Is Sole Proprietorship a Business Corporation in Arizona?
A sole proprietorship in Arizona and a business corporation are not the same. Many differences exist between the two business types, in areas such as limited liability protection and taxation. Also, the process of formation for an Arizona business corporation differs from that of an Arizona sole proprietorship. A corporation in Arizona has a separate legal existence from the owners of the business, while an Arizona sole proprietor and his business are treated as one in the same.
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Size and Formation
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Only one individual can own and operate an Arizona sole proprietorship, while any number of individuals, partnerships and other corporations can own a corporation in Arizona. The company does not have to file formation documents with the county or state to begin the business. A corporation in Arizona has an obligation to file articles of incorporation with the Arizona corporation commission. The company's incorporation documents become a matter of public record, once you file them with the state. Corporations in Arizona have to pay a $60 fee, as of 2011, to file articles of incorporation with the Arizona corporation commission, while sole proprietorships do not share this requirement.
Limited Liability
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Personal asset protection provides a major difference between an incorporated business in Arizona and a sole proprietorship. A sole proprietor in Arizona has a personal responsibility to pay the company's debts and obligations, while owners of a corporation do not incur personal liability for the company's business liabilities. If an Arizona sole proprietor gets sued, he may lose his home and other personal assets if the company cannot cover the business obligation. The liability of a shareholder that owns an Arizona corporation does not extend beyond her investment in the business.
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Taxation
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Corporations in Arizona may face double taxation, but sole proprietors do not get taxed twice on the company's earnings. As a sole proprietor in Arizona, you do not pay taxes on the company's income at the federal level, while corporation profits get taxed at the company's corporate tax rate. Owners of a sole proprietorship report company losses and profits directly on their personal tax return. Like sole proprietors, shareholders of an Arizona corporation have a duty to pay personal income taxes on income received from the business.
Considerations
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An Arizona corporation may find it much easier to raise capital than a sole proprietorship. Incorporated businesses in Arizona can offer stock to investors as a way to raise money, which sole proprietors cannot. As a sole proprietor, you may have to rely on your business assets or personal credit to raise funds for the business. Arizona sole proprietorships do not endure like a corporation, since the business automatically ends when the sole proprietor dies. Corporations in Arizona can continue forever, regardless of who owns the business.
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