The first step to forming a business in New York State is to decide what type of entity is best. Each type of entity has their own benefits, but the decision is often made based on the structure, liability, tax, and management considerations surrounding your future business. A Limited Liability Company (LLC) offers a significant amount of flexibility and allows the business the liability protection of a corporation with the tax treatment of a partnership.
As one can tell from the name, a LLC provides for limited liability of its members. Along with the limited liability, there is a greater flexibility in allocating profits among those members. Unlike a corporation, LLCs are not bound by the requirements of having annual meetings or keeping written minutes of its proceedings. Even though an LLC is a recognized type of business entity formed under state corporate law, LLCs do not have their own US federal income tax regime. For tax purposes, an LLC is classified as a disregarded entity, C-corporation, S-corporation or partnership.
Disadvantages to choosing a LLC form for your business include the additional hurdles you will face if you choose to become a public company, less common law precedent than a corporation due to the format being relatively new, and the requirement of publication after the articles of organization are filed. In coming to a decision, prospective business owners can consult the New York Limited Liability Company Law to review the provisions governing the LLC format. Speaking with an attorney knowledgeable in business formation will help you sort out the pros and cons associated with choosing the LLC format for your business.
Once you have chosen the LLC format, the next step is to choose the name of the LLC. Under New York law, the name of the LLC must contain the words “Limited Liability Company” or the abbreviations “LLC” or “L.L.C.” The name should also be distinguishable from all reserved names of domestic or foreign entities filed with the Department of State (DOS). A company can check the availability of a business name by submitting a written inquiry to the Department of State, or searching the Department of State: Corporation and Business Entity Database online. New York Limited Liability Company Law § 204(d)-(i) lay out the remaining requirements for selecting a name.
After selecting a name, there are other logistics to be considered. For instance, it is important to decide who the named organizers or persons forming the LLC are. One or more of these persons must prepare, execute, and file the articles of organization. An organizer does not have to be a member of the LLC, and often, the attorney preparing the articles of organization acts as the organizer. The articles of organization must include the LLC’s name, the county where the principal office will be located, a designation of the Secretary of State as the LLC’s agent for the service of process, the LLC’s dissolution date, if any, and a statement listing any members who are liable for debts, obligations, or liabilities of the LLC. The LLC may also opt to include the business purpose of the LLC and any limitations on the authority of the LLC’s members or managers to bind the LLC.
Once drafted, the articles of organization must be filed and published. The fee for filing the articles of organization is $200, and can be done by mail, in person, by fax, or online. Because the fees are subject to change, filers should confirm the current fee on the Department of State’s website. Once filed, the LLC will receive a filing receipt. Filers should verify that all the information on the receipt is correct, and then keep it in a safe place because the DOS will not issue additional receipts. After being filed, a New York state LLC must publish a copy of the articles of organization in two newspapers in the county where the LLC is located. New York State Law directs the procedure in which this should be done.
Once filed and published, the LLC can move on to the internal roles of their LLC. These include creating an operating agreement, and determining ownership interests. Tax considerations, licenses, permits, and capital raising will all also follow this process. Seeking advice from an attorney knowledgeable in creating a business can help you sort out all the requirements. The requirements can often be onerous for new business owners, so obtaining legal advice is recommended.
Blodnick, Fazio & Associates PC regularly counsels entrepreneurs as to what kind of business structure would be most beneficial for their company, along with other structural and internal governance issues. The firm’s legal professionals assist with the negotiating and drafting of contracts among business owners and between the business and its clients or vendors, when necessary. If you are starting a new business, or if you already own a business and would like to stay current on profitable structuring and various business agreements, the advice and counsel of an experienced business law attorney is often vital. Contact the experienced attorneys at Blodnick, Fazio & Associates, P.C. for a free consultation by calling (516) 280-7105.