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Forming a limited liability company (LLC) for your New York business comes with personality liability protection and a great deal of flexibility. With so many requirements, forming one can be quite the challenge. This article covers how to start an LLC in New York in nine simple steps.
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Pros and Cons on How To Start LLC in New York
There are plenty of great reasons to start an LLC in New York, but also a few negatives to consider. Here are the pros and cons of starting an LLC in New York.
Pros
Limited Liability Protection
LLCs in New York share limited liability protection, meaning you can keep your personal and professional assets separate. This differs from a partnership or sole proprietorship, where no such distinction is made.
Should someone file a lawsuit against your business, those individuals can’t come after personal items unrelated to your company. The same holds true if you rack up a large amount of debt. Even if your business can’t come up with the funds to pay these expenses, your personal things are safe.
Your job as an LLC owner is never to mix these two pools. If you contaminate your business assets with personal affairs, they may no longer be protected.
Tax Options
Limited liability companies have no set tax classification and must instead adopt those of another business structure. Most LLC business owners choose pass-through taxation that sole proprietors or partnerships use.
Thanks to pass-through taxation, your company doesn’t have to pay taxes on the corporate level. Instead, each owner pays taxes based on the income they receive from profit distributions. If you don’t specify otherwise, the state of New York will assume this tax structure for your business by default.
Larger companies may decide to use a C-corporation’s tax classification, paying both at the corporate and individual levels.
Management Flexibility
With an LLC, there’s no limit to the number of members you can have. There’s no need to keep a board of directors, allowing for flexibility at the top.
You and any other owners get to decide how much of an active role you want to play in your business. Each of you can take on day-to-day responsibilities or hire a business manager to handle the work for you.
A business manager can be a blessing if you don’t have many members or lack experience running a company.
Profit Distributions
Alongside management flexibility, members don’t have to receive a certain amount of profit. You can distribute profits differently among members depending on how active their role is or how much they’ve contributed financially.
Profit distributions aren’t set in stone and can be changed as your business grows. Your Operating Agreement should capture these splits so there are no questions at tax time.
This differs from corporations, which must distribute profits based on the number of shares each person owns. Partnerships must share profits equally among owners.
Uniqueness
Your business name must be different from any other in New York. This means you get a unique identity, and the state will protect you from others wanting to use the same title or something similar.
The same rules apply if you plan to move your business to one of the surrounding states. It may be wise to plan ahead and reserve your name there so you don’t run into issues in the future.
Business Credibility
Customers and other businesses view LLCs as a more formal business structure than sole proprietorships and partnerships. People consider these other business types less legitimate and may avoid doing business with them.
You’ll get your official LLC name on your branding, tax forms, and bank statements to come across as more credible.
Minimal Paperwork
While the state of New York requires a lot of paperwork from corporations, that isn’t the case for LLCs. You won’t need to keep meeting minutes or have a board of directors and the paperwork that goes along with it.
New York is one of the few states requiring an Operating Agreement, but any LLC should create one of these anyway. You’ll also need your Articles of Organization before you can complete the formation process.
Other than those two documents, there’s little in the way of paperwork that you need to maintain. The state does require a biennial report to keep your LLC’s information up to date.
Easy to Form
Forming an LLC in New York is a straightforward process that takes a minimal amount of time. The state adds a few hurdles in the form of publications and an Operating Agreement, but these aren’t too challenging to navigate.
Cons
Self-Employment Taxes
Unless you choose to follow a corporate tax structure, the IRS will view members of your LLC as self-employed. Self-employed business owners have to pay social security and Medicare taxes on top of any income taxes from profit.
Publication Requirements
New York has some hefty publication requirements adding to the amount of work needed to get your LLC off the ground. In addition to time, you have to cover the costs of posting your notices in the newspaper and pay filing fees to the state.
Role Confusion
You don’t need to plug owners into specific roles when you form an LLC. This can lead to confusion among members about responsibilities or who reports to whom.
Your Operating Agreement should contain specific guidelines about what each member does within your organization. It can still be hard to think through all possible leadership scenarios when drafting your document, leading to issues down the road.
Difficulties Raising Capital
When a corporation needs new funds, they have the ability to sell off some shares of stock. LLCs don’t function the same way. You’ll have to seek out individuals wishing to buy a piece of your business or turn to costly loans.
Potential investors may want a big piece of the action, and it’s not simple to bring them on as another member. Some may be turned off by an LLC’s tax-exempt status that pushes taxable income onto them.
Cost
Limited liability companies are more expensive to form in New York than a sole proprietorship or partnership. Submitting your Articles of Organization alone will set you back $200.
That doesn’t include costs for a registered agent or fees for publishing your LLC in local newspapers. Depending on the country, total costs can easily clear $1,000.
For companies just starting out, this can be an insurmountable expense.
How To Start an LLC in New York
New York has specific guidelines for LLC formation, some of which few other states have. Use this ten-step guide when starting your LLC to avoid issues that could result in expenses or delays.
Step 1: Come Up With a Name
Your LLC’s name is a big deal when it comes to branding, marketing, and creating a professional appeal. Whatever you choose should be memorable and easy to pronounce while capturing the essence of what you do.
Avoid strange spellings or lengthy names that will lead to confusion among the populace. If customers don’t know what your LLC represents, chances are they’ll end up shopping elsewhere.
All businesses in New York must have unique names, which the state regulates. If you submit an Articles of Organization with a title that matches or comes close to an existing company, the state will reject your application.
You can use the Department of State’s Entity Database to see which company names are already in use.
As an LLC, the state of New York requires you to include the words “limited liability company” or abbreviations “LLC” or “L.L.C” in your legal name.
In addition, there’s a long list of words and phrases you can’t use anywhere within the state. These tend to revolve around terms associated with schools, police, or financial institutions.
If you have an idea for a name but aren’t yet ready to launch your business, New York will let you reserve a name for 60 days. The fee for doing so is $20.
Consider a Domain
Don’t overlook the merits of taking your business online, either now or at some point in the future. To do so, you’ll need a domain name to direct digital shoppers to.
Ideally, you’ll want a web address matching the name you’ve chosen for your LLC. Any deviations here may confuse customers and lead to questions about the legitimacy of your site.
Bluehost and HostGator are excellent options for reserving your domain name. You can’t permanently purchase a domain, but these sites allow you to rent the address you need for less than $15 a year.
Step 2: Choose a Registered Agent
Every LLC needs a registered agent to handle legal documents on behalf of your business. This may include subpoenas, lawsuits, or other official matters.
Registered agents can be an individual or a company specializing in the matter. Anyone can qualify to fill this role as long as they’re at least 18, have a New York address, and keep regular business hours.
Although not usually advisable, it is possible to be your own registered agent. You’ll need to have a deep understanding of New York’s laws and regulations and devote time to handling legal affairs on your own.
You can hire an employee specifically suited for this role or take advantage of a company to deal with paperwork on your behalf. Most agencies charge around $125 per year to manage these for you.
Step 3: Create your Articles of Organization
An Articles of Organization is the document you submit to the New York Department of State at the time of filing. It lets the state know you’re ready to form your LLC and what your business plan entails.
New York has a unique Articles of Organization document, so be sure to use this form and nothing else.
In the document, you’ll need to record the name of your company name on several different lines. As mentioned above, ensure the name you want isn’t already in use by some other business entity.
The New York Articles of Organization form does not require a specific address; only the county your business is located in. The Secretary of State must also know your registered agent’s information should any legal forms need your attention.
Otherwise, the state requests your name and affiliation as the document’s filer. Unlike other states, you don’t need to provide a business purpose or its possible duration.
You can mail in your completed form or use e-filing on the Department of State website. The cost for submitting your Articles of Organization is $200.
Step 4: Prepare an Operating Agreement
Members of an LLC must create a written Operating Agreement during the business formation process. You have up to 90 days to complete this document after submitting your Articles of Organization.
An Operating Agreement serves as the foundation for your LLC for legal, financial, and operational matters. Hot topics worth including are profit distributions, voting rights, and how to address a member leaving the company.
All members need to sign your Operating Agreement, after which it becomes a legally binding contract. While you don’t need to send your completed document to the New York Department of State, you will need to have one on hand.
Ensuring you’ve captured all the key points of an Operating Agreement can be a challenge to new business owners. To make things easier, we’ve created an operating agreement template to help you get there.
Step 5: Announce Yourself to the World
Your newly minted LLC needs to publish your Articles of Organization or a notice of your formation in two local newspapers. A county clerk will have a list of approved media outlets you can use to make your company known.
Each notice must be published once a week for six successive weeks. The state of New York requires you to complete this step within 120 days of your LLC’s formation.
Each notice must include the following:
- The name of your LLC
- The county your business is located in
- The name and address of your registered agent
- The purpose of your business
- The filing date of your Articles of Organization
Once published, the newspaper will provide you with an affidavit of publication. You’ll need to send both affidavits to the Department of State along with a $50 filing fee. Keep in mind you’re also responsible for costs associated with publishing your notice.
Step 6: Obtain an Employer Identification Number (EIN)
An employer identification number (EIN) is a unique nine-digit number needed to identify yourself with the federal government. Any LLC with more than one employee must have an EIN.
You’ll use your EIN to send in taxes or open a business bank account. Having one may also be necessary when filing for business licenses or permits.
If you’re a single-member LLC without employees, you can use your social security number to fill the role of an EIN. However, getting an EIN to maintain a clear distinction between your personal and business assets is still a good idea.
Step 7: Check Business License and Permit Needs
Depending on the nature of your business, there’s a good chance you’ll need some form of license or permit in New York. Failing to obtain the required permissions before opening your doors can quickly land you in hot water.
Licenses and permits may exist at the local, state, or even federal level. Requirements can vary significantly from county to county.
Common license types include a sales tax certificate, food permits, a liquor license, or a general vendor license. Licensed professionals, from doctors to lawyers and real estate agents, will need the appropriate documents from the state.
If you’re unsure about the licenses and permits your LLC needs, New York offers a business wizard tool to show you what you might be missing.
Step 8: Open a Business Bank Account
Once the revenue starts rolling in, you’ll need a place to store it. A business bank account can serve as the perfect location.
While not always mandatory, a business bank account retains a clear divide between your personal funds and those coming from your LLC. If you start mixing funds, a judge or collection agency may be able to go after your private assets.
The best business bank accounts for your LLC do more than just hold your company’s money. They can facilitate transfers, accept customer credit card payments, and give your LLC even more credibility.
Step 9: Understand Tax Requirements
Unless you opted to follow a corporate tax structure, the state of New York will consider you a pass-through entity by default. As a result, your LLC does not have to pay taxes at the corporate level. Profits made by your company get passed down to the owners, who pay taxes on the personal level based on income.
Your LLC may still be responsible for an annual filing fee ranging from $25 to $4,500 based on its gross income. New York’s Department of Tax and Finance carries all the filing forms.
Save Time With an LLC Formation Service
Our step-by-step guide simplifies the LLC formation process in New York, but it still requires time and effort. If you’d rather focus on laying the foundation of your business, consider an LLC formation service to handle the process for you.
After providing a service with specific business details, they can work through many of the above steps for you. Some even offer help with naming your business, polishing your Articles of Organization, or acting as your registered agent.
These LLC formation services specialize in this craft, allowing them to work through the formation process faster than you could on your own. With a bit of luck, you’ll have your LLC up and running more quickly than you thought possible.
As you consider an LLC service to help get your business off the ground, we recommend one of the following:
- ZenBusiness
- Incfile
- Swyft Filings
- Tailor Brands
- NorthWest Registered Agent
How to Start an LLC in New York Frequently Asked Questions (FAQs)
Bottom Line on How to Start an LLC in New York
Personal liability protection and tax perks make LLCs an excellent choice for budding New York businesses. Learning how to start an LLC in New York can be a breeze if you use the above steps as a guide. If you need to form an LLC quickly, LLC formation services such as ZenBusiness or Incfile can really speed up the process.
Noah is an American copywriter on a mission to help clarify the nuances of the business world through unique insights stemming from backgrounds in both engineering and the medical field. When not working, you’ll likely find him running or traveling.
