Everything you need to know about LLC formation in New York!
You’ve finally decided to start your own business in New York. After discussing it with your partners, the consensus is that you should form an LLC. But what exactly does an LLC formation in New York entail?
Getting from point A to point B when you’re trying to form an LLC together with your business partners can be tricky. Even some seemingly simple parts of the process have restrictions you may not be aware of.
In this article, we will go through the process of forming an LLC in New York City and cover all the relevant points as we do so. By the end of this article, you should know all about the process and understand if it’s the right one for your business venture.
Defining LLC Formation New York
Before we go any further, let’s first take the time to answer an important question. What is an LLC in the first place? The acronym “LLC” stands for Limited Liability Company. It speaks to the fact that the persons involved in an LLC have limited liability for the business’s liabilities and its contractual obligations. Speaking of the parties involved in an LLC, they can be an individual, an entire corporation, or just about anything in between. As long as the law recognizes the party in question, they can be involved in an LLC. It’s also important to mention that the parties involved in an LLC are officially referred to as members.
What Is a PLLC?
A PLLC is a subtype of an LLC. This acronym stands for Professional Limited Liability Company. In a PLLC, the members are focused on lawfully rendering services that are related to their profession. The state of New York does not provide a detailed list of professional services, but more than a few jobs belong in that category.
Individuals in the vast field of medicine are regarded as people who render professional services. The same is true for lawyers and engineers. Several other jobs also involve performing professional services in the state of New York.
Why Do Individuals and Businesses Take Part in LLC Formation New York?
Is forming an LLC in New York City worth the effort? Your answer to that question will depend on how you view some of the potential benefits that come along with being a member.
Two main benefits come from joining an LLC.
First off, the personal liability for LLC members is significantly limited when it comes to business-related debts. When another party sues the LLC, only the LLC’s assets lawfully owned will be subject to the claims being made. As a member, you have limited liability. The assets that you own will not be exposed to potential claims. You do not have to worry about losing your assets. That remains the case even if the assets owned by the LLC are incapable of satisfying all the debt owed to the plaintiffs. The other big reason why individuals and businesses choose to get involved in LLCs is due to taxation. Generally speaking, LLCs aren’t subjected to the same tax laws that apply to corporations. LLC members may take home larger profits compared to shareholders in a corporation due to tax laws. Over time, those tax savings can pile up for the members.
The Process of LLC Formation New York
Now that we know more about LLCs and why people choose to get involved in them, it’s time to discuss the process of forming one. There are several steps involved, so follow along carefully to ensure the process goes smoothly when you get it started.
Step 1: Select an Eligible Name for Your LLC
The first thing you need to do when forming a new LLC is to choose a name. That sounds easy enough, right? Most people don’t know that there are several restrictions regarding which names you can select for your LLC.
For instance, you cannot go with any name that contains the words “limited,” “liability,” or “company.” You also cannot include the acronym “LLC” or “LLC” in the selected name.
The restrictions don’t end there.
The state of New York also prohibits several words and phrases from being included in the name of an LLC. This list compiled by New York’s Department of State highlights the restricted words and phrases. The usage of certain words and phrases must also be approved first by certain state agencies before an LLC can use them.
Another rule prevents new LLCs from using a name that is too similar to an already registered LLC, corporation, or partnership. The state of New York says that the new name must be “distinguishable” from the one established earlier.
Step 2: Name a Registered Agent
With a name for your LLC chosen, you can now advance to the next step. The next step involves naming a registered agent. The registered agent is tasked with receiving legal notices and forms of correspondence from the state. Technically, you don’t have to hire a registered agent since New York’s Secretary of State acts in that capacity by default for all LLCs established there. Even so, you may not want the Secretary of State taking on that role for your company. You may have to publicly disclose your LLC’s address if the Secretary of State is your registered agent. On top of that, you may also be saddled with larger publication expenses.
LLCs that want more control over their privacy and immediate savings should strongly consider hiring a registered agent.
Step 3: Secure the Required Licenses and Permits
Don’t forget about securing the licenses and permits that your LLC will need to operate legally. Check with the local agencies in your area to ensure that you have all the necessary documents before filing.
Step 4: File the Articles of Organization for Your LLC
You are now ready to file the articles of organization for your LLC. The file must be sent to New York’s Department of State. Remember to pay the fees that are required for registering your LLC.
Step 5: Create the Operating Agreement for Your LLC
An LLC will not be able to function properly without an operating agreement in place. Detailed within the operating agreement are the clearly defined rights, obligations, liabilities, and powers of all the members. It essentially outlines how each member must function under the agreed-upon rules of the LLC.
LLCs don’t have to file the operating agreement with the state of New York, but they should still work to create it ASAP. Members are expected to have a finished operating agreement for their LLC within 90 days of filing the articles of the organization.
Step 6: Obtain an Employer Identification Number from the IRS
Your LLC is going to need a bank account at some point. Before you can open that bank account for your LLC, you will need an Employer Identification (EIN) from the IRS. The EIN is also required for tax purposes and hiring employees.
Step 7: Acquire the Certification of Publication
We’re not done acquiring the required documents just yet. There is still one more document you will need, and that’s the certificate of publication.
To obtain the certificate of publication, your LLC must publish a notice in two newspapers that announce your LLC’s formation. One of the newspapers must be printed daily, and the other must be printed weekly. Don’t worry too much about selecting the newspapers – The county clerk will supply you with a list of approved publications, so you can just choose from that.
The publication of the notice must also continue for six successive weeks.
Publishing the notice for that long can cost a lot of money. That’s why we recommended hiring a registered agent earlier. You can use your registered agent’s address as the primary address for your LLC. Thanks to that, you can avoid the high expenses of requesting publication in the newspapers in your area.
Step 8: File Your LLC’s Certificate of Publication
We’re almost done! All you have to do now is file your certificate and affidavits of publication with New York’s Department of State. With those last pieces of documentation obtained, your LLC is now formally ready to operate.
How is LLC different from a professional corporation?
LLCs and corporations differ from one another in a few notable ways. Learn more about those key differences below.
We already hinted at this earlier, but taxation laws are different for LLCs and corporations.
The LLC itself is not taxed. Instead, the individual members of the LLC are those who are tasked with filing their taxes.
Meanwhile, corporations are taxed in New York unless they qualify for special tax status. If a corporation doesn’t qualify for that special tax status, its shareholders could be subjected to double taxation.
LLCs and corporations also differ in terms of ownership structure. While LLCs are made up of several members who are charged with making the major decisions, corporations are controlled by the shareholders. Shareholders can also exert greater control over a corporation depending on how big their stake is.
It would be best if you also accounted for the requirements of maintaining LLCs and corporations before you decide which one to form. LLCs are significantly easier to maintain, especially if you’re working with experts already. Corporations can be tougher to manage due to the many shareholders involved and the regularly provided requirements.
Why Should You Partner with Windsor Corp?
Forming an LLC in New York City is not overly complicated, but it can be very time-consuming. In all likelihood, you already have a lot on your plate during that time, so handling the process yourself may not be an option. Partner with us at Windsor Corporate services, and we’ll handle all the filing and publication requirements for your LLC. We’ve been in this line of work for over 20 years, and through that time, we’ve worked with small businesses and well-established companies alike. Entrust your LLC filing to experienced professionals. Contact us today, and let’s get to work on forming your new LLC.