New York LLC Formation
What is an LLC?
Before you learn about the procedures involved in how to form an LLC in New York, it is necessary that you understand what an LLC is about. LLC is an acronym that stands for “Limited Liability Company.” Unlike a corporation, sole proprietorship, and partnership, LLC is not easily understood. It actually combines all the elements of these three corporate structures.
LLC vs. Corporation and Partnership
Limited liability means that the owners or members of the company will typically not be held responsible in case of lawsuits that the business may have obtained. The same condition applies to debts.
If the LLC files for bankruptcy, the owners are not required to use their own money to pay for the debts. In case of a lawsuit, the owners (or members) also do not need to risk their homes to pay for the settlement.
As mentioned above, LLC and other business structures are generally viewed the same way, particularly the Internal Revenue Service (IRS). LLC taxes are considered similar to sole proprietorship and partnership. In this case, LLC has tax advantages where the owners will list their profits and losses from the business on their personal tax returns.
Owners or members can opt to tax the LLC as a corporation. It means they have to follow tax regulations and requirements in the filing.
Over the past few years, LLCs have gained popularity. One significant reason behind this fact is that it allows owners to benefit from corporation and partnership in one. An LLC’s profits (and losses) can be passed to the owners but they do not have to worry about taxation of the business. Aside from this advantage, the owners are also shielded from liabilities.
Other Details about LLCs
One person can own an LLC, known as a single-member LLC. If there are several owners, it is referred to as a multi-member LLC. Forming an LLC New York has many benefits, as with other states. For instance, it protects you against lawsuits. If you believe that your company will receive a lot of complaints and debts, it makes sense to start an LLC.
LLCs significantly reduce paperwork, especially compared to corporations and other business structures. Plus, it prevents you from being taxed twice. When your company can be found in a New York LLC search, it increases your brand’s credibility.
If you now understand what an LLC is, it is time to know how to form an LLC in New York.
Quick Facts about an LLC in New York
Perhaps you are wondering why you would want to start a New York LLC. When you begin, there should be at least one owner of the business that can be any of the following:
1. A certain individual
2. Other members of an LLC
3. Other corporations
Let Us Help You!
Let Us Help You!
According to the New York state law, the members or owners, along with the managing members and managers of the company, are not liable for debts and lawsuits.
An LLC in the state does not have limits when it comes to the number of owners it can have. However, when you create the business, it should end with any of the following titles:
- Limited Liability Company
Before you start an NY LLC, make sure you are aware, not only of the pros but also the cons of this business structure. The following are the advantages of starting an LLC in the state:
• Personal asset protection: The owners will not be held personally liable for the debts and lawsuits of the LLC. However, it should be guaranteed that no criminal behavior, including fraud, took place.
• Pass-through taxation: The owners gain all the profits of the LLC. They will only need to report their share on their individual tax returns. Therefore, taxing only takes place once, which is a process known as pass-through taxation. To compare, C-corporations have their profits subjected to double taxation, meaning the profits are taxed before the owners receive them. After that, they are taxed again when the owners report the profits on their individual tax returns.
• Easy to form: LLCs in New York are quite easy to create and maintain. They do not need a lot of paperwork. They also do not need you to assign officer roles, unlike with S- and C-corporations. You are not required to hold meetings each year as well.
• Access to business loans: Once your business is considered an LLC, you can start building its credit history. This way, you can access loans to fund your company and get lines of credit.
• Credibility: Suppliers, lenders, and business partners are more willing to work with your company if it is tagged as an LLC.
Just like with any business structure, an LLC New York is not perfect. It makes sense to know its disadvantages before registering your company. Thankfully, there are not a lot of disadvantages with LLCs in New York.
As a pass-through entity, it means that you will be liable for paying the taxes based on your share of income. This requirement is applied even if you have not been given a disbursement yet. One more disadvantage is that the members should wait until everyone sends out their K-1 forms. Nevertheless, you do not need K-1 if you are the only owner of the LLC.
After looking at the pros and cons of an LLC, you may be wondering whether or not it is the right business structure for you. The answer depends on your goals, both long-term and short-term. It is recommended that you know where your business is at right now. Then, you should consider how you want it to grow in the years to come.
What You Need to Know about the LLC Operating Agreement
In New York, an LLC Operating Agreement is an agreement between the members of the company involving how it will be managed, particularly its operations and financials.
The LLC operating agreement should not be confused with the LLC Formation Documents in which the Secretary of State requires a receipt of the latter.
The purpose of the LLC Operating Agreement is to provide the names of each LLC member, along with their interest or the precise percentage of the company they own. The agreement also includes details, such as:
- The way that the company will use to pay for its taxes
- The distribution of profits and losses
- The management metho
Although the Secretary of State will not look at the agreement, other entities will require you to present it to them. Among the scenarios that require the document are:
1. Buying real estate that may need you to present the company title
2. Showing your financial documents to tax and accounting professionals in case you use their services
3. Needing legal assistance, which means you need to present the document to your lawyers
4. Demonstrating the agreement to potential investors and business partners
Although you will not be held responsible in case of a lawsuit, the court may request a copy of this document.
It is required that the Operating Agreement is flexible since the needs of the business changes as it continues to grow. LLC members typically turn to this particular document whenever they delegate managing members. They also use the agreement if they need to learn about their contributions, duties, and rights.
In New York, you are not required to use an Operating Agreement for your LLC. Therefore, business owners can choose to operate the company however they want. There are rules and requirements to follow based on the business laws in New York. Still, the members can decide whether the Operating Agreement is in writing or as an oral agreement.
It is possible to have inconsistencies and issues, especially if the agreement was only performed verbally. Members may vote for the final decision. In most cases, there are usually both oral and written agreements. If they do not have the same content, the decision will rule in favor of the writing.
Creating and Revising the Operating Agreement
Small changes can easily take place in an LLC. For instance, you have a new registered office or agent or perhaps a member has transferred to a different address. The solution here is to simply update the document. All members should sign the new version. It is highly recommended that you keep all the versions saved, including the original.
When creating the Operating Agreement, it helps that the Formation Documents are in front of you. This way, it will be easy to access certain pieces of information when drafting the agreement. Some details that you may need to copy include the date when the LLC was formed, the registered agent, and the name of the office and its address.
LLC New York Laws
The rules around New York LLC formation in the state restrict certain conditions to take place. For instance, all LLCs should have two important documents. These documents are the Articles of Organization and the Operating Agreement.
- The first document, Articles of Organization, should be filed with the department of state.
- The mentioned document should have all the minimum information as required by the NY LLC law. It should contain the name of the company, the county where its headquarters is located, and a clear statement that details who the registered agent is.
- The registered agent should be the Secretary of State (under Section 301 of the LLC Statute of the state) but it can also be a family friend or colleague.
- The LLC Operating Agreements are not eligible to eliminate loyalty duties between the members and business associates.
- The rights of those who are not assigned as the manager or LLC member are restricted.
- All LLC records may not accessible to the public and other individuals.
The New York law also states that the company can use the Operating Agreement when managers are not available, such as when there is a catastrophic event.
The owners should consider the regulations when they form the Operating Agreement. Anything that is not pointed out under the law can be decided upon by the members.
Finally, the last requirement in New York is to publish two ads in the newspaper 120 days since the formation of the LLC.
How to Form an LLC in New York
Before forming an LLC in New York, it is required that you choose the name of the company. It is not as easy as it sounds though. You have to consider several aspects, including the name recall and the guidelines set by the state. When making a New York LLC search, it should not be in the list of existing names in the database.
There are also other regulations that you should follow. Here are some tips to make sure that the LLC company name complies with the naming requirements in the state:
• There should not be any existing business names with the same name as the one you choose.
• Before forming an LLC in New York, the name should be registered as such. Therefore, it means that the business name should always have a Limited Liability Company in the end. As an alternative, you can choose from LLC or L.L.C.
• If you see a name that you like when you search for an LLC in the state, you cannot simply change an article. For example, A New Business will still be viewed the same as The New Business.
• It is also not recommended to use LLC in place of another word. For instance, you like “New Business” but a New Business Co already exists. You cannot use this name and simply replace CO with LLC.
• “And” and “&” are considered the same. Therefore, you cannot replace the name of an existing business and make it yours. If “Salon and Spa” already exists, you cannot use “Salon & Spa.”
• It is also not allowed to change a word into its possessive form. The same rule applies when switching to a plural or singular form. If there is a business named “Tampa New Business,” you cannot use “New Businesses” or even “Tampa’s New Business” for the sake of easy LLC lookup.
• Adding some symbols is also unacceptable. For instance, renaming “Rochester New Business” to “Rochester-New-Business” will not work.
• Another rule is that you cannot simply abbreviate a certain word. “New Business NY” cannot be used if an existing business is named “New Business New York.”
• You also cannot use names from a government agency, such as the FBI or State Department. This rule is to avoid confusing consumers. No business is exempted.
• If you plan to use certain restricted words, you will need to provide additional paperwork for the process to continue. Some names include “Bank” and “University.” It is also required to have a licensed professional in your LLC. For instance, if you have an “Attorney:” in the name of your business, a lawyer should be a member of the company.
Aside from the ones listed above, you should also ensure that the name you choose can easily be found in a New York LLC lookup database. You do not want to go for a highly complex name or one that potential clients will not remember.
Finally, when naming your LLC, you can choose to have the name reserved in case you cannot submit the name right away. In this situation, you will need to pay $20 to the Department of State. You will have the ability to reserve the name for two months or 60 days. You will also have to file an application for reservation of name.
As you can see, starting an LLC in New York is not what you may have initially thought. Once you have the name down, the next step is to choose a registered agent. It is one thing that you have to know in New York LLC filing. Nominating the registered agent is crucial, but what is it exactly?
A registered agent can either be a person or business entity. This individual or group agrees to receive legal mail or service of process in case the LLC business gets sued. The agent can also be a person that the company has hired who is known as the Commercial Registered Agent.
As mentioned above though, Section 301 states that the Secretary of State is the registered agent for all LLCs. During the New York LLC formation, the Articles of Organization should specifically document that the Secretary of State is the person designated for the role.
However, one thing that complicates LLCs in New York is that the LLC should also have another registered agent. Although the Secretary of State is already the agent, there should also be another person or entity named as the other registered agent.
You may also use a registered agent service, which may be beneficial for you in the following ways:
• Lower publication costs: Since the New York law requires newly created LLCs to post an ad on local newspapers about their formation, the total LLC New York cost can increase significantly. On average, publication costs can be around $1,500. The amount can go up for offices addressed in New York City. If your registered agent service lives outside NYC, you can save on the publication expenses.
• Privacy: Since you need to put the word out there, it means your address will be publicized. Most LLCs in New York start at home. Therefore, they have to put the primary address as their own location. When you hire a professional registered agent, you can use the other person’s address instead of yours.
After having the registered agent in order, you will now have to create your LLC’s Articles of Organization. This document will be filed with the state and can be done online or be sent through the mail. At this point, you should already know whether a member will manage the LLC or it will be manager-managed.
A member-managed LLC is for companies with just a small number of members (or owners). The members should be involved in all operations of the company.
Meanwhile, a manager-managed LLC is for those businesses with a huge number of members. Some members may not be willing to perform day to day operations of the company. It is acceptable but the LLC should be filed as a manager-managed company.
Let Us Help You!
Let Us Help You!
Step-by-Step Guide on How to Set Up an LLC in New York
Now that you know the basics and foundations of an LLC in the state, you can now begin. Here are the full steps to take for New York LLC registration:
Step 1: Choose the name of your LLC.
Follow all the guidelines stated above and then you can proceed to the next step.
Step 2: Name your registered agent.
Aside from the Secretary of State, you should also provide the name of the person, business, or hired service provider as the registered agent. Unlike most other states, even if you have named another individual as the registered agent, the first point of contact will still be the Secretary of State.
Step 3: Wait for the processing.
At this point, the Secretary of State will forward certain documents to the principal address of the LLC you have provided. If you have a designated agent, the other person will receive the documents. These files include service process information, formation papers, and taxation and reporting documents.
Step 4: File the Articles of Organization.
The Articles of Organization is highly required in the state. You can send the document by mail or online. Follow this link to begin filing online: https://appext20.dos.ny.gov/ecorp_public/f?p=2020:2:27774736438989::NO:RP,2:P2_FILING_TYPE,P2_TRA_RECORD_ID,P2_H_BENIFIT_CORP_IND:DLLC,,N.
Meanwhile, if you choose to send the Articles of Organization by mail, you may download and print the form found here: https://www.dos.ny.gov/forms/corporations/1336-f.pdf.
You will have to mail the document to the Department of State Division of Corporations State Records and Uniform Commercial Code. The address is at One Commercial Plaza in 99 Washington Avenue in Albany, New York.
Expect to wait at least three days up to five days if you will file by mail. Meanwhile, if you file online, you will typically receive approval instantly.
Step 5: Publicize your LLC.
The New York LLC registration is not possible without following the publication requirements of the state. Unlike in many other states, you should publish your LLC in newspapers within 120 days of its formation. In line with this requirement, it is important that one of the newspapers is a weekly paper and the other is a daily paper. You should publish your copy of a notice that your LLC is formed. A copy of the Articles of Organization may also be used.
The notice of formation should follow the state’s strict guidelines. Make sure you follow them correctly before submitting. If you need assistance LLC Formations is here to help.
Before you contact any newspaper, you should first get the approval of the local county clerk where your Articles of Organization is designated. Once you have published the notice, you should get an affidavit of publication from the publisher of both newspapers you have worked with.
Aside from the affidavits, you should also get the Certificate of Publication, which you will file with the New York Division of Corporations, State Records and Uniform Commercial Code. You will need to download this form to proceed: https://www.dos.ny.gov/forms/corporations/1708-f.pdf.
Once you have received the Certificate of Publication and the affidavits, you will need to submit them to the New York Department of State. It is the same address where you sent the LLC form.
Step 6: Create the LLC Operating Agreement.
The operating agreement may either be written or verbal. However, it is always recommended to have everything documented to make sure problems can be solved should they arise.
The operating agreement binds the owners and members of the LLC legally. It outlines the operating procedures in the business. It also helps prevent conflicts in the future since it ensures that all members are on the same page.
Many companies skip this step because there is no need to file the document with the State of New York. However, New York is one of the states in the US that legally require LLCs to have this document on file.
Step 7: Get an Employer Identification Number (EIN).
Also known as the Federal Tax Identification Number, EIN is used as an ID of the business entity. It is more of a social security number for the LLC. Your company is required to obtain an EIN so you can open a bank account using the name of the business. It is also needed for tax purposes, both state and federal use.
The EIN is required for all businesses, including other structures. It is what entitles you to hire employees for the company. To get an EIN, you will need to go to the IRS. Make sure that the business owner is present during the process after forming the company. It may also be obtained online through this address: https://sa.www4.irs.gov/modiein/individual/index.jsp.
If you would like to get an EIN by mail or fax, you can download the form found here: http://www.irs.gov/pub/irs-pdf/fss4.pdf. Then, you will have to mail it to the Internal Revenue Service office in Cincinnati, Ohio. Alternatively, you can fax the completed form to (855) 641-6935.
Contrary to popular belief, you are not required to have a social security number to get an EIN. Simply fill out the form above and leave the part where you need to provide the social security number blank. However, you will have to call the IRS so you can have your application accepted. The number to call is 267-941-1099.
Once you have the EIN, you will be provided with the tax classification options available. You can proceed with the default tax status given to you. It is possible, however, to reduce your federal tax obligations. The key is to opt for S corporation status. You should talk to a local accountant first to find out which option to choose for your business.
Unlike C corporations, S corporations are a special type of business structure in which companies can avoid being charged with double taxation. Therefore, if you pay the personal tax, you are not required to pay the corporate income tax. If the LLC has several owners, everyone should file an informational tax return, which should contain the details of the income of each member.
Those are all the steps you need to perform to form an LLC in New York. It does require a lot of work and can be quite expensive. However, you can simplify the process and even lower the costs by hiring a registered agent service. You can also hire a professional who will do all the work for you.
How Much Does It Cost to Form an LLC in New York?
The costs will vary depending on several aspects. Your location affects the total amount of money you will have to pay. Additionally, you may hire professionals, such as a lawyer and an accountant, which can also increase the LLC New York cost.
Every state can have a different filing fee, along with the period of waiting after you have filed for your business to become an LLC. Currently, the state fee starts at $200 but there are some counties that charge $205 to $250. You can receive the approval within five days.
However, you can always expedite the process and get the approval in just one day. The rush fee will depend on where you are located in New York. It is typically around $25 for 24-hour turnaround time. Faster filing can take up to two hours only but is more expensive as it can go $150 or more.
The filing fee is not the only fee you have to pay. The biennial statement is an additional expense, which costs $9. You will have to pay this amount during the anniversary month of your company. The total amount that you have to pay now is $209 to $259. If you wish to reserve the name of your company because you cannot immediately assign the name you want to your LLC, you will have to pay an additional $20.
Aside from the total amount above, you may also have the following expenses:
- Hiring a lawyer to prepare numerous documents for filing can add approximately $900 for the legal fees. This amount can go up if there are several owners of the LLC.
- Publication fees can eat up your budget if you are not prepared for them. As mentioned, you will need to publish the information about your newly formed LLC. The state government will give you two publications where you will have to post a classified ad for six weeks in a row. Typically, you will need to shell out $1,500 to $1,800 or even more depending on the publication chosen.
- You will also need a certified copy of the LLC’s Articles of Organization, which can cost about $10 to $20 (or more but not more than $30).
- The Certificate of Publication should also be filed, along with a cover sheet. You will have to pay $50 through a check made payable to the Department of State.
The operating agreement is a required document but you do not need to pay anything for it since it is mostly self-drafted.
Note that publishing the notice of formation can be quite expensive but it will depend on your area. In Albany County, you will only have to pay $120 to $150. However, most other counties start at $1,500.
Tips on How to Set Up an LLC in New York Much Easier
The most prominent way to make your LLC formation easier in New York is to hire a registered agent. Obtaining the service has many benefits, including keeping your information private. During the publication of your newly formed LLC, you will have to provide the location of your main office. Most LLCs use their homes as their first office. If you have the same situation, it means you will have to publicize your current home address as well.
The registered agent you hire will provide a different address. This way, your home address will not be the official address of the LLC. At the same time, the demands, notices, and other documents will be forwarded to this particular location. You will never be bothered by letters containing lawsuits, debts, and others. Of course, the agent will deliver the documents to you immediately so you can provide the proper action.
The registered agent can also have a physical office in the state. You can access the company during regular business hours. Although the Secretary of State is the registered agent by default, you can always hire another, which is also required as soon as the LLC is formed.
Aside from the registered agent, it is necessary that you protect your assets, both personal and business. It is encouraged that you get a bank account and credit card in the name of your company. It is why you need the Articles of Organization, as well as the EIN, which will allow you to have a dedicated bank account.
While there is no law stating that you should not mix your personal and business accounts, you can easily put your personal possessions at risk in case of a lawsuit. An LLC gives you the protection from such an event. However, you should still ensure that you have a separate account for the business and personal purpose. You can protect your business through these methods:
1. Open a business bank account, which will also make tax filing and accounting much easier.
2. Obtain a business credit card. Once again, you use this method to separate your business and personal expenditures. It also helps to build the credit history of your business, which is advantageous in raising capital for the future.
Apart from the tips above, it is also recommended that you get insurance for your business. This insurance will protect you from certain risks or at least give you ways to manage them. Among the most common business insurance policies are:
- General Liability Insurance gives you protection against lawsuits relating to your business. Small LLC companies are advised to have this type of coverage.
- Professional Liability Insurance will serve as protection for consultants, accountants, and other professional service providers. You will need this coverage to secure your company against claims of business errors, including malpractice.
- Workers’ Compensation Insurance is helpful in covering job-related accidents, injuries, and illnesses of your employees. It can also cover death expenses in case a worker dies in the vicinity. All businesses in New York with at least one employee are required to have this type of insurance.
Another way to make sure that your LLC business will not have issues in the coming months or years is to have the legal documents signed properly. For many companies in the state, it does help to have an attorney create these legal papers for them. The lawyers are not required but you should guarantee that all documents are properly signed.
An important note here is to sign the document as a representative of the business and not as yourself. Signing the legal documents legally binds you to personal liabilities. You can avoid such problems by following certain guidelines where you first place the formal name of your business and then your signature.
You will still have to provide your name and your position in the business. However, you should state that you are its authorized representative. The formula shows that you are signing on behalf of the business and not as a person. Check out our next guide on llcs in North Carolina.
Finally, you should keep the LLC active once you have set it up. Your job does not end here because you have to keep track of certain things every year. Many LLCs in New York are considered pass-through entities, meaning they are responsible for paying federal income taxes.
If your company is a single-member LLC, you will not need to pay the income taxes of the state. However, New York will require you to pay the annual filing fee, whether you have a single-member or multi-member LLC.