Starting a limited liability company (LLC) in New York is an exciting step for entrepreneurs and business owners. Not only does it provide you with the legal protection of personal assets from potential liabilities, but it also grants you certain tax benefits.
However, forming an LLC in NY requires more than just filing paperwork - there are best practices to follow that can help ensure your success. This guide will walk you through the process step-by-step so that you can start your LLC without any hiccups.
How To Start An LLC In NY
Here are the steps to follow when starting an LLC in New York.
Publish A Notice Or Articles Of Organization In Two Newspapers
The first step is to publish either your Articles of Organization or a notice related to the formation in two newspapers for six consecutive weeks. The designated newspapers will charge a fee for posting the information and must receive an affidavit from the printer or publisher upon completion.
During this time, you should also pay attention to any objections any interested parties may raise as part of the publication process. If no issues are raised during this period, then you can move on to Step 2.
Submit Certificate Of Publication & $50 Filing Fee
After all six weeks, you must submit a Certificate of Publication and a $50 filing fee to the Department of State within 120 days. This certificate must prove that you have published your Articles or Notice in both newspapers as required by law. Once submitted, you will need to wait until your application has been approved before officially launching your LLC business operations.
Obtain Authority To Carry Out Business Activities
Finally, you must obtain authorization from the Department of State to conduct business activities once they approve your application.
It's important to note that LLC renewal does not happen automatically, so one must renew your LLC formation process annually to remain valid and up-to-date with state regulations.
The Benefits Of Starting An LLC In New York
One of the main advantages of forming an LLC is that members enjoy limited legal liability. Limited legal liability means that the members are not liable if the business defaults on any loans or is sued.
Instead, owners can use only the assets held by the company to pay off any debts or judgments. This protection is not absolute but can significantly reduce exposure risk.
Another benefit to forming an LLC is that they are taxed as pass-through entities, meaning that investors only need to pay taxes based on their filings—not on their investment income from the company. This may help attract venture capitalists looking for tax breaks and incentives when investing in startups.
The Disadvantages Of Forming An LLC
Although forming an LLC has its advantages, there are also some drawbacks. For starters, while it's much more flexible than a corporation, it still requires more paperwork and filing fees than a sole proprietorship does (which requires no formal paperwork).
Additionally, because it's considered a separate legal entity from its owners, you will need to file additional documents with state agencies like the Department of Taxation and Finance to comply with regulations.
Lastly, even though members have limited liability protection against debts or lawsuits brought against the company, it's important to note that this protection does not extend to criminal liabilities such as fraud or embezzlement charges.
How To Name Your New York LLC
One of the most important tasks is choosing the perfect name for your LLC.
The first step when picking a name for your LLC is to check the state database. The database contains all the terms of existing businesses registered in New York, so you must make sure the name you want isn't already taken. You can easily search the state database on the Business Corporations Database website. Once you've found an available name, it's time to move on to step two.
Once you have an available name from the state database, it's time to search federal trademarks for any potential conflicts or infringements. To do this, go to the US Patent & Trademark Office website and explore their trademark database. If there are no matches in their records, then you can proceed with choosing that name for your LLC.
However, suppose there is an existing trademark similar or identical to yours. In that case, you will need to come up with another option, as having a similar or identical brand could land you in legal trouble.
Once you have chosen an available name from the state and federal databases, it's time to check domain names for availability. Selecting an available domain name is essential if you plan on having an online presence.
How To Create A Business Plan For Your New LLC In NY
A business plan is a written document outlining your business's purpose and strategies. It provides details about the goals and objectives of your company, as well as how you plan on achieving them. Creating a business plan can be a valuable exercise for new business owners to step back and consider the big picture while also providing an actionable roadmap for the future of their business. A solid and actionable business plan can also make your new business look more legitimate to outsiders, including investors you may want to attract and workers you may wish to employ.
When creating your plan, think through all the different aspects of running your business, so you're not leaving any key components out. Your business plan should include information about your company's purpose, target market, competitive advantage, marketing strategies, operational procedures, financial projections, and other relevant details. Here are some things to consider when writing up your business plan:
Doing this important work beforehand can help ensure that your new venture sets off on the right foot and gives it every chance at success. A solid foundation outlined by a robust plan can give investors confidence in investing their hard-earned money into something they believe has real potential for growth.
When you decide to expand, it also gives employees faith that there's something substantial behind this new endeavor they're joining forces with.
What Is An EIN And Why You Need One For Your LLC In NY
One of the essential pieces of paperwork you will need to file before you can open your business is an Employee Identification Number (EIN). This number is used for everything, like filing taxes, opening a business bank account, or getting a business credit card.
It identifies your company for tax purposes, allows you to pay employees, and helps with other financial transactions in the name of your business. It also helps protect against identity theft because it's tied to your company's information rather than any individual's personal information.
An EIN must also be used when you open a business bank account or obtain a loan or line of credit from a financial institution. It's also necessary if you plan on hiring employees or filing taxes as an LLC.
The good news is that obtaining an EIN isn't difficult—all it takes are some basic details about your company and yourself as the owner(s), plus the time it takes to fill out the form on the IRS website. Once everything has been completed successfully, you will receive your nine-digit number via email within minutes.
Why You Need A Registered Agent When Forming An LLC In New York
Another critical step when forming your business is to choose a registered agent. The New York Secretary of State will act as the default registered agent when you start your business, but it's strongly recommended that you change that info to a local trusted contact.
A registered agent is required by law to accept service of process on behalf of your business entity. If your business ever gets sued, the court documents will be delivered to your registered agent and forwarded to you.
Your registered agent also receives official communications from the state or federal government, such as tax forms, annual report notices, etc. Having a reliable third-party take care of this paperwork helps ensure everything runs smoothly.
There are two things to consider when choosing a reliable registered agent: a physical address and someone available during regular business hours to receive documents on behalf of your company.
Taxes When Opening An LLC In NY
Taxes for an LLC in New York are paid through personal tax filings. If you form an LLC in New York, you will be responsible for paying federal income tax on your income and self-employment tax. The amount of taxes owed depends on how much money the business makes each year and how the IRS categorizes it.
Here's a breakdown of the different types of taxes to pay.
Depending on the business's gross income, there may be an annual filing fee of $25 to $4,500 due with the Department of State when forming an LLC in New York. This fee is based on gross receipts and must be paid within one year of starting your business. Additionally, all companies registered with the Department of State must file annual reports every two years after formation to comply with State laws.
To collect sales taxes for your state and city as an LLC in New York, file a Certificate of Authority with the New York State Tax Department at least 20 days before conducting business. This document can also be filed online or via mail.
It should include information about your business, such as its name, address, contact information, type of business activity performed (i.e., retail), and other details requested by the department. Once obtained, this certificate allows you to collect sales taxes from customers; failure to do so can result in fines or penalties from local authorities.
If you have New York employees, you must register for Unemployment Insurance Tax with the New York Department of Labor and Employee Withholding Tax with the New York Department of Taxation and Finance.
These taxes are collected from all employees who receive wages from an employer based in NY state. These funds are allocated towards unemployment compensation benefits for those who have lost their jobs due to no fault.
The employer pays a portion of this contribution, while employees pay the remainder through payroll deductions. Employers must ensure they withhold the appropriate amount from each employee's paycheck and remit it timely.
Depending on where your business falls within a specific industry, specific industries may require additional tax registration forms.
This could include Professional Licensing Fees, Hotel Occupancy Taxes, Convention Center Authority Taxes, etc. Make sure you research before registering your business with the NY Business Express Portal so that all necessary steps are taken into account.
Your New York LLC Operating Agreement
Every business needs an operating agreement, and you're no exception when you create a limited liability company (LLC) in New York. This document is legally binding and outlines how you will run your LLC. Although it doesn't need to be filed with the state of New York, you should still take this document seriously, as it's vital to running an LLC.
Here are the various sections that form part of an operating agreement.
Essential Company Information Section
The company information section should include your LLC's legal name and address. This is important because it prevents any confusion over who owns what and where they can send important correspondence or documents.
It's also a good idea to set up a registered agent service that forwards all mail from the state government to one place (such as your office). This makes sure you never miss any crucial information from the state.
Rights, Powers, Duties, Liabilities & Obligations
This section should clearly outline each member's rights and responsibilities within the company. It should also include how one will make decisions.
Details such as whether members hold one vote each or their voices are weighted according to their ownership stakes in the company need to be defined. Clearly defining these roles before forming an LLC helps prevent conflicts that could lead to lawsuits or expensive disagreements between members.
Initial Investments & Voting Rules
It would be best if you recorded how much each member initially invested into the LLC. Hence, there is no question about who put up what amount of capital for operations or future growth opportunities.
You should also specify how voting works during meetings; do all members have equal voting power? Do certain members have more voting power because they put in more money? These details should be outlined in this section of the operating agreement, so everyone knows who has what say when making decisions regarding the company.
Compensation & Departure/Addition Of Member
How will members be compensated? Will they receive a salary, dividends, or other forms of payment? Additionally, this section should explain how new members can join or existing members can leave the business without disrupting operations or causing legal problems.
This helps ensure that all changes are correctly handled and amicably for everyone involved, with minimal disruption for customers or clients receiving services from your business.
Business Insurance For Your New York LLC
As a business owner, one of the most important decisions you will make is whether or not to get business insurance. Although business insurance is not required in New York, it can protect you against potential lawsuits and other liabilities that may arise during your business.
Here are various types of insurance you might want to consider.
Liability insurance helps cover legal expenses related to claims against your company, such as negligence or errors and omissions. Liability insurance can also help cover damages caused by your employees to third parties while performing their duties.
This type of insurance is essential if you run a service-based business since clients may hold you liable for any mistakes or accidents while providing services to them.
Workers' Compensation Insurance
Workers' compensation insurance can help protect employers from financial losses due to employee injuries or illnesses that are work-related. It provides coverage for medical expenses, lost wages for injured workers, and death benefits for family members should an employee die in a workplace accident.
If you have employees, workers' compensation insurance is required by law in New York State, regardless of the size of your business.
Unemployment insurance helps protect businesses from financial losses resulting from employees who are laid off or otherwise become unemployed due to no fault of their own (e.g., layoffs due to economic conditions).
This type of insurance is also required by law in New York State if you have employees working in the state and helps cover some costs associated with paying unemployment benefits to former employees who are eligible for them. New York State also requires employers to provide disability benefits to their employees; disability insurance helps pay these benefits should an employee be unable to work due to illness or injury.
Health insurance helps businesses pay for medical expenses incurred by their employees due to illness or injury on the job or outside of work hours—this includes prescription drugs, doctor's visits, hospital stays, and more.
While health insurance isn't required by law in New York State unless you employ 50 people or more (in which case it's mandatory), it's still a good idea for small businesses looking for ways to attract top talent and retain current employees.
Property insurance can help protect businesses from financial losses from damage caused by natural disasters (e.g., floods, fires) or theft/vandalism (e.g., burglary).
This type of coverage typically includes repairs/replacement costs and any lost income due to temporary closures resulting from the damage sustained by your property/assets.
It's essential if your business owns physical property such as buildings, equipment, or inventory that could be affected by unforeseen circumstances beyond your control (and budget).
Business Licenses For Your New York LLC
Apart from forming your LLC, you will likely need to obtain additional permits and licenses for the operation of your business.
That includes obtaining any necessary licenses and permits. The process can be complicated and time-consuming, but understanding the basics of the process is essential to ensure that you get all the steps and requirements.
Before applying for a business license or permit, one must understand the available types. Federal grants and commissions are required by law regardless of where your business is located, while state licenses and permits vary by location.
Local licenses and permits also differ from one city or county to another; some may require additional licensing even if the state does not require it. Additionally, each industry has unique licensing requirements, so research what applies to your particular business.
Certificate Of Good Standing In New York
Starting an LLC in New York requires you to form a business entity that meets specific legal requirements.
Once you've done this, you may need to obtain a Certificate of Good Standing, also known as a Certificate of Status, to prove that your company is legally formed and has been adequately maintained. This document can be helpful for things like approaching banks or other lenders for funding, starting your business as a foreign LLC in another state, or obtaining or renewing specific business licenses or permits.
The Certificate of Good Standing aims to prove that you correctly formed your LLC.
It also helps maintain it according to the state's laws and regulations and will include information such as the following:
The certificate will also include an official seal from the Department of State.
You can order a New York LLC Certificate of Status by mail, fax, or in person. To request by mail, you must complete Form DOS-1339-f and submit it along with a check for $50 made payable to "The Department of State." To order by fax, send Form DOS-1339-f along with credit card information (including type, number, and expiration date) via fax at 518-474-1418.
LLC In NY Cost
The filing fee is the first expense associated with forming an LLC in New York. When filing your Articles of Organization, this fee must be paid to the New York State Department of State. The current filing fee for forming an LLC in New York is $200. It’s important to note that this fee must be paid to the “Department of State.”
Once you have completed your Articles of Organization, they must be mailed to the New York State Department of State. The mailing address is One Commerce Plaza, 99 Washington Avenue, Albany, New York 12231
In addition to the filing fee and mailing address mentioned above, other fees may be associated with forming an LLC in New York, such as publication fees or legal fees charged by an attorney who assists with your formation paperwork. It’s essential to research these additional fees before setting up your business so that you are aware of all associated costs upfront.
Forming an LLC in New York is relatively straightforward but requires careful planning and attention to detail. Once you have filed your articles of organization with the Department of State and created a unique business name, you can begin setting up all necessary accounts for taxes and banking purposes so that your company can operate legally within NY state laws.
With this knowledge under your belt, now is the perfect time to start creating your limited liability company.
Further reading on MikeVestil.com: Here are state-specific costs one should consider while forming an LLC: