How Should I Structure My New York Business?
When getting ready to launch your new business, you should give serious thought to what type of formal business structure will best serve your needs. There are several different options for organizing your business in the state of New York, and each has its own unique characteristics and advantages.
As its name implies, a sole proprietorship is basically owned by a single individual. It is one of the simplest and most popular forms of business. In a sole proprietorship, when you use a name other than your own, you are legally viewed as “doing business as,” or DBA. For example, John Smith, doing business as Big John’s Lawn Care. As a sole proprietor, your taxes are simplified, because everything you earn is reported on your individual tax return. You also get to be large and in charge, with the autonomy to make your own business decisions. A sole proprietorship is easy to convert to another type of business structure as it grows.
A general partnership may include one or several partners. Partnerships can also be formed between companies, corporations or a combination of entities. A partnership does not require special documentation to conduct business. However, all members in a partnership are each liable for the actions and decisions of other members. While not required by law, it is important to draw up a contract that outlines the responsibilities and expectations of all partners. As with a sole proprietorship, taxes are reported on the individual returns of each partner, based on the income they received from the business.
There are two categories of corporations in New York State, C-corps and S-corps. Of the two, the C-corp is the most common. The advantage of incorporation is that the owners are considered separate from the corporate entity, and are not held personally liable for business debts and damages. As its own legal entity, a C-corp can enter into contacts, pay its own taxes, be sued and be held liable for its own debts. The shareholders of a C-corp will have to report income distributed as dividends on their individual tax returns, and the corporation will also be taxed on its profits.
An S-corp is similar to a C-corp in that its owners are shielded from business liability, but an S-corp allows members to be taxed on their individual income in a way similar to a sole proprietorship or a general partnership. However, there are some restrictions placed on S-corps: They cannot have more than 100 shareholders, and each shareholder must be an individual and not a corporation or other business entity. S-corp shareholders cannot be from a foreign country.
Both C-corps and S-corps must hold regular board meetings and shareholder meetings. They must maintain documented records of all business meetings.
Limited Liability Company (LLC)
Perhaps the best of both worlds, an LLC offers its owners the protections of a corporation while maintaining a simplified management style, making this structure a popular choice for small businesses. LLCs are not subject to the formal rules and laws governing corporations. LLC members have the option to report income on their individual tax returns, or to adhere to a corporate tax structure. Laws regarding LLCs differ from state to state.
Limited partnerships are similar to LLCs, with a few exceptions. Limited partnerships have detailed contracts that outline business management and disbursement of profits. A limited partnership may have silent partners, meaning they do not regularly participate in business operations or management. Their liability is limited to the amount they have invested in the partnership.
The way you structure your company boils down to how simple or complex you want it to be, the scope of your business, tax preferences and willingness to assume liability. To afford yourself the most protection and make an informed decision, consult with the business specialists at Windsor Publishing. We understand the ins and outs of doing business in New York State, and we can advise you on which legal business entity will best serve your needs.