As a Startup Lawyer practicing in New York City I’m fortunate to get to work with a wide variety of emerging companies. Despite many differences in these company’s products and services, startup owners tend to have similar concerns during the business formation process.
Should I Incorporate in New York or Delaware?
I get this question on a weekly basis and the answer is “it depends.” Yes, it’s true that there are some advantages to incorporating in Delaware, however, most of these advantages don’t apply to small businesses and bootstrapped early-stage startup companies.
For example, Delaware is known for their Court of Chancery, which is a court that’s designed for streamlined handling of business disputes. However, the vast majority pre-revenue startup companies are not usually a target for litigation, and conversely can’t afford to sue others, especially in an entirely different state.
Are there tax advantages in Delaware? Possibly, but Delaware is not a magical state free of taxes. If your company is making money, then income taxes will be required. And you will still owe annual franchise tax fees in Delaware just for maintaining the entity there.
The bottom line is that incorporating out-of-state may make sense for larger startup companies or companies that plan to seek funding in the near future, but the benefits don’t outweigh the costs for most small startups and small businesses. Incorporating out of state costs more money, and if the business is located in NY then you may still have to register the out-of-state company in NY as a foreign entity. This means another set of state registration fees, more legal fees, out-of-state registered agent fees, and more paperwork.
Should I Form an LLC or Corporation?
This is a great question and the answer is “it depends.” LLCs and Corporations are completely different entity structures that operate differently, are taxed differently, and are formed differently. In New York, LLCs are also subject to the NY LLC Publication Requirement, which unfortunately can add significant costs to the LLC formation process. However, the upfront LLC formation costs are often times worth the investment by reducing taxes and post-formation operating costs. Check out this video that explains some important considerations when deciding which entity is best for you.
What Local Permits and Licenses Do I Need for My Business?
This is a great question and the answer is “it depends.” What industry are you in? Do you have employees? Do you operate a physical business location? The answers to these questions make a difference on what you will need to do. The State of New York has a great online survey tool that can be helpful for figuring out what, if any, extra permits or licenses will be required once your company is set up. Check out the NYC Business Permit Wizard or our small business resources page for additional tools.
Do I Need a Registered Agent in NY?
No, your company is not required to have a Registered Agent in the state of NY. Many document-filing services and DIY legal websites mislead NY residents into purchasing this unnecessary service. In New York, the NY Secretary of State is automatically designated to receive service of process for companies formed in our state. This system is somewhat different than most other states (such as Delaware) that require a third-party registered agent who maintains an office in the state.
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