Our work is reader-supported, meaning that we may earn a commission from the products and services mentioned.

Guide to Starting a Business in Arkansas

Overview

Steps to Starting a Business in Arkansas [2022]

Starting a business can be overwhelming. There are so many steps to take and so much information to learn that it stops many people from ever trying. Here, we will break down the steps and tell you everything you need to know about starting a business in Arkansas.

Total Time: 60 days

Step 1: Choose a Business Idea

The first step in starting a business in Arkansas is having a good business idea. Maybe you already have an idea picked out, or maybe you are still deciding on one. Regardless, you can check out our library of business ideas to get detailed industry information, trends, costs to start, tips, and lots more.

Step 2: Write a Business Plan

Once a solid business idea is in place, it’s time to start working on the business plan.

Many people only consider writing a business plan because the bank asks for one in order to get funding. While that’s a valid reason, more importantly writing a business plan gets the ideas out of the entrepreneur’s head and helps to create a roadmap for where they want the business to go. Just as most builders wouldn’t build a house without blueprints, an entrepreneur shouldn’t build a business without a business plan.

The thought of writing a business plan is overwhelming, so here are some resources to help in getting started.

Related: How to write a business plan

Step 3: Select a Business Entity

The next step in starting a business in Arkansas is selecting a legal business entity.
The business entity is sometimes referred to as a business structure or legal structure, which refers to how a business is legally organized. There are four primary business entities: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). A brief description of each is below.

Sole Proprietorship is an individual that decides to go into business. This is the easiest and least expensive of the four entities to set up as there is no state filing. The ease of startup is a big selling point, however, a major downside to the sole proprietorship is that the owner is personally responsible for all debts and actions of the company. If the business is sued, the owner’s personal assets are potentially at risk. Another potential downside is the owner will pay self-employment tax on all business profits and may be more costly than some of the other entities.

Related: What is a sole proprietorship?

General Partnerships consist of two or more people conducting a business together. Like the sole proprietorship, there is no formal state filing. Also, like the sole proprietorship, the partnership has unlimited liability. If the partnership were to be sued, the partner’s personal assets are equally at risk. The partnership itself does not pay tax from business income. Instead, profits and losses are passed through to the owner’s personal tax return. This income is subject to self-employment tax.

Related: What is a partnership?

Corporation is a business structure that is a separate entity from the individual. While corporations are more expensive and difficult to form than sole proprietorships and partnerships, the major advantage is that the corporation provides personal asset protection for the owners, should the corporation be sued. The downside is the compliance requirements and administrative burdens of annual meetings for directors and shareholders, taking minutes at the meetings, issuing stock certificates, and more.

There are multiple ways a corporation can elect to be taxed, which include the C-corporation and S-corporation. Electing how the entity should be taxed is complicated, so be sure to talk with your CPA as there is the potential of double taxation where profits and dividends are both taxed. Also, there is no self-employment tax with a corporation, as income to the owner(s) will come from either a salary or dividends, which may be beneficial.

Related: How to form an Arkansas Corporation

The Limited Liability Company (LLC) is a popular business entity choice because it provides the liability protection of a corporation with the ease of operation of the sole proprietorship. The Limited Liability Company does not have the many burdens like the corporation and has the greatest tax flexibility of the four entities. Income can be taxed as a pass-through entity like the sole proprietor or partnership or as a corporation.

Related: How to form an Arkansas LLC

Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular formation services include:


IncFile - Great service and free registered agent the first year.

Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!

ZenBusiness - Easy to use and free registered agent for 1 year!

Step 4: Register a Business Name

After deciding on the business entity, the next step in starting an Arkansas small business is to register the business name.

Registering an Arkansas Trade Name for Sole Proprietorships & General Partnerships
If you are a sole proprietorship or general partnership in Arkansas and doing business under your full first and last name, John Smith, for example, there is no filing, but if the business will operate under a trade name or fictitious business name like John Smith’s Handyman Service, Mr. Handyman, etc, you will need to file a Doing Business As Registration (DBA) with the County Clerk’s office in the county where the business is located.

The assumed name is a one-time cost and initial filing costs vary by county in Arkansas. Expect to spend up to $25 for the county filing.

Related: How to register a DBA in Arkansas

Registering an Arkansas Business Name for a Corporation or LLC
Corporations and LLCs will pick a name at the time of formation. This name has to be different from the other entities that are registered with the Arkansas Secretary of State. Registering the entity name will not provide much protection from anyone else from using the name, other than being able to register with the Secretary of State.

Related: Check the availability of corporation and LLC names in Arkansas

Legally Protect Your Business Name
A trademark can legally stop others from using names, slogans, or logos that are associated with another brand, product, or service. The U.S. Patent & Trademark Office (USPTO) manages the registration of trademarks.

Before settling on a name, check the USPTO database to see if the name you want to use isn’t registered to another business.

Registering your business name will not necessarily stop anyone else from using the name you choose. To protect your business name, consider registering for a trademark.

Legally Protect Your Business Name
A trademark can legally stop others from using names, slogans, or logos. The U.S. Patent & Trademark Office (USPTO) manages the registration of trademarks.
Before settling on a name, you will want to first check and make sure the name you want to use isn’t already registered to another business.

You can also register to keep others from using the name of your business, product, or service.

Related: How to do a trademark search

Step 5: Get an EIN

The Employer Identification Number or EIN (sometimes referred to as the Federal Employer Identification Number or FEIN) is a nine-digit tax identification number issued by the Internal Revenue Service (IRS). This number identifies a business operating in the U.S and is used for paying payroll taxes, filing tax returns, and more. Much like what a social security number is to a person, the EIN is similar to a social security number for a business. While most businesses will need to get an EIN, some do not.

Partnerships, corporations, and most LLCs OR sole proprietorships with employees MUST register for an EIN.

Sole proprietorships or a single-member LLC with no employees is NOT required to get an EIN. In these instances, the owner’s social security number is used to identify the business.

Filing the EIN can be done online through the IRS website, which only a few minutes and the number is available immediately. Alternatively, an EIN can be registered by mail or fax by submitting IRS Form SS-4.

Related: Step-by-step guide to registering an EIN

Step 6: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business. Every bank is different, but in general, they will request:

Sole proprietorship & partnership – Trade Name Certificate, EIN or SSN and owner(s) drivers license
Corporation – Certificate of Formation, bylaws, Certificate of Good Standing, EIN, and owner(s) drivers license
LLC – Certificate of Formation, Operating Agreement, Certificate of Good Standing, EIN, and owner(s) drivers license

Step 7: Apply for Business Licenses & Permits

Certain licenses and permits will be needed to operate a business in Arkansas and the ones needed will vary on the business’s activities and location. Some common registrations include:

Business Licenses – There is no general state of Arkansas business license, however, many cities require a business license to operate.

Sales Tax Permit – Businesses selling products and certain services will need to register for a Sales Tax Permit with the Arkansas Department of Finance and Administration.

Professional Licensing – Some services such as barbers, landscape contractors, tattoo artists, septic tank cleaners, and home inspectors require licensing in Arkansas. While this isn’t a license on the business, licensing for some occupations and professions is required.

Zoning Permit – Many cities and/or counties require zoning approval before operating a business out of a location, and this even sometimes includes home-based businesses.

Related: What business licenses and permits are needed in Arkansas?

Step 8: Find Financing

Obtaining the funds to start a small business is a challenging process for many.
Not only are there unfamiliar terms like collateral, equity, assets, liabilities, and others, but there are several sources of funding with different rules, processes, and costs.

From conventional bank loans to Small Business Administration (SBA) loan guarantees, to investors, grants, and many others, it can be difficult to wade through what is available and best for your business.

Related: Understanding the different types of business funding.

Step 9: Hire Employees

Hiring employees is a complex and often overwhelming process for a new business owner as there are multiple agencies to register with and labor law regulations to understand.

In Arkansas, a business will register with the IRS, Department of Finance and Administration, Department of Workforce Services, Arkansas Workers’ Compensation Commission, and U.S. Immigration and Customs Enforcement. Employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance tax, and payroll withholding taxes including Social Security, and Medicare.

Related: Steps to hiring your first employee in Arkansas

Step 10: Obtain Business Insurance

Business insurance is never at the top of anyone’s list of things they want to do when starting their business, however business insurance may be critical to protecting your business.

Most types of business insurance are optional, except for worker’s compensation insurance in most states. Some states will also require professional liability insurance for businesses offering certain services and commercial auto insurance.

Even if insurance isn’t required and there is a fire, theft, or personal injury lawsuit, the business owner may have to pay out-of-pocket for damages and legal fees. Home-based businesses and side-businesses may want to consider business insurance too as personal home and vehicle policies may not cover in the event of a business loss.
Related: Types of insurance your business may need

Step 11: Set up an Accounting System

Setting up an accounting system for your business is one of the most important things you can do for your company to ensure long-term success.
There is just one problem – you’re not a numbers person.

Just thinking about financial statements, debits and credits, and accounting software makes your head hurt.

Staying on top of finances not only keeps the business out of trouble with the IRS but can be used to track and monitor trends in the business and maximize profits.
Fortunately, understanding the numbers doesn’t mean getting a finance degree. Tracking a business’s financials can be done with pen and paper (not recommended), spreadsheets, accounting software, or hiring a bookkeeper.

Related: Setting up accounting for a business

Common questions when starting a business

What type of business should I start in Arkansas?

With so many great businesses to choose from, it can be hard to narrow down what the right business is for you. While there are a lot of factors that go into picking the right business, here are the top 10 most popular types of businesses to start in Arkansas:

– Concrete
Handyman
– Food truck
Janitorial
Lawn mowing
Appliance repair
– Taxi
Jewelry
Cleaning
Dog breeding

Is an LLC better than a sole proprietorship?

Choosing the business entity is a very difficult decision and we get a lot of questions about whether the sole proprietorship or Limited Liability Company is the best option. The benefits are different for each business owner, but here are a few things to consider when considering the two.

The sole proprietorship is a popular business entity and has advantages such as ease of setting up, fewer administrative requirements, and lower cost than the Limited Liability Company. The biggest downside of the sole proprietorship is that the owner’s personal finances and the finances of the business are tied together. This means if the business is sued or the business can’t pay its debts, the owner is personally responsible.

The LLC is a legal entity that separates the assets of the business and its owners. If the business is sued, the owners are typically not personally liable. Another significant advantage of the LLC comes from its tax flexibility. Once the LLC is profitable enough, it can provide distributions to the owners which are taxed much less than the self-employment taxes of the sole proprietorship.

Related: Sole Proprietorship vs. LLC – What’s right for you?

What are the steps to starting an LLC in Arkansas?

There are three main steps to starting an LLC in Arkansas. These include:

1. Making sure the LLC name is available
2. Appointing a Registered Agent
3. Filing the Certificate of Organization

There are a few more details to consider depending on the business. Learn more about starting an LLC in Arkansas.

How much does it cost to start an LLC in Arkansas?

The cost to start an LLC in Arkansas is $45 to file the Certificate of Organization with the Arkansas Secretary of State.

What licenses do I need to start a business in Arkansas?

There isn’t a general business license required by the state, however, there are potentially several different licenses and permits a business will need to obtain before starting.

Related: What business licenses and permits are needed in Arkansas?

How much does it cost to start a business in Arkansas?

The cost to start a business in Arkansas is going to vary significantly depending on what the business does and where it’s located. Below is a list of the estimated costs for some of the more common licenses and registrations a business will need:

– Business Entity Formation – $0 – $45
– Business License – $0 – $300
– Employer Identification Number (EIN) – $0
– Sales Tax Permit – $50

Subscribe Now to the 60-day Startup Challenge!

Subscribe Now to the 60-day Startup Challenge!