Top 5 Things to Consider when Deciding Between Corporation and LLC in New York
New York Business Owners: Deciding Between Corporation or LLC4 min read
New York business owners face a vital decision when it comes to the legal structure of their venture: corporation or Limited Liability Company (LLC). While the range of considerations is vast, studying the critical factors associated with each decision is the best way to make an informed choice. To ensure that you fully understand your rights and obligations in the eyes of the New York legislature, seeking legal counsel from an attorney experienced in the laws surrounding business entities in the state is the most reliable means of addressing any concerns you may have.
The decision of which entity is most suitable for the business is integral to the long-term success of any venture, and given the complexity of the current legal landscape, engaging a qualified lawyer is essential. Before doing this however, having a degree of understanding of the basics of these two legal entities is beneficial.
Having a good grasp on the advantages and disadvantages of each of these business entities is important for any entrepreneur looking to form either a corporation or LLC in New York. To help equip business owners with the tools to make a well-informed decision, we’ve put together this list of the top 5 things to consider when deciding between a corporation and LLC in New York.
1. Determining the Divisions of the Business
The difference in management structure between a corporation and LLC is one of the most fundamental elements to consider when deciding between these two business entities. A corporation typically follows a hierarchical chain of command, with a board of directors at the top. As a result, the corporation’s equity value and decision-making authority in a corporation are generally reliant upon the actions of the individual members at the top rather than all those involved in the formation and running of the company.
Conversely, LLCs are managed by members, who have more of an ownership-style capacity when it comes to decisions, and as a result, the equity value and decision-making power of the LLC is widely spread amongst its members, providing more equal control, regardless of the size of the LLC. An attorney experienced in LLCs in New York can assist the client in organizing a corporate governance structure to ensure that the business is organized to suit the client’s needs and preferences.
2. Understanding Taxation
Another important factor that must be considered when deciding between a corporation and LLC in New York is taxation. A corporation is considered a separate taxable entity and requires filing of two separate tax returns; one for the shareholders on personal income taxes on any profits they receive, and one for corporation taxes. This is one of the main reasons that a C-corporation is attractive to those with a high income, as the business income can be reduced using all the deductions available to the corporation itself, which is beneficial to the shareholders.
Unlike a C– corporation, an LLC is not a separate taxable entity and profits are filtered through to the members, who then report the income on their personal income taxes. In some cases, LLCs can elect to be taxed as a corporation and a qualified business lawyer can provide further advice on the best option for minimizing tax liability.
3. Protecting Liability
In terms of legal protection for the members’ assets, both the corporation and LLC shield the personal assets of their members and protect them from liability for the debts and legal obligations of the business. For the choosing the LLC over and above the corporation however, this is especially beneficial when it comes to protecting the owner from court judgements resulting from reckless or negligent behavior within the business, which occurs when the owner has acted outside of the scope of the LLC. An attorney who is conversant with New York business laws can help to ensure that your business is adequately protected from potential liabilities.
4. Keeping Records & Meeting Deadlines
Maintaining proper records and meeting deadlines is an important consideration for any business entity, and especially for those looking to set up as a corporation or LLC in New York. According to the New York Business Corporation Law, corporations are required to hold at least one meeting each year, a board of directors' and shareholders' meeting, and file an annual report of the corporation's finances with the New York Department of State. LLCs operating in the state are not as strictly regulated, but still required to submit Articles of Organization annually, and maintain corporate records. An experienced attorney can help you understand the details of filing requirements, as well as assist in statutory compliance.
5. Raising Equity
Raising equity can be a robust challenge for either business entity, and will largely be dependent upon the venture’s high-growth potential and reputation. Corporations are typically viewed as more attractive to investors, and are more easily recognized by banks, venture capitalists and potential partners. This is due to the corporation’s advantages in terms of succession planning, tax treatment, liability protection and flexibility of ownership structure. An LLC however, tends to be more attractive to smaller investors as it is more accessible, offers a simpler business structure with which to invest, and is less costly to set up.
Finding Experienced legal Counsel in New York
Understanding the legal ramifications of setting up either a corporation or LLC in New York is a complex process, and is essential for ensuring the successful start-up and long-term success of any business entity. At UpCounsel, our network of experienced lawyers can provide the specialized knowledge you need when deciding between a corporation and LLC in New York, and can assist in navigating the complexities of the state’s legal landscape.