Question:  I am considering forming an Arizona corporation myself.  All I have to do is complete the Arizona Corporation Commission’s three page fill in the blanks Articles of Incorporation and file it with the Arizona Corporation Commission.  Why should I hire you to form my new corporation?

Answer:  Wow!  This is an actual question somebody asked me recently.  The question always reminds me of another question, “would you perform surgery on yourself?”  OK, it’s not quite the same thing, but there are a lot of reasons why people should not form corporations or limited liability companies themselves or use document preparers.  Here are a few.

  • First and most important, the Arizona corporation is almost always obsolete and should rarely be used.  Arizona corporate law does not give the shareholders charging order protection unlike Arizona LLC law that provides that the sole remedy of a creditor who gets a judgment against a member of an Arizona LLC is to serve a charging order on the LLC.  The legal significance of the difference is that if a creditor gets a judgment against a stockholder of an Arizona corporation, the creditor can sell the stock at an auction and it is lost forever.  However, if the creditor gets a judgment against a member of an Arizona LLC, the creditor can get a charging order, but cannot force a sale of the membership interest in the LLC.  Bottom line:  If a you own stock in an Arizona corporation and a creditor gets a judgment against you, you will probably lose your investment in the stock forever.  If you are a member in an Arizona LLC and somebody gets a judgment against you, Arizona’s LLC law prevents the loss of your investment in the company.
  • Arizona corporations must file an annual report with the Arizona Corporation Commission and pay an annual fee of $45.  Arizona LLCs do not file an annual report with the ACC or pay it an annual fee.
  • If an Arizona corporation fails to file its annual report, the Arizona Corporation Commission will terminate its existence.  Let me say that again slower.  T h e    A C C    w i l l    k i l l    the    c o r p o r a t i o n!  What do you suppose happens to the corporate shield provided by an Arizona corporation when it dies?  It evaporates!  When the ACC revokes the charter of an Arizona corporation because it did not file an annual report, the legal significance of the revocation is that the shareholders no longer have a corporation – they have a common law Arizona general partnership and every one of them is 100 percent liable for everything that goes wrong.  If you have an Arizona LLC there is no annual report so you cannot forget to file it and the ACC cannot terminate your company for failing to file the annual report.  If you think revocations are rare, think again.  For its fiscal year ending June 30, 2011, the ACC revoked the existence of 18,342 Arizona corporations – that’s 10% of all Arizona corporations.
  • If you insist on forming your own corporation, the before you pull the trigger, do your self a favor and read the read “How To Incorporate In Arizona.”

Having said the above, if anybody insists on forming an Arizona corporation, I am happy to oblige that person.  I do form Arizona corporations, but it happens less and less as time goes by and more and more people realize that the limited liability company is the entity of choice in Arizona.