You’ve probably already made the decision to create a Limited Liability Company (LLC) in New York.
It’s always exciting to start a new company or to start a business in a new state, so congratulations!
In this article, I’ll cover the basics of what a Limited Liability Company (LLC) is, what benefits you receive when you start an LLC in the state of New York rather than choosing a different corporate business structure and then tell you everything you need to know about how to form an LLC.
(If you want to skip to the ‘how to form an LLC’ section, click here)
Table of Contents
What Is A New York LLC?
A New York LLC is a Limited Liability Company formed in the state of New York that is governed by the laws, regulations, and statutes of the state of New York.
Why choose An LLC?
There are several advantages to choosing a New York LLC as opposed to other business structures like S corporation, C corporation, sole proprietor, sole trader or partnership business types.
1. Limited Liability And Asset Protection
The first advantage I’ll discuss is a fairly significant reason to choose to form an LLC in New York, rather than choosing a different business type. As the owner of an LLC, you can’t be held personally responsible for the liabilities and debts of your LLC in the state of New York.
So if your New York LLC happens to get sued or go bankrupt, the creditors of your LLC can’t come after your personal assets, like your car or house. Their only option for financial recourse is the assets of your Limited Liability Company (LLC).
We’ve recently been made aware that an unexpected event (like the worldwide covid pandemic) could cripple even the most successful and prepared businesses. Therefore many LLC owners are grateful for the sort of personal asset protection that comes from owning a New York LLC because they value the hard work that went into building their businesses.
Protecting your personal information is another reason to consider a Limited Liability Company over other business structures in the state of New York.
Hackers and scam artists have become quite adept at what they do during the past decade. They can use the most seemingly insignificant piece of personal information to steal your identity or put you thousands of dollars in debt.
If you operate under business structures such as sole traders or partnerships, you’ve got no choice but to register your personal information with the New York Department of State Division of Corporations State Records and Uniform Commercial Code to be listed on the public record. And once your information is on public record everyone has access to it, even people who want to use it for criminal activity.
But you can keep your information safe when you form an LLC in New York.
To keep your information safe you simply use an LLC formation service when starting an LLC in the state of New York. They’ll register their information with the New York Department of State Division of Corporations, so their information is listed on the public record instead of yours, and you remain the owner of your New York LLC.
Lastly, one of the benefits that you’ll enjoy as the owner of a Limited Liability Company in the state of New York are the tax benefits that these businesses qualify for.
When you own a corporation you’ll experience a phenomenon known as “double taxation”.
Any profits made by a corporation are taxed at corporate rates. The profits are then dispersed among the shareholders in the form of dividends, which are also then taxed as personal income tax.
So because corporation owners are taxed twice, it’s called “double taxation”.
As a Limited Liability Company, you won’t experience “double taxation”. Profits made by a New York LLC are taxed at company rates rather than corporate rates. Then they are dispersed as personal income (not dividends) to LLC members who are charged personal income taxes. This way your LLC’s profits are only taxed once.
These aren’t the only tax benefits that you’ll enjoy as a Limited Liability Company.
The 2017 Tax Cuts and Jobs Act listed a type of tax benefit specifically for businesses with the LLC business structure. This benefit is called the Qualified Business Income Deduction (QBID) and gives LLCs a 20% discount on their taxes. This tax discount is something you can only receive if you choose to form a Limited Liability Company.
How To Start An LLC In New York
Now that you know what an LLC is and what the benefits are of forming a Limited Liability Company in the state of New York, you can decide whether this is the right business structure for your company. If you still like the idea of starting an LLC, here are the five steps you need to follow to form a New York LLC.
IMPORTANT: If you feel like you need guidance through all of the red tape and forms you need
to start an LLC in New York and want to protect your personal information, there are many New York state LLC formation services.
The LLC formation service you choose guides you through the process of forming your LLC in New York, files many of the forms on behalf of your LLC and keeps your personal information safe. They typically charge fees as low as $0 plus state filing fees. (But my personal favorite LLC formation service, ZenBusiness, charges $49 plus state filing fees.)
If you’d like guidance through the LLC formation process in the state of New York then check out my guide on the best LLC formation service.
1. Obtain Articles Of Organization Form
The first step you need to complete to form an LLC in the state of New York is to get your hands on an Articles of Organization form from the New York Department of State Division of Corporations, so I’ll teach you how in this section.
Click here to get your Articles of Organization form.
You can submit the form to the New York Department of State Division of Corporations by mail or online along with the filing fee payment.
Because this is the main form you’ll have to file to start an LLC, the remaining four steps will refer to this step.
2. Choose Your Business Name
You’ll need to enter an LLC name onto your Articles of Organization form.
This is a little more complicated than it sounds. You can’t just jot down the first business name that you think up. You’ll need to make sure that no other New York state business is already using the name you want to reserve for your LLC.
Each New York business is required to have a name that is unique to it. So it’s not legal for your LLC in New York to have the same name as another business in the state.
It’s pretty easy to check this though. Just go to this site and search the business name database compiled by the New York Department of State Division of Corporations for the desired LLC name and you’ll know in a few seconds whether another business has already reserved that name. Once you’ve done that you can pull up the application for Reservation of Name.
If the name you want has already been used, don’t stress. You may still be able to use it as your LLC name by adding suffixes like “L.L.C”, “LLC” or “Limited Liability Company” to the end of the name. This is much like adding numbers to the end of a screen name when you discover that the name you want is unavailable.
You can find the application for Reservation of Name form here.
And if you decide that you don’t like the official name you’ve registered, you can apply for a Certificate of Assumed Name. An assumed name or DBA (Doing Business As) name is what will appear on your signs, on your website or on advertisements for your LLC and is the name that you will present to the world.
There’s a $25 filing fee for the Certificate of Assumed Name, as well. You can get your Certificate of Assumed Name form here.
3. Choose A New York Registered Agent
Every LLC is required by the New York Department of State Division of Corporations to have what is known as a “registered agent”.
What’s a registered agent? It’s a legal or statutory agent who is appointed to be available during business hours to receive mail and documents from government agencies (like the New York Department of State) on behalf of your LLC, and I’ll teach you all about them in this section.
Choosing your registered agent is an important choice. You can decide to appoint yourself the registered agent of your LLC or hire a registered agent service.
If you decide to operate as the registered agent for your LLC, then you need to know a few things. The first is that you’ll have to register your personal information with the New York Department of State, which means that it will be available on the public record for scam artists and hackers to access.
The next is an issue of time. You’ll have to make yourself available during business hours to receive mail and documents for your LLC. If you’re also running an LLC during business hours, this could be a problem because you can’t be in two places at once.
The drawbacks of appointing yourself as the registered agent for your LLC are that it can take up a lot of your time, and if you miss an important piece of mail or document (like service of process) you could be subject to lawsuits and not even be able to defend yourself in court. The only real benefit is that you won’t have to pay any registered agent fees.
If you choose to hire a registered agent service, they will ensure that you never miss an important document or piece of mail from government agencies. They’ll also keep your information safe by registering their information with the Department of State instead of your own, so your information will be safe from scammers and hackers.
Because taking on the role of registered agent for your LLC yourself is so risky that it could cost you your whole business, it’s really worth it to hire a registered agent service. The typical fee of an agent service will be somewhere between $99-$299 per year. But because of the great importance of this role, I always recommend that new LLC owners use a registered agent service.
If you’d like to learn more about registered agents, click here to read my guide on the best New York registered agent
4. Choose Your LLC Address
Choosing the address you write on your Articles of Organization is just as important as the business name that you register with the Department of State. Every LLC and business in New York has to register a business address with the New York Department of State to be listed on the public record.
If you aren’t using a registered agent service you can use the physical street address of your business. If your business doesn’t have a physical address you’ll be forced to use your home or office address which will mean that your personal information will be listed for your business on the website of the Department of State for anyone to find.
If you’re using a registered agent service, they register their own information with the Department of State on behalf of your business, so your personal information remains safe.
5. Sign And File Your Articles Of Organization
Once you’ve filled out your form and triple-checked it to ensure that all of the information is accurate, it’s time to file Articles of Organization.
If you sign the form yourself then, again, your information will be put on the public record because it was registered with the Department of State. But if you use an LLC formation service, they’ll sign and file the Articles of Organization on behalf of your business.
Once you’ve ensured that the information on your Articles of Organization form is accurate and complete, you can submit it online or mail it along with the filing fee. If you’re submitting your Articles of Organization online, you can click here and submit them Monday-Friday, 6am-7:30pm EST. If you choose to send your Articles of Organization through the mail, you send the form to:
New York Department of State Division of Corporations State Records and Uniform Commercial Code
One Commerce Plaza
99 Washington Ave
Albany, NY, 12231
Once you’ve filed your Articles of Organization, the New York Department of State will contact you via mail or email after they have processed the form. It typically takes 6-7 weeks for the Department of State to complete this process. If you’d like to get through the process faster, some LLC formation services offer expedited filing that can reduce the wait time to just a few days.
Other LLC Activities
There are some other things your business will have to do once you’ve filed your Articles of Organization that have nothing to do with forming your LLC, which I’ll go over in this section.
Your business will have to meet the New York LLC publication requirement and obtain a Certificate of Publication form. The LLC publication requirement set forth by the Department of State and the County Clerk demands that your LLC either publish its Articles of Organization or some other notification of its formation in two different newspapers within 120 days of the formation of your LLC.
You can’t just publish this announcement in any newspaper you wish, either. The newspapers are required to be newspapers that the County Clerk has designated as acceptable to meet the publication requirement. You can contact the County Clerk to find out which newspapers were designated in your county.
You’ll need to send in a Certificate of Publication, along with the affidavits of publication from the newspapers to the Department of State. You’ll have to pay a filing fee of $50 for your Certificate of Publication as well.
You must also file a Biennial Report every two years to maintain good standing as a New York Limited Liability Company. This system is in place to ensure that the information of every Limited Liability Company in New York is updated or confirmed every two years. You can file the Biennial Report for your business here.
You’ll have to obtain a Certificate of Good Standing for your Limited Liability Company in New York. And in order to operate as an LLC in New York you may need a business license. And, of course, youmust pay state taxes for your Limited Liability Company to avoid legal troubles.
This is a lot of stuff to remember to do. If you’d like to take away some of the workload, you could consider hiring a New York state PEO company, as well as online legal services that will service New York state businesses.
New York LLC Fee Summary
Whether you choose to form your Limited Liability Company (LLC) on your own or use an LLC formation service, you’ll have to pay a few fees. Here are the fees you’ll likely encounter as a business owner when you form your Limited Liability Company in the state of New York.
Articles of Organization filing fee: $200
Name Reservation filing fee: $20
Registered Agent Fee: $99-$299 per year
Biennial Report filing fee:$9
Certificate of Publication filing fee: $50
State Personal Income Tax: 4-10%
State Corporate Income Tax: 7.25%
After Starting Your New York LLC
Starting a Limited Liability Company is a momentous decision and a big step towards business freedom. Well done!
You can now take a break from all of the work that comes with forming an LLC and relax. Have some beer or a couple of glasses of wine, or go out to dinner, go on a shopping spree or go on a weekend trip.
But you can’t relax for too long. There’s still work to be done so that your Limited Liability Company will have the foundations necessary to become a thriving business in New York.
Step 1. Create An Operating Agreement
The first step in ensuring that your LLC has the proper business foundations is to create an LLC Operating Agreement. Many states don’t require LLCs to create an Operating Agreement, but New York state requires it. This section will tell you everything you need to know about Operating Agreements and how important they are.
If you were to think of your business as a living creature, the LLC would be its skin or shell and the LLC Operating Agreement would function as its nervous system because it tells your business what to do and how to react.
The Operating Agreement is an agreement between members of your Limited Liability Company and it provides crucial details that explain how the business should be run. It should list each of the LLC members before continuing on to define all of the managerial, financial, structural and operational aspects of your business.
Your Operating Agreement should explain which members will make high-level decisions, as well as lay out the ownership percentages and the percentage of profits and losses that each of the members will receive. It’s also important that the Operating Agreement explains each member’s role in the business and their relationships with each other so that they’ll know how they should be working with each other and who should handle each task.
It’s crucial that your company’s Operating Agreement provides an outline for what should happen when members leave or if a new member joins your Limited Liability Company. With this method of designing your Operating Agreement, your company will have instructions for what to do if your LLC members have a disagreement or falling out.
Your company’s Operating Agreement is one of the most important documents that will be drafted during the infancy of your Limited Liability Company. It clarifies how members will interact with each other and how your business will run.
From the definitions laid out in this section of the article, it should be pretty plain to see that your business has to run according to the definitions you provide in your Operating Agreement, so if it’s poorly written then your business growth could be stunted and halt any business progress. It’s pretty easy to screw up your company’s Operating Agreement by not allowing for things like innovation and change. But if you get it right, you’ll see your business take off and flourish without being chained by limiting the instructions for operation.
If you’ve never written an Operating Agreement and you’re worried about getting it right (which is a legitimate concern), you have a few options that will help.
Northwest Registered Agent provides a free template for Operating Agreements so that you can draft the Operating Agreement for your Limited Liability Company with ease. If you don’t want to draft the Operating Agreement yourself, there are many online legal services that will help guide you through it. There are a lot of New York state LLC formation services that will draft the Operating Agreement as part of their formation services, as well.
You can download a free and editable agreement on Northwest Registered Agent’s Website here: Free Operating Agreement Template
Step 2. Apply For An Employer Identification Number
If you want to open an LLC bank account for your New York state company or if you ever plan to hire employees for your LLC, you must apply for an Employer Identification Number (EIN). Your company will qualify for certain permits and licenses that it wouldn’t be qualified for without an EIN. You don’t have to hire employees just because you get an EIN – it’s basically an identification number used for businesses.
An EIN . identifies businesses in much the same way that a Social Security Number identifies people. You can apply for an EIN through the Internal Revenue Service (IRS) and it’s simple to do.
Conveniently, many LLC formation services will apply for an EIN on behalf of your company as part of their services. Of course, you can also apply for an EIN yourself. All you have to do is go to the IRS website between 7am-10pm Monday-Friday.
Step 3. Open A Business Bank Account
The last step to complete to make sure that your LLC has the proper business foundations and establish yourself as an entrepreneur is to open an LLC bank account.
A lot of people skip this step but it’s a crucial step that shouldn’t be overlooked.
Many people will make business transactions on their personal accounts then later try to determine the difference between personal and business transactions for income tax purposes. It may seem simpler to use one bank account for both purposes but you shouldn’t do business this way for two reasons.
The first reason is it’s much simpler to have two accounts because if you have an account that’s solely for business transactions you won’t have to determine whether the transactions made on it are business or personal transactions. It may seem like you’ll be able to tell the difference between the two but when tax season rolls around several months after the transactions were made, it’s a lot more difficult to remember. So having a dedicated business bank account makes tax season go a lot more smoothly.
The second reason is by using your personal bank account for LLC business, you leave yourself vulnerable to lawsuits and your personal assets won’t be protected,even thoughyou have formed an LLC.
It’s a good idea to open a business bank account if you value personal asset protection and you’d like to make tax season simple.
You’ll need a bank account kit in order to open an LLC bank account. This includes documents like your Articles of Organization, Certificate of Publication, Certificate of Good Standing, and your Employer Identification Number.
Most LLC formation services create a bank kit for your LLC as part of their formation services.
As an entrepreneur, you’re taking a major step towards taking control of your business’s future when you start a New York state LLC.
If you’ve chosen to use a New York State LLC formation service to form your LLC, you’ll typically need to pay a fee of $0 plus state fees but they take a lot of the guesswork out of forming an LLC.
If you’ve chosen to form your LLC on your own, here are the five steps you’ll need to take:
- Obtain the Articles of Organization form
- Name your LLC
- Choose your Registered Agent
- Choose your LLC address
- Sign and file your Articles of Organization
It can be overwhelming to deal with the legal jargon and red tape associated with forming an LLC in New York. But if you do it on your own without using an LLC formation service, you’ll feel a sense of accomplishment.
This is likely the first step you’ll take along your business journey.
Congratulations on deciding to form an LLC and best of luck with your business goals!