NY S Corp: Everything You Need to Know
An NY S corp is a standard corporation or LLC that was established in New York and has elected to be treated as an S corporation for tax purposes.3 min read
Updated July 14, 2020:
An NY S corp is a standard corporation or limited liability company that was established in New York and has elected to be treated as an S corporation for tax purposes. Like regular corporations, an S corporation is a separate legal entity that can enter into contracts and take on business activities.
Pros and Cons of an S Corporation
An S corporation is more affordable to form than an LLC and provides a structure that most people are familiar with. With this structure, you may be able to decrease your self-employment taxes.
Like other corporations, S corporations offer shareholders limited liability protection. This means that your personal assets are protected from business debts and obligations. Your initial investment in the corporation is the extent of personal risk with an S corp. This limited liability is protected through corporate formalities such as shareholder and director meetings.
However, S corporations are limited as to the number and type of shareholders and do not have special allocations. This means that all S corp shareholders have the same rights to asset liquidation, profits, and distributions. For example, a shareholder that holds 25 percent of the corporation's shares can receive only 25 percent of distributions.
Shareholders who work for the business must pay themselves a reasonable salary and withhold state and federal taxes, Social Security and Medicare (FICA), and unemployment taxes. All profits above this reasonable salary can be paid out to shareholders as dividends. Neither the salary nor the dividends are subject to self-employment tax. The cost of shareholder salaries can be deducted from the S corp's tax return as an expense.
Unlike LLCs, S corporations must abide by meeting requirements and other official regulations. They limit the amount of losses that shareholders may deduct on their individual taxes. In New York City, S corp status is not recognized, so an S corp will be subject to double taxation and must pay NYC's general corporation tax.
Creating a New York State S Corp
Before electing S corp status, you must form a standard corporation by filing a certificate of incorporation with the Department of State. The total charge for creating a New York corporation is about $195.
Even if you've already elected S corp status at the federal level, you also have to make this election for New York State. You must file Form CT-6 to receive approval from the state. Fax this form along with a copy of your federal S corp approval letter to 518-435-8605.
After filing for S corp status, you will receive your approval paperwork within a few days. You'll need these documents to open a bank account and conduct other S corp business.
New York S Corp Requirements
Corporations in New York are required to keep these records at their principal in-state business address or with the registered agent:
- Books and account records
- Shareholder, executive committee, and director meeting minutes
You'll also need to file a biennial report during the month your business was incorporated. This carries a $9 filing fee. New York corporations that will hire employees must register for an employer ID number (EIN) with the IRS. You do not need a separate state tax ID number in New York. Most businesses require licenses and permits from your municipality.
S Corporation Management
Corporate shareholders appoint a board of directors to manage the daily affairs of the business. The board appoints officers such as president, vice president, secretary, treasurer, and chief operating officer. Board actions that must be approved by shareholders can be indicated in the corporation's bylaws, which are rules by which the corporation abides. These rules are created and approved by the initial directors when the corporation is formed. If you are the only shareholder of your corporation, you also serve as the director and may hold several officer positions.
A shareholder's agreement can be created to regulate issues such as transferability of shares. For example, a shareholder can sell his or her shares to a third party, which would make that person a co-owner of the business, unless an agreement is in place to prohibit him or her from doing so.
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