Corporations FAQs

Corporations (Inc’s, LLC’s, etc.)

Types of Corporate Entities Arkansas

 

When starting a business, you may choose from several business forms or organizations. A variety of organizational structures are available for transacting business in Arkansas. In deciding which form of business is appropriate for your venture, a lawyer, CPA, tax advisor or financial advisor can provide critical information. Choosing the proper business entity for your business is vital to the success of your project. This booklet outlines some of the issues involved, but is not a substitute for sound legal and financial advice from competent lawyers, accountants and advisors. It is only a starting point.

One of the primary considerations in selecting a business organization is protection of the owners of the business from liability. Other considerations include tax treatment by the federal and state governments, management structure, future ownership, and capitalization. Arkansas laws determine how particular entities should be set up and conduct their business. These laws are very specific and set out the legal responsibility of each business form. Taxing authorities and regulatory agencies also have laws that pertain to business. There is much written about choosing and setting up the proper form of business for your needs. Information can be found at libraries, small business development centers and on the Internet. Ultimately, however, legal counsel or a certified public accountant are probably needed to help you make the decision. The most common business structures are described below; click on an entity type to read more:

Download a copy of our "Doing Business in Arkansas" handbook here

Sole Proprietorship
Partnership
General Partnership
Limited Liability Partnership
Limited Partnership
Limited Liability Limited Partnership
Corporation
S Corporation
Limited Liability Company
Nonprofit Corporation
Commercial Registered Agent
Nonfiling/Nonqualifying Entity

Sole Proprietorship

A business with a single owner with no formal or separate form of business structure is known as a sole proprietorship. The owner has sole control and responsibility of the business. A sole proprietorship is easily formed, allows important decisions to be made quickly, and typically has fewer legal restrictions. In this situation the owner and the business are indistinguishable. The business has limited life and cannot be transferred (as an entity) to others. The sole proprietor’s responsibilities include:

• Obtaining all capital
• Personal liability for all debts and claims against the business
• Claiming all profits and losses on the owner’s personal income tax return
• Obtaining state and local business licenses and permits
• Recording the name of the business with your local county clerk

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Partnership

A partnership is an association of two or more persons acting as co-owners of a business and can be created by an oral or written agreement between the parties involved among other methods. However, a written agreement is highly recommended. This agreement should set out the responsibilities and obligations of the partners as well as the percentage of ownership.

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General Partnership

General partnerships are not required to file official registration beyond that required for a sole proprietorship, but may file to be on record as a general partnership in the Secretary of State’s office. Check with your advisors.

• Do not protect the personal assets of the business partners from claims against the partnership.
• Are required to file informational returns with the Internal Revenue Service and Arkansas Income Tax Division.
• Share their profits and losses among the partners according to their ownership percentage or other legal means. Partners are then required to claim this income or loss on their personal income tax return.

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Limited Liability Partnership

A limited liability partnership (LLP) is like a general partnership. The LLP allows all the partners to take an active role in the management of the business while offering members some liability protection from actions of the other partners and the partnership and the partnership employees. LLPs are most often used by groups of professionals such as doctors, accountants or architects.

• Are treated like partnerships by the Internal Revenue Service.
• Are required to file informational returns with the Internal Revenue Service and Arkansas Income Tax Division.
• Do not provide liability protection to individual partners for their own actions.
• Are created by filing a Qualification of Limited Liability Partnership with the Secretary of State.
• Must file an annual report with the Arkansas Secretary of State.

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Limited Partnership

Limited partnerships (LP) are more intensely regulated than general partnerships. An LP may consist of general partners and limited partners. The general partner(s) manage the business and usually have no liability protection. The limited partner(s) are usually investors that are not involved in the day-to-day running of the business and whose liability is normally limited to the extent of their investment.

• Are treated like a partnership by the Internal Revenue Service.
• Are required to file informational returns with the Internal Revenue Service and Arkansas Income Tax Division.
• Were originally developed for real estate development ventures.
• Are created by filing a Certificate of Limited Partnership with the Secretary of State.
• Must file an annual report with the Arkansas Secretary of State.

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Limited Liability Limited Partnership

A limited liability limited partnership (LLLP) is a limited partnership which registers with the Secretary of State as an LLLP. One effect of registration is to limit the vicarious liability of the general partners in the same fashion that registration as an LLP limits the liability of the general partners of a general partnership.

• Are created by filing a Certificate of Limited Liability Limited Partnership.
• Are Limited Partnerships.
• Must file an annual report with the Arkansas Secretary of State.
• Are required to file information returns with the Internal Revenue Service and the Arkansas Department of Finance and Administration.

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Corporation

A corporation is a more complex form of business organization. The corporation is a legal entity and exists apart from its owners or shareholders. As a separate entity, the corporation has its own rights, privileges and liabilities apart from the shareholders, officers and board of directors. A corporation can buy and sell property, enter into contracts, sue and be sued. Elected officers and its board of directors manage the corporation.

• Are created by filing Articles of Incorporation with the Arkansas Secretary of State.
• May be formed for profit or for nonprofit purposes.
• Are unaffected in their duration by death or transfer of shares by any of the owners.
• Require more extensive record keeping.
• Pay taxes on their profits; profits are distributed to the owners via dividends and are taxable by state and federal taxing authorities.
• Must file annual franchise tax reports with the Arkansas Department of Finance and Administration.
• Files returns with the Internal Revenue Service and Arkansas Department of Finance and Administration.

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S Corporation

The S Corporation is a corporation that chooses to be taxed under Subchapter S of the Internal Revenue Tax Code. Being an S Corporation is a tax matter only. S Corporations are “tax pass through” business entities, meaning their profits and losses are reported by their owners on the owners’ personal tax returns.

• Are corporations in the view of the state and comply with state corporation laws.
• Must have only one class of stock.
• Must be made up of shareholders that are individuals, estates, or trusts, but not corporations.
• Can only have shareholders that are United States citizens or residents.
• Cannot be members of affiliated groups of corporations.
• Are limited to 100 shareholders.
• Are created by filing Articles of Incorporation with the Arkansas Secretary of State and then the Internal Revenue Service.
• Must file annual franchise tax reports with the Arkansas Department of Finance and Administration.

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Limited Liability Company

Limited Liability Companies (LLC) combines many favorable characteristics of corporations and partnerships. The LLC provides limited liability to its members.

• Must file Articles of Organization with the Arkansas Secretary of State.
• Allow members to manage a company themselves or to elect managers.
• Allow members to engage in management without risk of losing their limited liability status.
• Are a relatively new form of business organization.
• Enjoy less regulation on record keeping.
• May be taxed by the Internal Revenue Service as corporations or as partnerships, depending on their structure.
• Must file annual franchise tax reports with the Arkansas Department of Finance and Administration.
• Are required to file information returns with the Internal Revenue Service and Arkansas Department of Finance and Administration.

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Nonprofit Corporation

Nonprofit corporations are created for public benefit, for mutual benefit for its members, or for religious purposes. Nonprofit corporation status does not guarantee that the organization will be granted tax-exempt status, nor does it ensure that the contributions to the organization are tax deductible. Becoming a nonprofit corporation is generally a prerequisite to applying for tax-exempt status under Internal Revenue Service Code, such as section 501(c) (3). To accommodate the vast number of entities choosing to file for 501(c) (3) status with the Internal Revenue Service the Arkansas Secretary of State provides a blank template with suggested Internal Revenue Service language as well as the traditional nonprofit articles of incorporation templates. If the nonprofit corporation intends to solicit charitable contributions, it must also register with the Arkansas Secretary of State's office.

• May not have shareholders or pay dividends.
• May compensate members, officers, and trustees (in reasonable amounts) for services rendered.
• Must have specific provisions in its Articles of Incorporation dealing with property distribution upon dissolution.
• Are created by filing Articles of Incorporation with the Arkansas Secretary of State.
• Must file an annual disclosure statement with the Arkansas Secretary of State.

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Commercial Registered Agent

A commercial registered agent is an individual or entity that is in the business of providing registered agent services for registered entities in Arkansas. The primary purpose of the commercial registered agent is to accept service of process on behalf of the entities it represents.

• Are created by filing a Commercial Registered Agent Listing with the Arkansas Secretary of State.
• Are regulated by the Model Registered Agents Act (MoRAA) of 2007.

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Nonfiling/Nonqualifying Entity

An entity that is not required to file or register in order to transact business in the state may choose to file a Nonfiling/Nonqualifying Entity Statement. This filing allows the entity to have its registered agent/service of process information on file with the Secretary of State.

• Are created by filing a Nonfiling/Nonqualifying Entity Statement with the Secretary of State.
• Do not qualify an otherwise nonqualifying entity.
• Do not provide any protection for the use of the name by the entity.

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