Many aspiring entrepreneurs in Arkansas look to the rich small business communities that surround them and wonder what it would be like to own a business of their own. While the path to becoming a successful entrepreneur is complicated, and at times intimidating, the first steps of the process are entirely manageable- as long as you have a solid idea in place.
Steps to getting a Tax ID (EIN) Number and Forming Your New Business in Arkansas
- Arkansas Means Business
- Forming a Business in Arkansas
- Federal Tax ID (EIN) Number Obtainment
- Arkansas State Tax ID Number
- Localized Licenses and Permits in Arkansas
Arkansas is an attractive state for entrepreneurs in part because of the thriving areas around its major cities, like Little Rock, Fayetteville, and Hot Springs. Lately, its economic growth has slowed, with Arkansas ranking second-to-last, despite having a respectable growth rate of 2.2 percent, and almost $20 trillion of total output. Economists suspect that a significant chunk of the recent economic slowdown is due to sluggishness in fishing, hunting, forestry, and agriculture- so as long as your business falls outside these industrial areas, you probably won’t be affected by the downturn.
Arkansas is also attractive because of how welcoming it is to small business entrepreneurs; there are more than 245,000 small businesses in the state, which represent more than 99 percent of all businesses there. Collectively, they employ nearly half the Arkansas workforce, and the statistics show how important that is- unemployment in the state is just 4 percent, compared to the national average of 4.6 percent.
Before you formalize your business structure, you should put a business plan together. This comprehensive document is meant to help you research and understand all the variables that could impact your business, including your competition, the preferences of your target demographics, and your potential profitability. Once that’s in place, you’ll have a better understanding of which type of business you should create.
There are four primary options to choose from: sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. Each has strengths and weaknesses you’ll need to consider carefully before making the final call.
In terms of simplicity, sole proprietorships and partnerships are the most ideal. They’re relatively easy to set up, and don’t require much ongoing paperwork; the main difference with a partnership is that you’ll have more than one member, and will need to draft a partnership agreement. LLCs are slightly more complex, while corporations are the most complicated.
Corporations are advantageous, however, because they allow business owners to raise funds by issuing public shares. This makes them ideal for businesses that plan for expansion in the future. They also offer far more liability protection than other business entities; in corporations, business owners will not take on any business debt, and will be shielded from most legal responsibilities. LLCs provide some measure of protection, while sole proprietorships and partnerships offer very little protection, exposing their owners to more legal risks.
You’ll also need to consider the tax advantages of each business type. In partnerships and sole proprietorships, owners will pay taxes as an individual on any money they make; it’s a simple and straightforward setup. LLCs and corporations are considered separate "pass-through" entities, and track their revenue and expenses separately. In both scenarios, owners will pay individual taxes on money they take as salary or profit distribution; LLCs do not owe federal-level income taxes, while corporations do. In Arkansas, LLCs are required to file an annual report, and are responsible for paying a flat tax rate of $150 per year (unless they’re being taxed as a corporation). Corporations in Arkansas are taxed with a three-factor calculation; they’ll pay 1 percent on the first $3,000 of their eligible income, 2 percent on the next $3,000, with rates increasing to 6.5 percent on all income above $75,000 per year.
It’s possible, but tricky to change your business structure after you’ve already created it, so try to choose the most appropriate structure for the distant future.
Most businesses will require an employer identification number (EIN), or federal tax ID. This number will serve as a way to identify your business, and register it with the federal government. You’ll use it when hiring employees, when establishing partnerships, when opening new business bank accounts, and when opening new loans and lines of credit. All partnerships, corporations, and LLCs with multiple partners will need this ID, as will sole proprietorships.
Fortunately, the process for getting a federal tax ID is simple. By using our federal tax ID number obtainment services, all you’ll have to do is answer a few questions, and you’ll get your tax ID via email in the span of an hour.
Your Arkansas state tax ID number is different than your federal tax ID, though they do share some similarities. Both serve as unique identifiers for your business, and you’ll use each one when withholding different payroll taxes from your employees. However, the main reason to have an Arkansas state tax ID is to register your business for state-level sales taxes and excise taxes.
If you want to get your state tax ID as quickly and/or as easily as possible, it’s best to use our Arkansas state tax ID number obtainment services. Again, all you’ll need to do is answer a few questions about you and your business, and we’ll get your business registered with the state in an hour or less!
Arkansas doesn’t have a one-size-fits-all, state-level permit required for business operations. Instead, you’ll need to get any permits, licenses, and certifications you need at the local level (either with your city or county, depending on your specific needs). These requirements are different in every city, though industries like healthcare, gambling, and transportation often tend to have stricter licensing requirements than others. Before you get too far in the planning process, you should visit your local Chamber of Commerce and ask them what type of paperwork and registration you’ll need to pursue.
Every entrepreneur starts with an idea they believe in and a conviction to make it a reality. If you already have that idea, you may be just a few weeks away from generating the momentum necessary to turn it into a real, thriving business. Rely on our federal tax ID and Arkansas state tax ID number obtainment services to make that process easier on yourself.