Business Legal Entities in the State of New York: Which is Right for Your New Business?
There is nothing more exciting than starting your own business, with the hope and intention of watching it grow and prosper. In order to set yourself up for success while protecting yourself from the inherent pitfalls of business operations, you should carefully decide which legal structure will be best for your budding business.
This overview of New York legal structures, along with filing requirements, can help guide you:
- A Sole Proprietor is personally responsible for all debts of the business, meaning your personal assets, even your home, could be at risk for satisfying business debts.
- There is no set lifespan for a sole proprietorship, it is determined by you.
- As a Sole Proprietor, you will report your business profits and losses on your individual tax return.
- If you decide to operate your business under a name other than your own, you will have to file an Assumed Name Certificate with the County Clerk.
- Debt liability for the business is shared by all partners, who are share joint responsibility for all obligations of the Partnership.
- The Partnership Agreement will designate the Partnership’s lifespan and it will be stated in the Certificate of Limited Partnership.
- Each Partner will report profits and losses on their personal income tax return.
- A Certificate of Limited Partnership must be filed with the New York State Department.
Limited Liability Company (LLC)
- An LLC limits individual members’ liability.
- The LLC’s lifespan is proclaimed in the Articles of Organization.
- An LLC has a little more leeway with regard to federal taxes: With two or more members, you can choose to be taxed as a corporation or as a partnership; with only one member, you can opt to be taxed as a corporation or as a sole proprietor.
- You must file your LLC’s Articles of Organization with the New York State Department.
- The members of a Not-for-Profit corporation have limited liability.
- The lifespan of your NFP is ongoing, unless the Certificate of Incorporation indicates otherwise.
- You can apply for federal tax-exempt status from the IRS, and for state tax-exempt status for the New York Department of State, Department of Taxation and Finance.
- A Certificate of Incorporation must be filed with the New York State Department.
- Shareholders’ personal liability is limited.
- Lifespan is perpetual, unless otherwise designated in the Certificate of Incorporation.
- Shareholders pay individual taxes on dividends. The corporation pays income tax and state franchise taxes.
- You must file a Certificate of Incorporation with the New York State Department.
In order to determine the best legal structure for your new business, it is best to consult with an attorney. Making the best choice early on will lay a solid foundation upon which to build and grow your new business. As you grow, you may decide to restructure your company in a more advantageous way.