Legal Tips for Starting an Online Business in Arizona

For many people, the allure of starting an online business is clear.  Running your own successful online company can mean you have the freedom to work when and where you want.  It also represents the opportunity to create financial security and build something you can pass on to your children someday.  While the benefits are certainly great, the reality is that lots of work goes into starting up a new online business, and you want to take the time to set things up correctly.  We’ve put together a guide for aspiring entrepreneurs with some helpful tips for starting an online business in Arizona.

Choosing a Corporate Structure

Every business entity in Arizona will need to choose the appropriate business structure for their operations.  The three main options in Arizona are sole proprietorship, limited liability company, and corporation.

Arizona does not require a person operating a sole proprietorship to file anything to obtain a sole proprietor business structure (however, depending on the type of business, other state and local licenses must still be obtained prior to operating).  You should be aware that you will have no legal protections from the liabilities of your business if you operate as a sole proprietorship.  There are many considerations here that should be discussed with an experienced attorney, but generally, you should consider structuring a business as a limited liability company rather than a sole proprietorship.

The most important reason to start a limited liability company in Arizona is the protection from personal liability for business debts and obligations.  This means that, absent personal guarantees of business loans or obligations, your personal assets will not be at risk if a person or company sues your business and wins a judgment against it.

A corporation provides similar protection against business debts and obligations.  In some situations, it might be best to choose a corporation for your business structure.  However, this will not generally be the case for a new business that has not produced any revenue.  Corporations have extensive reporting and accounting requirements that will require more time and effort to maintain than limited liability companies, and generally have certain tax disadvantages when compared with limited liability companies.

Branding

Branding is an essential part of any new online business, and that starts with choosing a great name for your business.  You’ll obviously want to make sure that you can acquire the related domain name before deciding on the name to give your corporate structure.  You should also consider any slogans and other marketing initiatives that would benefits from copyright or trademark protection.

You can search the US Trademark Database and US Copyright Records for free to see if there are potential conflicts for your branding and marketing ideas before moving forward with a potential business name and brand.  For more complicated reviews of copyrights and patents, you should consult with an experienced attorney to make sure all appropriate plans and records are reviewed.

File Formation Papers with Arizona Corporation Commission

Once you have selected a business name and chosen the optimal structure for your new online business, you will need to file the business formation paperwork with the Arizona Corporation Commission.  This can be done online with fees paid by a credit card.  Make sure you have taken the time to review the available structures for your new business with an attorney and that you’ve done the necessary due diligence on your proposed brand and marketing initiatives.

Understanding the Arizona Transaction Privilege Tax

Arizona has some unique tax laws for online businesses.  Any new business in Arizona will want to understand their requirements under the Arizona Transaction Privilege Taxes.  The Arizona Department of Revenue states, “Arizona transaction privilege tax (TPT) is actually a tax on a vendor for the privilege of doing business in the state. Various business activities are subject to transaction privilege tax and must be licensed.”  You will want to consult with an attorney on whether your new business will require any specific licenses to operate in Arizona.  You will also want to consult with an accountant to make sure you are collecting all appropriate taxes on online sales.  Failure to do so may result in a hefty tax bill down the road if your business starts to sell a lot of product online.

Terms of Service, Disclaimer and Privacy Policy

In the United States, online businesses are required to provide users with their privacy policy.  It is also a good idea to have valid terms of service and a disclaimer for your potential customers as well.  Most people will not know where to begin with these important provisions.  It might seem appealing to simply grab language for these provisions from other businesses.  While this may seem appealing, language from other businesses is often outdated or legally unenforceable, and will not address the specific legal requirements of your business.  It is important to remember to get these documents reviewed by an attorney in Arizona to make sure you are addressing all the required notifications to your users, customers, and clients.

Find an Experienced Arizona Attorney

Most new business owners look for simple ways to save money when starting a new business.  Unfortunately, this can often mean not getting the appropriate legal counsel due to fear of cost; however, neglecting to get necessary legal counsel at the time of formation can lead to significant costs and liabilities later.  At MacQueen & Gottlieb, we can provide cost-effective legal representation as you start a new business.  Our firm has significant experience with structuring new companies in Arizona and we can guide you through all the necessary steps to set up your business in the optimal way from the beginning.  Contact us today at 602-533-2840 to schedule an initial consultation or make an appointment online.