A Primer on Corporate Law in New York City
When starting a business in New York City, understanding the fundamentals of corporate law is essential3 min read
When starting a business in New York City, understanding the fundamentals of corporate law is essential. To help business owners understand the basics of this sophisticated area of the law, this article covers three frequently asked questions regarding corporate law. Specifically, the article will discuss the benefits of forming a corporation, the differences between a corporation and a limited liability company (LLC), and the process of organizing a corporation.
In any commercial endeavor, businesses may be exposed to a variety of risks, and there is no one-size-fits-all answer as to what type of structure works best for every organization. Knowing the rules and regulations that govern the makeup and organization of corporations in New York City is an important way to ensure business owners and directors limit any potential legal liabilities. In addition to the legal protections a corporation offers, there are also certain tax benefits that come with this structure.
The information provided in this article will give readers a greater understanding of how to form a corporation in New York City and the rewards and risks that come with it. With this knowledge in hand, business owners will need to seek the guidance of a competent lawyer from a firm that specializes in corporate law to best protect their operations.
Benefits of Forming a Corporation
The primary benefit of forming a corporation in New York City is that it is a separate legal entity that carries with it certain legal protections for business owners. Some of the key advantages are the limited liability of shareholders from operating debts; the transferability and continuity of ownership; the delineation of corporate roles and responsibilities; and tax advantages.
Limited liability, in particular, is one of the main reasons that businesses opt for a corporate form. It means that if the corporation is sued, the owner’s personal assets are generally protected (at least with the exception of their shares in the corporation). It also can preclude shareholders from being held personally liable for the corporation’s debts and liabilities.
From a tax perspective, corporations can usually take advantage of special deductions and credits not allowed to other forms of business organization such as LLCs. This includes deductions for pensions and stock options.
Differences Between Corporation and Limited Liability Company
Compared to a limited liability company (LLC), corporations are defined differently and carry with them different rules regarding ownership, taxation, and management.
Like an LLC, a corporation is a separate legal entity from its members, meaning that it exists separately from the people who created it. But unlike an LLC, a corporation can have more long-term continuity because the shareholder can transfer their shares to a new owner without putting the business’s existence at risk.
In terms of taxation, both a corporation and an LLC are taxed as a separate entity. However, the entity that pays the tax may be different in each case. For example, corporations are subject to double taxation – meaning the company pays taxes on profits, and when those profits are distributed to shareholders in the form of dividends, the shareholders must then pay taxes on those dividends. LLCs, on the other hand, are generally treated as pass-through entities, meaning that profits are taxed only once at the individual level and passed through to owners and members.
Organizing a Corporation
In New York, setting up a corporation requires filing articles of incorporation with the state. The articles of incorporation must include the name of the corporation, the names and addresses of the incorporators, the registered agent for the corporation, and the number of shares that the corporation is authorized to issue. It is important to note that the articles must be approved by the New York Department of State.
Once the articles of incorporation have been approved, the corporation must adopt bylaws. These regulations will serve as the governing document for the management of the corporation. The bylaws should include information on how the directors will be elected and whom they must report to; the roles and duties of the officers; the rules for stock issuance and transfers; and any other organizational issues that need to be addressed.
Conclusion
This article has discussed three common questions regarding corporate law in New York City. From the benefits of forming a corporation to the differences between corporations and LLCs to the process of forming a corporation, the important resources discussed above should help business owners understand the basics of forming and managing a corporation. However, to ensure full legal protection for an organization and its owners, it is important to consult with a knowledgeable business lawyer with experience in corporate law.
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