How To Form An LLC In New York
New York acknowledges various business structures, from less well-known to prominent ones, including corporations, sole proprietorships, general and limited partnerships, and Limited Liability Companies (LLC).
Every business structure has its particular benefits and drawbacks. Selecting the most suitable business structure for any startup requires determining personal and professional factors. The LLC formation necessitates thorough research and consideration. If you are looking forward to your startup in New York, this blog post will assist you in understanding the formation of an LLC.
What is an LLC?
An LLC (limited liability company) is a business structure that enables business owners to benefit from sole proprietorship taxation and corporate liability. It gives business owners the right balance since it makes filing taxes easier while keeping personal assets, obligations, and debts separate from the company’s. Consequently, owners won’t be held accountable for the taxes or other obligations of the firm, but they can still easily combine the company revenue with their income for tax payments.
An LLC is a type of unincorporated business organization involving one or multiple people with limited liability for the obligations and other liabilities incurred by the company. The Limited Liability Company Law rules the LLC’s creation and management. Any legitimate organizational goal(s) may be the basis for forming an LLC. The LLC is a hybrid structure incorporating limited liability like a corporation and flexibility like a sole proprietorship.
Due to the LLC’s flexible management structure, owners can customize it to their organizational requirements. An LLC’s owners are called members as opposed to shareholders or partners. LLC members can include a company, another limited liability company, an individual, a partnership, or any legal organization.
Operating a business in New York is beneficial as the state supports small businesses with various tax breaks and incentives. It makes small firms the best fit for LLCs. You can look up the NYS Business Express to find suitable credits or incentives for your company.
Forming a New York limited liability company (LLC) is the quickest and simplest way to launch small-medium-sized businesses. While needing obedience to more straightforward laws and regulations, an LLC gives some of the same benefits and security that larger organizations receive.
Advantages Of an LLC In New York
An LLC in New York is the best fit for the following:
- Those businesses which require flexibility for organizational management
- Owners who aim to protect their personal belongings
- Low tax payments than a corporation
Let’s have a closer look at its various benefits.
Lowest compliance conditions
Because LLCs are exempt from the state rules and regulations that apply to corporations, they are considerably easier and more adaptable. For example, having a board of directors and annual shareholder meetings are not mandatory for LLCs.
Minimal filing fee
To incorporate a New York LLC, articles of organization must be submitted to the Division of Corporations of the New York Department of State (Secretary of State). A minimal fee of $200 is charged in New York.
Limitation of liability
The company will be responsible for any incurred obligations, lawsuits, and liabilities rather than the members.
Flexible profit distribution
LLCs facilitate members receiving total earnings and revenues according to their ownership stakes.
LLC does not limit the number of members compared to an S corporation which can not exceed 100 members. A C corporation allows multiple members but must comply with other laws and pay double taxation.
LLC run by members
With LLCs, you can create a member-managed structure where each member is equally responsible for handling the company individually.
Since LLCs do not impose nationality constraints, you can work with foreign partners.
The net profit and loss of the company are passed through to the personal income of the LLC’s owner(s) and are subject to regular income tax.
Flexible tax status
LLCs have a choice in how they are handled regarding taxes. Apart from the pass-through taxation, LLCs can be taxed as S corporations or C corporations. The New York business franchise tax applies to LLCs opting for corporation taxation.
Disadvantages Of an LLC In New York
Don’t jump directly to file the New York LLC after considering its advantages. You must analyze that this business structure complies with your venture requirements. Here are some cons of filing New York LLC over other business structures.
Extra or double taxes
Members may be required to pay extra taxes because personal income taxes are frequently greater than corporate income taxes.
LLC involves extra paperwork filing and more filing charges compared to the sole proprietorship.
LLC owners must carefully track all their business expenditures and maintain them separate from their personal funds.
Liability protection might not be the case if procedures for maintaining separate personal and company finances are not followed.
An LLC is dissolved and ceased when a member leaves. It is not the case in corporations, as they would continue to exist despite changes in the number of shareholders.
Capital raising capacity
Unlike a corporation, an LLC cannot offer stock to raise money. Every new investment must go through the more difficult LLC membership procedure. Additionally, many external investors choose to invest in corporations over LLCs since they are safe.
Banks and other money-lending organizations could be less willing to lend money to an LLC. The limitation of liability concerning such loans may be eliminated if the LLC members are required to guarantee a loan personally. A personal guarantee from the proprietors is also required if a tiny startup venture is organized as a corporation.
Banks typically demand various fees and monthly costs to manage business accounts because separating personal funds from corporate finances is difficult.
A new New York LLC registration costs $200, along with a payment of $9 after every two years. Limited partnerships (LP) and Limited Liability Partnerships (LLP) cost the same. However, corporation registration costs $125. No registration costs are mandatory for sole proprietorships or general partnerships.
An agent is required to manage legal documents for LLC formation and in LP, LLP, and corporation. Hiring an external New York LLC registration agent might charge $40-$500 annually.
How to Form an LLC in New York
New York LLC formation is simple. Adhere to the following steps, and you’ll be good to go.
- Naming your New York LLC
- Providing an official mailing address
- Hiring a registered agent
- Creating and filing Articles of Organization
- Publishing the Articles of Organization
- Obtaining an LLC confirmation certificate
- Requesting an EIN (Employer Identification Number)
- Establishing operating agreements
Naming your New York LLC
Before filing your LLC in New York, selecting a name to mention in your articles of organization is mandatory. This name must adhere to New York’s naming guidelines. The following conditions should be remembered above all else:
- The company name must incorporate “LLC,” “L.L.C.,” or “Limited Liability Company”.
- It must be distinct from other already existing company names in New York. Verify if your chosen business name exists by searching the Secretary of State website.
- A government agency’s name (Treasury, State Department, FBI, CIA, etc.) cannot be utilized in the company name.
- Using prohibited terminology (e.g., credit union, bank, attorney, lawyer, etc.) may necessitate extra paperwork and licensing requirements.
- The company name reservation option for New York LLC is possible if you need more preparation to file it but are worried that someone could use it. New York allows reserving your business name for 60 days with a form submission and a modest fee payment to the state authority.
- Whether you establish a website immediately or in the future, you must consider preserving your URL or domain name. Check URL availability before deciding on your LLC name.
Providing an official mailing address
New York mandates providing specific street addresses for all LLCs. The New York Department of State must receive the names and addresses of all LLCs. The address might include the following:
- Company’s office location
- Home address in case of a home-based venture
- Any other mailing address of choice.
While the address may not be in New York state, a P.O. Box is not permitted. A virtual mailbox can also be used as a company address to receive and scan the LLC mail and access it online. It is highly advantageous for home-based startups wanting to keep their addresses private.
Hiring a registered agent
In New York, the Department of State acts as the primary “agent for service of process” for all LLCs. This means that if your LLC faces a lawsuit, the Department of State will accept legal paperwork and forward it to your designated address.
In addition to this, when forming an LLC in New York, you must appoint a registered agent as an additional recipient for service of process. This appointment occurs during the Articles of Organization filing process. A registered agent can be an individual or organization that has your LLC’s authorization to receive official legal documents, notices, and service of process.
A person or organization offering registered agent services (which could be yourself, an employee of your LLC, or a professional registered agent service) qualifies as a registered agent if they meet the following requirements:
- They must offer registered agent services.
- A New York address is mandatory.
- The on-site presence of the agent for receiving documents during regular business hours.
Creating and submitting articles of organization
The Articles of Organization is a document that outlines your LLC’s fundamental characteristics and serves to establish it formally. You can utilize the DOS-1336 Form in New York to submit the Articles of Organization. Proper filing of New York LLC involves creating Articles of Organization and registering them with the New York State (NYS) Division of Corporations. Although it may seem like a lot of work, all it requires is completing and submitting a straightforward online form. You can mail it as well.
The following details are required to formulate the Articles of Organization:
- Name and address of your LLC
- The New York county where the LLC will be situated
- Registered agent details-An address in New York where the Secretary of State may mail legal correspondence to the LLC.
- The LLC’s founder’s signature
- The Articles must be signed by the individual forming the LLC and at their address.
NYS Business Express allows online filing or mailing of Articles. Other services also offer to file Articles on your behalf. A fee of $200 is charged for filing the New York LLC. The Secretary of State will examine the filed Articles upon successful submission. The LLC is then regarded as a legitimate business upon approval of the Articles. However, an LLC must file biennial reports costing $9.
Publishing the articles of organization
As per section 206 of the New York Limited Liability Company Act, a copy of the LLC’s Articles of Organization or a declaration of LLC formation must be published in two newspapers. This criterion shall be completed within 120 days after the LLC’s Articles of organization’s approval date.
LLCs must publish in two newspapers chosen by the county clerk in the LLC office location for six weeks. The newspaper will offer a publication affidavit after printing it. This newspaper publication affidavit and the Certificate of Publication must be filed and sent to the New York Department of State. $50 is charged to fulfill this requirement in New York.
The notice of LLC formation includes:
- LLC name and address
- Date of LLC formation
- Location of the office in New York County
- Registered agent details
- Declarations stating the Secretary of State and the Registered Agent are established as LLC agents, and it will administer the process against the LLC
- An address where the Secretary of State can forward any process against the LLC
- LLC purpose
- Liquidation date of LLC or mention ‘Perpetual’ if you need LLC indefinitely
Obtaining LLC confirmation certificate
Once the New York LLC formation documents are submitted and accepted, the state will provide a certificate attesting to the LLC’s legal existence. The time it takes to get this certificate could be up to seven weeks.
The LLC will be able to open a business bank account and acquire an Employer Identification Number (EIN) and other licenses with the help of this certificate.
Requesting an EIN (Employer Identification Number)
The Internal Revenue Service (IRS) issues LLCs a nine-digit Employer Identification Number (EIN) for tax purposes. The IRS offers both mail-order and online EIN registration. The following are some things that an EIN can help with:
- Recruiting employees
- State and federal tax filing and administration
- Opening a bank account for business
Establishing operating agreements
A document that describes how your LLC will operate is called an operating agreement. LLC members must implement a contract within 90 days of filing their articles of organization with New York City as per section 417 of the New York Limited Liability Company Act.
The New York operating agreement is a crucial part of your business even though it is not required to be filed with the NYS Division of Corporations. For several reasons, like resolving disagreements that can develop over financial arrangements and other legal liability, maintaining an easily accessible, documented operating agreement is beneficial. Without a contract, state law governs decisions the courts take, not merely the best decision for the LLC and its members.
An operating agreement can cover the following points but is not restricted to these:
- Name and official address of LLC
- LLC duration
- Details of the Registered Agent
- Articles of Organization information
- Business purpose
- LLC members and shares of each of them
- Division of the profits and losses
- Process for admitting new or outgoing members
- LLC management
- Liability and indemnification clauses
Types of LLC
Which type of LLC is ideal for me?
In New York State, there are various types of LLCs to choose from, depending on your business needs. The main types include:
- Single-member LLC: Single-member LLC is owned by just one person. It is perfect for small businesses and offers liability protection for the owner.
- Multi-member LLC: Multi-member LLC has more than one owner, known as members. It is suitable for businesses with multiple partners who want to share ownership and responsibilities.
- Domestic LLC: A domestic LLC is formed in New York State, and it is where the business primarily operates.
- Foreign LLC: If your LLC is formed in another state but wants to do business in New York, it is considered a foreign LLC. This requires registering your business with New York State as a foreign LLC.
- Professional LLC (PLLC): This type of LLC is designed for licensed professionals such as doctors, lawyers, and architects. It is subject to specific rules and regulations governing professional services.
By understanding the different types of LLCs in New York State, you can choose the best structure for your business needs.
Applicable LLC Taxes in New York
LLC is charged numerous taxes by both the state and the federal governments. In contrast to C Corporations, LLC profits are not taxed at the corporate level. Profits are disclosed on federal and state tax filings for individuals. Following are the various taxes applied to New York LLC.
LLC state taxes
Sales and Income tax must be paid to the NYS Department of Taxation and Finance. If the New York Corporate Tax applies to your LLC, you must also pay it.
NYS income tax
Business owners must pay the New York State income tax on any money they earn. These earnings are carried over to their tax return. They can use standard deductions and exemptions to reimburse taxes at the standard rates of New York. New York income taxes are also applicable to the recruitment of salaried workers.
The NY income tax rate differs depending on your:
- Adjusted gross income
- The total taxable income
The tax tables published by the NYS tax department give an estimated payable tax amount. However, consultation with an experienced tax advisor is beneficial to confirm the correct amount.
NYS sales tax
The New York Department of Taxation and Finance may require collecting New York sales tax at the point of sale while selling tangible goods or specific services.
Most states don’t impose sales taxes on necessities like clothing, prescription drugs, gas, food, etc. The statewide sales tax in New York is 4%. Cities, counties, school districts, etc., that are local taxing jurisdictions may apply additional sales tax at varied rates. These can be viewed using the jurisdiction search tool.
One must register as a vendor with the NYS tax authority before obtaining permission to collect New York State sales tax. Those obliged to collect sales tax must verify with the NYS Department of Taxation and Finance for payment and collection of the exact taxation amount.
NY use tax
Use tax or the New York sales and use tax is applicable upon tangible goods purchased out of the state to be utilized in New York. It is currently 4% in NY, but local jurisdictions may also tack on their use taxes. The New York State Department of Taxation and Finance receives direct payment of all use taxes.
NY corporate tax
For the privilege of existing as a legal body and actively working within the state, the New York government imposes a tax on specific firms known as Transaction taxes, Franchise taxes, or Privilege taxes. The NY Corporate Tax is the common name for Corporate Franchise Tax. All corporations are subjected to it, but it only applies to the LLCs treated as a C Corporation for taxation purposes.
LLC federal taxes
New York LLC owners are subject to “pass-through taxation,” entailing federal income and self-employment taxes. Consulting with a qualified tax consultant or accountant helps ensure the correct payable tax amount by a New York LLC.
Federal self-employment tax
Self-employment tax applies to managers or members withdrawing revenue from the New York LLC. Benefits like medicare, social security, etc., are covered by this levy regulated by the FICA (Federal Insurance Contributions Act). The self-employment tax rate is currently 15.3%. To determine the LLCs self-employment tax amount you must pay, subtract a portion of business expenses from the earnings. Less Self-employment tax is applicable on LLCs registered as S Corporations. To accomplish this, submit Form 2553 to the IRS.
Federal income taxes
Standard federal income taxes apply to your profits from the New York LLC. The income tax amount is determined by:
- The income
- Current tax bracket
- The deductions
- The filing status
Only the profits withdrawn from the firm, less specific deductions and exemptions, are subject to federal income tax. The tax-free sum is also included, along with business expenses and other expenditures like healthcare, retirement plans, etc. Consult a qualified accountant for further information.
Employer and employee taxes
There are also significantly different tax ramifications if LLC pays workers. To receive specific advice for your particular circumstances, consult with your accountant.
Apart from these taxes, LLCs may be subject to several other duties and taxes. Estimated taxes also apply to LLCs like NY income tax, Federal income tax, and Federal self-employment tax. More information regarding LLC taxes can be found on accountants and the IRS website.
Cost of forming an LLC in Georgia
These costs are approximate and may vary depending on the specific needs of your business. Keep in mind that some of these fees are one-time costs, while others, like the registered agent service and biennial statement, are recurring expenses.
Filing articles of organization
Newspaper publication requirement
Certificate of publication
Registered agent service (optional, up to)
New York State biennial statement
Business permits and licenses
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