Top 5 Things to Consider for Inc vs LLC in New York
The Essential Step of Starting a Business: Forming an Entity2 min read
When a business owner makes the decision to start a business, one of the most important steps to take is forming an entity. This is done by choosing either an Inc. or Limited Liability Company (LLC). When making this decision, it is absolutely essential to understand the nuances of what makes Inc.s and LLCs different from one another and how it will affect the business in the long run. If you are based in New York and looking for counsel that understands local regulations, you should consider the following top 5 things for Inc vs. LLC formation in New York.
First, it is important to understand the basic differences between Inc.s and LLCs. Generally, Inc.s are the most common business entity. They are extremely flexible and can provide tax benefits, limited liability protection, and access to incentives. An LLC in New York is a separate legal entity that can help protect its owners, known as members, from personal liability for the LLC's obligations, but it is not subject to corporate tax or the double taxation that Inc.s are subject to.
The second thing to consider is the paperwork. Inc.s and LLCs in New York each require different paperwork to file with the state and other agencies. Inc.s must file Articles of Incorporation with the Secretary of State, as well as a corporate charter, while LLCs must file Articles of Organization. Additionally, both entities may need additional documentation such as LLC operating agreements, corporate bylaws, and shareholder agreements.
Third, when forming an Inc. or LLC in New York, you need to select a state of formation. There are certain advantages and disadvantages of incorporating in New York versus another state. For instance, if you choose to incorporate in another state, you might have to file taxes and other paperwork in both states. Additionally, because of New York's higher taxes, it may cost more to incorporate in the state.
Fourth, New York has strict regulations regarding Inc.s and LLCs. Inc.s must have a minimum of one director and three officers, as well as a registered office. LLCs must have a minimum of one member and one manager, and they cannot acquire any debt exceeding their assets. Additionally, New York does not allow LLCs to raise venture capital.
Last, business owners should consider their options for capital structure. A company can choose to issue equity or debt, and the structure it chooses may depend on the type of entity it is. Equity allows businesses to attract investors who will provide them with capital in exchange for equity in the company. Alternatively, Inc.s may issue bond debt in order to borrow funds.
Overall, Inc.s and LLCs are two distinct entities that come with their own advantages and drawbacks. When starting a business in New York, it is important that business owners carefully consider each option in order to ensure that their business is properly structured and protected against financial and legal liabilities.
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