Forming a LLC in New York is similar to forming a LLC in other states, but a few caveats should be considered. In this article I will provide a step-by-step guide on how to form a New York LLC and also discuss the advantages and disadvantages of this business structure.
What is a LLC?
A limited liability company (LLC) is a hybrid business entity that has characteristics of a corporation, a partnership, and a sole proprietorship. A single person or a group of people can form a LLC and these people are called “members” of the LLC. The members are free to allocate profits, losses, and management duties in any way they wish. The LLC formation process is governed by New York Limited Liability Company Law.
How to form a LLC in New York
1. Choose a name and see if it’s available: Certain name restrictions apply and no two LLCs can have the same name (See also article on naming your business without violating trademark law).
2. Draft Articles of Organization: This document states official information like the LLC’s legal name, principal place of business, registered agent, etc. This document must be filed with New York Department of State.
3. Complete the New York LLC Publication requirement: LLCs are required to publish a notice of the new business entity for six consecutive weeks in two newspapers, one weekly and one daily, as assigned by the County Clerk in the county of the LLC’s legal address. The notice must contain specific information about the new LLC and comply with New York LLC Law.
4. File Certificate of Publication and affidavits of publication with the New York Department of State within 120 days of the date that the LLC is formed.
5. Draft Operating Agreement: This is an internal company document outlines ownership interests, allocation of profits and losses between members, and other important provisions for single-member and multi-member LLCs.
6. Obtain an IRS Tax ID Number, open a bank account, and apply for any necessary local business permits.
Advantages of a LLC
The primary reason to form a LLC is that this business structure can limit the liability of the LLC owner in many situations. Thus, an owner’s personal assets may not exposed in the event that the LLC is sued or acquires debt. Pass-through taxation is another advantage. This means that the LLC entity is not double-taxed like a corporation. Instead, the owners report LLC profits and losses on their personal income tax statements. Finally, LLCs are very easy to maintain. There are few record keeping requirements with the exception of a biennial statement that must be filed every couple of years with the Department of State ($9).
Disadvantages of a LLC
You can expect to pay a little more for LLC formation in New York City due to the publication requirement. As previously mentioned, this obligates LLCs publish a notice of the new LLC in two newspapers in the county where the LLC is located. In Manhattan this costs over a $1000, but in most counties in NY State the price is just a few hundred bucks. LLCs that are located in NYC are subject to the NYC Unincorporated Business Tax, which is 4% on all earnings above a certain threshold. Other costs associated with LLCs include the Department of State filing fee ($200), the certificate of publication filing fee ($50), NY LLC publication (depending on county ($500-$2000), and legal fees.