How to Start an LLC in NY: Everything You Need to Know
How to start an LLC is New York is a common question of new business owners in New York.8 min read
How to start an LLC in New York--if you find yourself asking this question, follow the steps below, and your business will gain the liability protection and other benefits that limited liability companies afford.
What Is an LLC?
An LLC is a business structure that has the organizational flexibility of a partnership combined with the limited liability protection of a corporation. Because it blends the two different forms of business, an LLC is called a “hybrid” business structure. The biggest advantage of an LLC compared to a corporation is that it does not have the same ownership restrictions that burden small business corporations.
LLCs can elect to be taxed as corporations or if they do not make an election will be treated like sole proprietorships or partnerships for tax purposes. LLCs must comply with state and federal tax filing and payment laws.
The owners of an LLC are called its members. Members can be people or other entities like other LLCs, foreign and domestic, trusts, and even charitable organizations. LLCs can have one member or as many members as the business desires.
People or entities become LLC members by making a financial contribution, called their capital contribution, in exchange for a membership interest. Membership interests are broken down into percentages of ownership. A member's capital contribution can be money or something else like real estate, equipment, or future services (called “sweat equity”). If none of these work, members are even able to choose a different type of capital that they all agree on. If the contribution is not money, the members should assign the contribution a dollar value.
The LLC's daily operations are handled by managers. The LLC chooses who its managers are. The managers can be the same as the members but they do not have to be. An LLC can be run by a select few of its members or by third-party managers with no ownership interest in the LLC.
Choose a Name for Your LLC
Deciding on the right name for your LLC is so much more than coming up with a catchy jingle. Business owners must find a name that is distinguishable from the thousands of other existing entities and one that is easily searchable by potential clients. It is also important that the name is not already in use. If it is, your LLC's Articles of Organization may get rejected or worse, you could be subjected to a trademark violation lawsuit. You can check whether or not your LLC's name is available on the New York Secretary of State website. You should also do a trademark search or have an attorney do one for you.
When naming your LLC in New York, you must avoid words that imply an association with a government entity, like "Federal Bureau of Investigations" or "Treasury Department." Other words like "bank," "attorney," or "university" are similarly restricted and require legal paperwork for filing. To be approved, your New York LLC business name is required to include one of the following: “Limited Liability Company,” “LLC,” or “L.L.C.”
Decide Who Will be The Registered Agent
All LLCs must have a registered agent. A registered agent is the designated person or entity listed to receive official paperwork and legal notices for your New York LLC.
In New York, the Secretary of State becomes your LLC's registered and primary agent by default, from whom you will receive your formation documents and other necessary documents pertaining to your business. You can choose a different registered agent, like a New York resident or another New York LLC, when filing online. Regardless of who serves as the registered agent, your LLC must provide a New York street address where it can receive the paperwork.
There are companies that you can pay to serve as your registered agent. For New York City-based businesses, a professional registered agent outside of the city can save you a lot of money. New York requires newly formed LLCs to publish a notice of formation in the local newspapers. This can cost $1,500 or more if the publication's principal address is in New York City. Some LLCs used a registered service agent outside of the city to reduce the cost of publication since it is cheaper to publish in smaller newspapers outside of the city.
Complete and File the Articles of Organization
To register an LLC in the state of New York, owners will need to file the business's Articles of Organization (DOS-1336 Form), with the New York Secretary of State. The Articles include information like the business's name, registered agent address, taxpayer identification number, licenses and permits and member's signatures, and the filing fee. The Articles can be submitted online or by mail and costs about $200.
Comply with New York's Publication Requirements
Once you've filed your Articles of Organization, your LLC has 120 days to comply with New York's Publication Requirements. By law, the new LLC must publish a copy of the Articles of Organization or a notice related to the formation of the LLC in a weekly and a daily newspaper in the region where the LLC's principal office is located. The publication must run for six consecutive weeks and include the official name of the LLC and a number of other facts concerning the company and its formation. If your LLC does not abide by the 120-day rule, all LLC transactions can be suspended.
The costs of publication vary greatly across different locations in New York. In a rural county, it may only cost $300 while in the county that houses New York City, it can cost over $1,500. One way to lower the cost of publication for LLCs located in New York's most expensive counties is to pay for a professional registered agent in a cheaper county and use their office as the LLCs principal office for publication purposes.
To prove compliance with the publishing requirements, you must obtain an affidavit of publication from both newspaper publishers. These affidavits along with a Certificate of Publication must then be submitted to the New York Department of State's Division of Corporations with the filing fee of about $50. The Certificate must be submitted within the 120-day window after forming your LLC.
Draft an Operating Agreement
LLCs in New York must have an operating agreement. Even LLCs with only one member must comply with this requirement. The agreement can be a written or oral agreement but written is preferred.
The operating agreement is a legal agreement among the LLC members that sets out how the members' respective ownership percentages and provides information about how the LLC will operate and be managed. Some of the key provisions in an operating agreement concern taxation, appointment of managers, financial contributions of members, and how profits and losses are split among the members. Operating agreements can be short, five pages or less, or very long depending on how many members and managers it has and how complicated its business is.
New York LLCs have 90 days from the date the LLC was formed to prepare your Operating Agreement. This period provides enough time to draft the document yourself or hire an attorney to draft it for you. Either way, you must have the operating agreement ready within 90 days of filing your Articles of Organization. New York's LLC statutes do not state what happens if you do not adopt an operating agreement as required.
You do not file the operating agreement with the New York Secretary of State. It is an internal LLC document that you maintain with company records and use to guide the LLC's operations.
Create a Management Agreement
Although not required in New York, it is advisable for LLCs to create and enter into a written agreement with its managers. A management agreement should be consistent with the terms of the LLC's operating agreement. This document provides additional detail regarding the manager's duties and authority. For example, it may require that managers seek permission from the members before taking certain actions and may allow the managers to take a lot of other actions without obtaining prior approval. LLCs can create their own management agreement from scratch, use a form, or hire an attorney to draft it for them.
Obtain a FEIN from the IRS
Once you have filed your LLC paperwork with New York, you need to obtain a Federal Employer Identification number, commonly referred to by the acronym “FEIN.” A FEIN is a tax identification number, like a Social Security number, and is used to identify a business entity.
All multi-member LLCs are required to obtain a FEIN from the IRS, regardless of whether or not they have any employees. Single-member LLCs should obtain a FEIN as well but it is not always required. Only single-member LLCs that are taxed as corporations or have employees are required to have a FEIN. Other single-member LLC owners can report their business profits and losses on their personal tax returns using their own Social Security number or tax identification number instead of a FEIN. However, to open a business bank account a FEIN is often required and some business vendors require a FEIN.
The good news is, there is no fee for obtaining a FEIN. It can quickly be obtained for free by filling out an online application on the IRS's website or by submitting a form by mail. Getting the FEIN online is much quicker.
Business Licenses and Permits
LLC owners in New York must have the permits and licenses they need to be in accordance with local, state, and federal regulations. The U.S. Small Business Administration (SBA) guide can be used to get your federal business license. You can also consult with the New York Business Permits Assistance Program.
You must apply for a state business license through the state's License Center. Your local Chamber of Commerce can assist with local licenses.
Workers' compensation insurance is required for most LLCs. You are not required in most states to hold general liability coverage, but you should consider having this policy to protect your personal and business assets.
Registering as a Foreign LLC
An LLC that already exists in another state but wants to do business in New York must register as a foreign LLC. To do business in New York, the foreign LLC must complete paperwork to register with the New York Secretary of State. The major benefit of operating as a foreign LLC rather than creating a new LLC in New York and other states you are expanding to, is that being a foreign LLC allows your company to operate as one entity in many jurisdictions.
To register as a foreign LLC in New York, owners must file an Application of Authority with the Division of Corporations. On the application, the LLC must designate a registered agent for service of process physically located in New York. Owners must also provide New York with a certificate from their state of formation that shows that the LLC is registered and in good standing. The Application of Authority form is available on the Department of State Division of Corporations website and costs about $250 to submit by mail or online.
Maintain Your LLC
LLC requirements do not end once you have formed your LLC. To remain in good standing and avoid having your LLC involuntarily dissolved or revoked, you must file. To remain in good standing you must file a biennial report with New York's Secretary of State and pay the fee. The fee is very low if you file on time but is $250 if you are late in filing it.
Your LLC must also pay an annual franchise fee to the New York franchise tax board. The amount of the fee ranges from a mere $25 to $4,500 depending on how much your LLC made in New York during the prior year. LLCs that are treated as corporations for tax purposes are not subject to the fee. However, this type of LLC is subject to the Corporate Franchise tax, which is usually more expensive.
Every year, thousands of LLCs lose the privilege of doing business because they don't comply with the biennial filing or franchise tax requirements.
Dissolving an LLC
You must officially dissolve your LLC if you no longer plan to do business in New York. Otherwise, you will still be responsible for taxes and filing fees. You must close your business accounts and file Articles of Dissolution with the Secretary of State's office.
Forming and maintaining your New York LLC on your own is possible if you follow these steps, however, if you want to ensure that everything is done correctly and save yourself time, you can post your legal need and use UpCounsel's attorney locating platform to find an attorney licensed in New York with experience forming LLCs. Post your legal need now for free.