Top 5 Things to Consider when Defining a Corporation in New York
Starting or running a business can often be a daunting undertaking3 min read
Starting or running a business can often be a daunting undertaking. Even if you’ve done your research and have a well-crafted business plan in place, there are still numerous legal considerations to keep in mind. Nowhere is this is more true than in the realm of corporate law. When it comes to understanding corporations and their formation (whether for-profit or not-for-profit) within the State of New York, careful consideration must be given to meet state and federal requirements.
To ensure that legal requirements are fulfilled and the expectations of founders are met, there are five particularly important topics to consider when defining a corporation in New York. These issues are: (1) filing with proper authorities; (2) selecting the preferable organizational structure; (3) drafting a corporate resolution; (4) deciding between profit and non-profit status; and (5) enforcement of contracts. With these considerations in mind, legal counsel well-versed in local regulation should always be consulted.
Filing with the Proper Authorities
The first step in defining your New York corporation is to file with the requisite governmental authorities. The applicable state office will be the Department of State's Division of Corporations. Generally, this will involve completing and submitting a Certificate of Incorporation, along with the appropriate filing fees. All relevant information, including the type of corporate entity (i.e., for-profit, mutual benefit, or non-profit), the proposed corporate name, and the address associated with the principal office must be provided. If the required filing is not completed and approved, the corporation will not be properly registered with the state and will not be legally recognized or protected as such.
Selecting the Preferable Organizational Structure
When defining a corporation, the appropriate organizational structure must also be determined. The two common structures from which to choose are a C corporation and an S corporation. Both structures offer their own advantages and disadvantages, and it is important that expectations are met in order for the chosen structure to endure.
When deciding between the two, the differences must be understood. Generally speaking, a C corporation offers greater protection against personal liability to its owners than an S corporation and can have an unlimited number of shareholders. An S corporation is taxed differently by the Internal Revenue Service and, due to limitations on the number of shareholders, works best for small businesses.
Drafting a Corporate Resolution
Once its organizational structure has been determined, the corporation must adopt a corporate resolution, or operating agreement. This is a document which identifies the operations of the corporation, including how its shares are issued and managed, how dividends are to be distributed, the rights of the shareholders, tax considerations, and other similar clauses. Subsequent to the filing of the Certificate of Incorporation, the resolution must be adopted and filed with the Department of State in order for the corporation to be fully recognized and operational.
Deciding Between Profit and Non-Profit Status
When registering a New York corporation, it is necessary to decide whether it is to be a for-profit or a non-profit entity. A for-profit corporation essentially exists as a business entity for the purpose of generating profits for its organizers or founders. Non-profit corporations are formed to benefit a cause or service of public interest (for which the profits generated are not distributed to its organizers, rather put to work for the furtherance of the mission of the corporation).
Enforcement of Contracts
Finally, contracts must be drafted in order to ensure that the interests of the corporation are safeguarded. A contract is an agreement between two parties where both are legally bound to perform a set of obligations or services to one another in exchange for something of value. Contracts should be written and executed between a corporation and its suppliers, customers, employees, and other entities it interacts with. It is important to understand, however, that New York has some of the most stringent laws regarding the enforcement of contracts, thereby making it important to work with a legal counsel familiar with such matters in order to ensure that each contract abides by the appropriate laws.
Ultimately, the process of defining a corporation in the State of New York (particularly for those unfamiliar with it) can be quite complicated. Even the most experienced entrepreneurs may find it difficult to stay abreast of the nuances of formatting corporate documents and filing fees. Working with legal counsel who are knowledgeable in the local regulations is essential to avoiding common pitfalls and ensuring that a successful company is established.