Arkansas is a fantastic place for entrepreneurs, boasting the 2nd lowest cost of labor in the nation, plus the 12th lowest business costs total. Plus, employees enjoy the 12th lowest cost of living in the US, which makes it easier to attract talent.
The state is home to hundreds of thousands of businesses, both large and small – but there are around 250,000 small businesses in Arkansas. Looking to join the ranks of Arkansas entrepreneurs by starting your own company? This is the guide for you.
But how do you start a business in Arkansas? There are many important steps to follow, but this guide will walk you through everything. The specifics do vary depending on what business structure you choose (LLC, corporation, etc.), so it’s important to have a plan and research all the requirements.
Regardless of your specific plans, this guide will help walk you through the process.
Decide on a business idea
First and foremost, you’ll need to decide what kind of business you want to start. Chances are you already have something in mind, but if not, here are some things to consider:
- What are you talented or naturally skilled at? Could this talent make you well suited to a certain type of business?
- What business does your community need? Have you talked to people to find out?
- What are you interested in? Can you combine any of your passions with a business idea?
- Is this going to be a full time business, or more of a side hustle?
These are questions to ask yourself when deciding on a business idea. Once you have decided, move on to the next step.
Plan your Arkansas business
Now it’s time to start planning. This means coming up with a business plan, naming your business, researching locations, and more. There’s a lot to cover here, so let’s break it down:
Select a business name
To register a business name in Arkansas, you must first select the name that you want. There are a variety of rules that you will need to follow for this name, and they vary a bit depending on the business structure (LLC, corporation, sole prop, etc.)
The main rule that firms must follow is that the business name must be distinguishable from the names of other businesses in the state. So, if you form a corporation, you must find a name that is unique from every other corporation registered in Arkansas. You can use the Arkansas business entity database to search and see if your desired name is available.
There are various requirements for business names in Arkansas, but some of the most important include:
- The name must be distinguishable from other Arkansas businesses
- LLC names must contain the words “limited liability company”, or abbreviations including “LLC” or “L.L.C.”
- Some phrases and words require written permission in order to use. This includes financial terms like “bank”, “trust” or “credit union”.
- Other rules apply. See the Doing Business in Arkansas guide here for more information on business name rules.
When you have found a business name that you want to register, you can move on to the next step.
Or, if you’re not quite ready to register the business yet, you can also reserve the name ahead of time. This saves the name from being registered by other entrepreneurs, reserving it for 120 days. You can find the forms to submit for a name reservation here (there are different forms for LLCs and corporations).
Arkansas fictitious names
Businesses that are registered in Arkansas can also operate under what’s called a fictitious name, otherwise known as a trade name or Doing Business As (DBA). This is basically a secondary name that is registered and can then be used by an existing business.
For example, ABC LLC could register the fictitious name “ABC Bar and Grill”, or “Olympic Bar and Grill”, if they wished to rebrand and market under a different name than their full LLC name.
These names must be registered, but the process is simple and can be done online. Keep the use of fictitious names in mind when you name your company, as they allow for more flexibility in branding and marketing.
Register a domain name
Once you choose a name, you should immediately register a domain name for your new business. In most cases, getting a .com domain name is ideal, but there are many other extensions (.biz, .net, etc.) that are worth considering.
You can use a tool like Namechk to search for an available domain name and find a great deal on the registration cost. You may find that your desired names are taken, so you may need to get creative.
Complete market research
Once you have an idea, you’ll want to do some market research. You want to gain a better understanding of who your customers – and competitors – are. You can achieve this by conducting online research, running focus groups, sending out surveys, and more. There are also companies that can help you complete market research, for a fee.
Select a business location
Unless you plan to run a remote/virtual business, you will need to find a physical location for your company. Research commercial property in your area, and take note of typical costs. For customer-facing businesses (retail and some services), location is very important, so take your time in selecting the right area for your business.
Create a business plan
You will now need to create a detailed business plan for your new venture. This plan is helpful for your own purposes, and will also be necessary in order to obtain funding from a bank. A good business plan should contain these elements:
- Finances: How much funding does the business need to get started? How many sales does it need each month to break even on expenses?
- Product: What do you plan to sell? Is it a product or a service? What problem does your business solve, and how is it distinct from your competitors?
- Marketing: How will you drive sales? What marketing and sales efforts do you plan to employ? How much money will you set aside to fund marketing efforts?
- Staff & Partnerships: How many people will you need to hire, and what skill sets do they need to have? Will you have any partnerships or arrangements with other local businesses?
If you need help, you can find business plan templates online that will help walk you through the steps you need to take to draft a detailed business plan. If you plan to seek funding, you may also wish to call your bank to see what they require in terms of business plans.
Decide on a business structure
Before you form your business as a legal entity, you will need to decide which business structure you will use. There are a few different types of businesses, each with its own pros and cons.
Sole props are single-person operations. Examples include freelancers, gig economy workers, and consultants. A sole proprietorship business is very easy and inexpensive to form, and tax reporting is also fairly simple. As a sole proprietor, your business taxes are reported as part of your personal tax return.
The downsides to a sole prop are that you cannot hire employees, and you don’t have the legal liability shield that something like an LLC or corporation would provide. 100% of the debts and liability of a sole proprietorship go to the sole owner: you.
A general partnership is an unincorporated business structure similar to a sole proprietorship, except with two active owners/participants. Partnerships do not have liability protection.
Limited Liability Company (LLC)
A limited liability company, or LLC, is a popular choice for business owners because it provides liability protection to the owners. It separates the business from the owners, which means the personal assets of owners will not be at risk if the company gets sued or goes into bankruptcy.
LLCs are also a bit easier to form than corporations. Even so, there is definitely more work involved with an LLC than there is with a sole proprietorship.
A corporation is owned by its shareholders and is a separate entity. There are a few different types of corporations (C-corp, S-corp, etc), with the main differences being the way they are treated tax-wise.
Corporations are more regulated than LLCs, which makes them more attractive to outside investors. For this reason, most large companies are corporations. The downside is that it takes more effort, and more paperwork, to form a corporation.
A nonprofit is a legal entity that is set up with charitable status, meaning that its goal is not to make a profit, but rather to address a certain cause. Nonprofits are funded by donations, rather than investors, and are subject to many regulations. They are exempt from most forms of taxation, although tax returns must still be filed.
Register your business in Arkansas
The next step is to actually register the business with the Arkansas Secretary of State. The specific steps you’ll need to tackle for this depends on the business entity type (LLC, corporation, etc.)
For the simplest experience with this process, it’s helpful to use a business formation service. These companies can help walk you through all the necessary steps in order to form your new company.
Services like Northwest Registered Agent, ZenBusiness, and Incfile are great options. They charge small fees for their services, but the time they save you will be well worth the cost.
Regardless of whether you do the work yourself or use a service, the steps you’ll need to take will look something like this:
- Choosing your new business name (see step #2 above)
- Choosing an Arkansas Registered Agent for the business (this individual will be responsible for receiving important legal documents on behalf of your company)
- Filing formation documents with the state of Arkansas
- Applying for an Employer Identification Number (EIN) with the IRS (Internal Revenue Service)
Form a business in Arkansas
You will need to work with the Arkansas Secretary of State – Business and Commercial Services department. Whether you’re forming an LLC or corporation, you will need to file some paperwork with the AR Secretary of State.
If you plan to start a sole proprietorship, the process is quite simple, and generally requires no formal filings on the state level. If you plan to do business under a name other than your own legal name, then you must register a trade name with the state. Sole proprietors may also need to apply for business licenses/permits on the local (city/county) level.
Form an Arkansas LLC
Follow these steps:
- Name your LLC (follow the Arkansas LLC naming rules)
- Choose a Registered Agent (or use a service such as Northwest Registered Agent)
- File the LLC Articles of Organization online, and pay the $50 filing fee. The form can also be filed by mail
- Draft an LLC operating agreement
- Apply for an EIN with the IRS
Form an Arkansas corporation
Follow these steps:
- Decide on your corporate tax structure (S corp or C corp, for example)
- Name the new corporation (follow the Arkansas Corporation naming rules)
- Appoint directors and hold an organizational meeting
- File the Articles of Incorporation online and pay the $50 filing fee. This form can also be filed by mail
- Apply for an EIN with the IRS
Our picks of the best registered agent services
Apply for business licenses and permits
Registering your business and forming an LLC or corporation is an important part of starting your business – but in order to operate legally, you will likely also need to obtain certain permits and/or business licenses.
The specifics vary depending on the type of business you are running, as well as your location. For example, restaurants will need health permits, bars will need liquor licenses, and medical service providers will need various professional licenses and federal permits. You will need to research the specifics that relate to your business type.
There are different requirements at each level of government:
- Local: Cities and counties may require certain business licenses or permits. Contact your county clerk for details.
- State: Arkansas may require certain permits or licenses. Check this guide on Arkansas.gov for details.
- Federal: Federal permits/licenses may be required for certain regulated industries, such as construction, medicine and legal services. Check the Small Business Administration (SBA) guide for more details.
At this time, you should also apply for an Employer Identification Number (EIN). An EIN is a federal tax ID that is required to hire employees. You can apply for an EIN online with the IRS – the application is free and quick.
For most businesses, some startup funding will be necessary in order to get started. In step #2, you should have calculated your funding needs while drafting a business plan. Use this information to determine how much funding you need to raise.
For bootstrapped companies, you may be able to get by with your own personal savings, or some seed investments from friends and family. If your funding needs are small, this is likely your best route.
If your business plan indicates that substantial funding is needed, you will likely need to apply for a loan and/or a grant.
- Small business loans are offered by banks, credit unions and other lenders. They can range from as little as a few thousand to hundreds of thousands. Specifics will depend on your business, as well as your personal creditworthiness. Most small business loans are issued in a lump sum, and paid back on a monthly basis, with interest.
- Small business grants are offered by government agencies and some nonprofits. They are essentially business loans that don’t need to be paid back – but they usually have substantial fine print. It’s worth looking into, however, as there may be grants available, particularly for businesses serving an important social need, or for underprivileged entrepreneurs starting their first business.
Set up your business finances
Beyond securing funding, there are other routine tasks that you need to take care of to get your business’ finances in order. This includes:
- Opening a business checking account. You should have a separate business bank account that you use solely for business purposes. You can open this account at most banks, credit unions and financial institutions. Call ahead to see what documents will be required to open this account.
- Open a business credit card or line of credit. This is not strictly necessary, but most businesses can benefit from having a business credit card, and/or a business line of credit. This can be used for day-to-day expenses and purchases, and may also earn you some rewards.
- Set up your accounting system. As a business owner, you will need to keep very detailed records about all revenue and expenses. To do this, you’ll want to set up the proper foundation from day one. This could be investing in an account software such as QuickBooks or Xero, hiring a bookkeeper, or at the very least establishing a spreadsheet to track everything. If you do not have any accounting experience, it’s wise to hire a professional to help.
- Purchase business insurance. Most businesses should have some form of liability insurance, and potentially other forms of business insurance as well. Insurance policies can help protect your equipment and buildings from costly damage, and help shield your company from liability if a worker or customer is injured or otherwise harmed. Speak with a local business insurance provider to get started.
Create a business website
In this day and age, having a solid web presence for your business is very important. And social media profiles, while important, are no replacement for an actual website. You will want to build a professional business website that you can use to drum up business, inform your customers, and stay connected with your clientele.
The simplest way to build a website is to use a website builder from a web hosting provider. When you register a new domain name, look for a provider that also offers web hosting and a site builder, so that you can purchase everything at once and get your site set up quickly.
Our picks of the best website builders
Unless you plan to operate a solo business (with you as the only worker), you will likely need to hire employees. To do this, you will need a federal employer identification number (EIN), which is a free tax ID number issued by the Internal Revenue Service (IRS).
Businesses in Arkansas that have employees will have several tax reporting requirements in the state. The Arkansas Department of Finance and Administration is the main entity that businesses will report to for state tax purposes.
When a business hires a new employee, this must be reported to the Arkansas New Hire Reporting Center. This can be done online.
Finally, Arkansas businesses must pay unemployment insurance tax, which is administered by the Arkansas Division of Workforce Services, as well as withholding tax through the Department of Finance and Administration.
At this point, you also should look into setting up your payroll system – whether you handle it yourself, or use a payroll service.
Run and grow your business
Now it’s time to get down to business and engage with the day-to-day activities that are sure to bring your business success. This means marketing your products and services, maintaining good relationships with your return customers, and setting yourself apart from the competition.
Arkansas business FAQs
Still have questions about running a business in Arkansas? Here are some answers to frequently asked questions.
What are some business resources in Arkansas?
Arkansas business owners thankfully have a variety of resources at their disposal. A great place to start is the Arkansas Small Business and Technology Development Center (the ASBTC). This resource provides free business advisor services, webinars and training, and tons of additional useful resources. The Arkansas Economic Development Commission also maintains a list of resources for entrepreneurs in Arkansas.
Are there business assistance programs available in Arkansas?
There are many business assistance programs available in AR, many of which target certain types of entrepreneurs. You can search the internet for assistance programs relevant to your industry. A good place to start looking is at the resources listed above, as well as the Arkansas District Office of the Small Business Administration (SBA).
What is the minimum wage in Arkansas?
The Arkansas minimum wage is $11 per hour, as of January 2021. Entrepreneurs can check with the Arkansas Department of Labor and Licensing. Keep in mind that certain cities or counties may impose their own minimum wage laws.
What business taxes does Arkansas have?
There are a variety of taxes in Arkansas that business owners must pay. Arkansas has a Sales and Use tax that businesses must pay; it is currently 6.5% on the state level (and local cities/counties may impose their own additional sales tax).
Additionally, many firms will be subject to corporate income tax. Specialty taxes may be collected for industries like alcohol and tobacco sales, or gambling. And AR businesses with employees must pay unemployment insurance tax, as well as withholding tax for their employees.
How do I dissolve an LLC or Corporation in Arkansas?
If you end up needing to close your Arkansas business, you will need to dissolve it. You will need to shut down your tax accounts with the Arkansas tax authorities. And you will need to submit the Articles of Termination online (LLC form here, and corporation form here).
Closing an Arkansas business can be complex, so you may wish to hire a certified public accountant (CPA) for help with this process.
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