” or “L.L.C.” It should not be confusingly similar to existing business names in Delaware.

Appoint a Registered Agent: Designate a registered agent who will receive legal and official documents on behalf of your LLC in Delaware.

The registered agent must have a physical address in the state and be available during regular business hours.

File Certificate of Formation: Prepare and file the Certificate of Formation with the Delaware Division of Corporations.

This document includes basic information about your LLC, such as the name, address, and purpose of the LLC, as well as the name and address of the registered agent.

Create an Operating Agreement: Although not required by law, it is recommended to create an operating agreement.

This document outlines the internal operating rules, ownership percentages, member roles, and other important details of your LLC.

Obtain an Employer Identification Number (EIN): If your LLC will have employees or if you choose to be taxed as a corporation, you will need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).

Comply with Ongoing Requirements: After forming your LLC, you will need to fulfill certain ongoing requirements in Delaware.

This includes filing an annual report and paying the annual franchise tax, both of which are due on or before March 1st of each year.

Foreign LLCs: If you are forming an LLC in Delaware but plan to operate primarily in another state, you may need to register your LLC as a foreign LLC in that state.

Check the requirements of the state(s) in which you plan to do business.

Feature Comparisons Between Arizona LLC vs. Delaware LLC

Arizona LLC:

Cost and Formation: The formation fees for an LLC in Arizona are relatively low, with a formation fee of $50 payable to the Arizona Corporation Commission.

Privacy Protection: Arizona offers privacy protection for LLC owners by not requiring the disclosure of owner information in the formation documents.

Flexibility in Management: Arizona provides flexibility in choosing the management structure of an LLC.

Owners can opt for a member-managed structure where all members have equal management rights or a manager-managed structure where members appoint managers to handle day-to-day operations.

Delaware LLC:

Legal Infrastructure: Delaware is known for its well-established and business-friendly legal infrastructure.

It has a robust body of corporate law and a specialized court system called the Delaware Court of Chancery, which deals with corporate disputes.

Business Reputation: Delaware is a popular choice for forming LLCs due to its favorable legal environment and extensive experience with corporate entities.

It has a long-standing reputation for business-friendly laws and a well-developed case law history.

Privacy Considerations: Delaware requires the disclosure of the names and addresses of LLC members in the Certificate of Formation, which becomes part of the public record.

Business Environment

Arizona Business Environment:

Growing Economy: Arizona has a steadily growing economy with diverse industries such as healthcare, technology, manufacturing, tourism, and aerospace.

The state offers a favorable environment for businesses to thrive and expand.

Business-Friendly Policies: Arizona has implemented various business-friendly policies, including tax incentives, streamlined regulations, and support for entrepreneurship and innovation.

Delaware Business Environment:

Business-Friendly Legal Environment: Delaware is renowned for its business-friendly legal system, including its well-developed corporate law and specialized Court of Chancery, which provides predictability and stability for businesses.

Tax Advantages: Delaware offers tax advantages for businesses, such as no state sales tax, no personal property tax on intangible assets, and a favorable corporate income tax structure for entities operating primarily outside of the state.

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Arizona vs. Delaware Taxes

Arizona Taxes:

Income Tax: Arizona has a progressive income tax system with five tax brackets, ranging from 2.59% to 8.00%. The tax rates increase as income levels rise.

Sales Tax: The state sales tax rate in Arizona is 5.6%. However, additional local sales taxes may apply, resulting in varying combined rates across different municipalities.

Property Tax: Arizona has relatively low property tax rates compared to many other states.

The average effective property tax rate in Arizona is around 0.60% to 0.72% average of a property’s assessed value.

Corporate Income Tax: Arizona imposes a flat corporate income tax rate of 4.9% on corporations and certain other business entities.

Delaware Taxes:

Income Tax: Delaware has a progressive income tax system with six tax brackets, ranging from 0% to 6.6%. The tax rates increase as income levels rise.

Sales Tax: Delaware does not impose a statewide sales tax, making it one of the few states with no sales tax on goods or services.

Property Tax: Delaware has property taxes, but the rates and assessments vary across different counties.

The average effective property tax rate in Delaware is approximately 0.55% of a property’s assessed value.

Corporate Income Tax: Delaware imposes a flat corporate income tax rate of 8.7% on corporations and certain other business entities.

Flexibility in Rules and Regulations

Business Licensing: Arizona has relatively lenient licensing requirements for many types of businesses.

The state aims to simplify the licensing process and reduce administrative burdens, allowing for greater flexibility in starting and operating a business.

Zoning Regulations: Arizona provides flexibility in zoning regulations, allowing for a range of business activities in different areas.

Some municipalities may have specific zoning restrictions, but overall, there is room for businesses to operate in various locations.

Business Structure Options: Delaware offers flexibility in choosing business structures, including corporations, limited liability companies (LLCs), partnerships, and more.

The state’s well-established legal framework allows for various entity types, providing businesses with options for structuring their operations.

Privacy and Confidentiality: Delaware provides privacy and confidentiality for business owners.

The state does not require the public disclosure of member names or addresses in formation documents, offering flexibility and protection for owners.