If you start up a new business in New York, should it be a corporation, a partnership, a sole proprietorship, or a limited liability company (LLC)? Before you decide, schedule a meeting to discuss the legal aspects of your new business with a New York City business attorney.
The business structure you choose affects every aspect of your business, from the day-to-day operations to the taxes to how much of your own assets are at risk. A New York business lawyer can help you choose a business structure that provides both legal protection and benefits.
If you start a business in New York, you may form a limited liability company, a corporation, a sole proprietorship, or a partnership. However you choose to structure your business, you will need the advice and services of a business attorney. Is an LLC the right structure for your business? What are the advantages and disadvantages of LLCs, and how do you set one up?
If you will keep reading this brief introduction to start-up businesses and LLCs, you’ll find some answers, but if you are the person who is starting up the new business, you must also have an attorney’s personalized guidance and advice as early as possible in the start-up process.
What Should You Know About LLCs?
Most small businesses in the U.S. today are LLCs. An LLC is a business formation that protects the company’s owners (called “members”) from personal liability. In most cases, your home, vehicles, and savings won’t be at risk if your limited liability company is sued or goes bankrupt.
If you currently own a partnership or a sole proprietorship, forming an LLC can be a way to protect your personal assets from liability claims and creditors. An LLC may be owned by a single individual, several individuals, another LLC, a corporation, or a trust.
What Are LLC Owners Called? What Do They Own?
Limited liability companies are similar in a number of ways to corporations, but the legal restrictions and requirements for limited liability companies are somewhat less daunting and burdensome than the restrictions and requirements for corporations.
Both corporations and LLCs have owners, but in LLCs, the “members” have made direct investments and own the assets of the business, whereas the owners of a corporation own shares of stock but not corporate assets.
Forming a limited liability company in New York is a two-step procedure. The first step is entity formation, which means registering your LLC with the New York Department of State. The second step is meeting the New York LLC Publication Requirement.
What is the Publication Requirement?
Under New York law, when an LLC is formed, it must publish a new business entity notice for at least six consecutive weeks in at least two newspapers as directed by the County Clerk in the county where the LLC is located.
A Certificate of Publication, along with Affidavits of Publication, must then be submitted to the New York Department of State within 120 days of the LLC’s formation. If the LLC does not comply with the publication rule, its right to continue doing business is suspended.
A New York City business attorney will register your LLC with the New York Department of State and will ensure that you satisfy the publication requirement. Your attorney will also prepare your charter or Articles of Organization, draft your Operating Agreement, and obtain your Employer Identification Number from the IRS.
How Do LLCs Handle Taxes, Profits, and Losses?
Corporations are subject to “double taxation” because corporations are taxed at the corporate rate (21 percent as of 2022) and taxed again after profits are distributed to shareholders. But profits in LLCs pass directly to members and are taxed only once as a part of the owner’s personal income.
If you are a member of an LLC, you may even transfer your personal assets and property into the LLC – almost as if it were a trust – for one or both of these reasons:
- To help finance the business: You could contribute personal property, real estate, or both in return for equity in the company.
- To shield your properties and assets: An LLC will protect a member’s personal assets if those assets have been legally transferred to and legally belong to the LLC.
Moving assets and properties into an LLC can be a smart strategy for landlords, investors, and even for other start-up businesses. Ask a New York business lawyer to provide personalized advice about the potential tax consequences of transferring assets and properties into your LLC.
How Do LLC Members Pay Taxes?
LLC members receive a percentage of the company’s profits each year and pay the tax on their personal income taxes. For example, if an LLC with two members earns $100,000 in profits this year, each member pays personal income taxes on his or her $50,000 share.
Members of limited liability companies are considered self-employed. They pay self-employment taxes (including the Social Security and Medicare tax) on their share of the company’s yearly profits.
Is a Limited Liability Company the Right Structure for Your Own Business?
Several factors will indicate if an LLC is the best choice of business structure for your new business: for example, your own financial situation, your taxes, and your potential liability exposure.
Your lawyer will make sure that all required fees are paid, all required legal forms are submitted, and all deadlines are met. As businesses grow, so do their long-term planning needs. A business attorney can also assist and advise owners with long-term business planning needs that involve:
- intellectual property protection
- mergers and acquisitions
- succession planning
- taxes and tax strategies
A business attorney can also provide ongoing general counsel services and help you identify potential legal issues – and put remedies in place – before those issues develop into difficult legal problems.
What Else Should You Know About Forming a Business in New York?
What you have been reading is only a brief introduction to business formation and limited liability companies.
As your operation grows, and as business laws change over time, a New York business attorney can address your concerns, provide you with aggressive legal representation if necessary, and ensure that your business plan is implemented and properly updated as necessary.
If you are starting up a new business in New York, have all of your questions about business formation and limited liability companies answered – and have all of your concerns addressed – by promptly scheduling a consultation with a New York City business lawyer.