Forming an LLC in New York

Starting a new business is exciting, challenging, and rewarding.

You have come a long way in turning your concept and idea into a reality. And whether you are selling a product or service, it is important to ask yourself that basic fundamental question: "what legal structure is right for me and my business?"

Well, it depends...

While we will not be reviewing every legal structure in New York (e.g. sole proprietorship, general partnership, limited partnership, joint venture, corporation, limited liability company, limited liability partnership), we will be giving you an overview of one of the most common legal structures in NY...yes, the limited liability company ("LLC").

Namely, we will give an overview of the LLC and its historical context, how to set one up, and general practice tips. Lets get started.

Overview & Historical Context. The first LLC structure was created in 1977 in the State of Wyoming (Fact: Delaware did not come up with their own LLC law until 1991). The original purpose of the LLC was to create a new entity structure that maintained characteristics such as: (1) limited liability, (2) partnership taxation, and (3) operational flexibility. However, due to most people not knowing how the Federal Government would "actually" tax the new LLC structure (be it a partnership or corporation), the number of LLCs created were few and far between. In fact, in 1980, the IRS published a private letter ruling that denied the "partnership" tax status to any entity which no owner had personal liability for the debts of the entity. The IRS went on to list out characteristics of "pass-through" entities versus an "association."

To make a long story short...Wyoming and other states began passing what is called "Bulletproof" and/or "Flexible" default statutes to ensure their LLC's were getting their preferred Tax structure...And then, finally, a push in 1996, and codified in 1997 through IRC s. 7701, the IRS eliminated the entity classification regulations in favor of a "Check the Box" procedure, which no longer considers the LLC to possess corporate characteristics for tax purposes...Yay!

OK, all that is interesting...but what is the LLC?

A Limited Liability Company has characteristics of a Corporation (e.g. limited liability in certain instances and operational flexibility) and characteristics of a Partnership (or sole proprietorship) for tax purposes.

Controlling Law. In New York, your LLC is governed by the New York Limited Liability Company Laws (NY LLCL). And for those of you who may be familiar with the Delaware Limited Liability Company Laws (DLLCL), please note there are MAJOR distinctions between the two jurisdictions, including, but not limited to differences in: filing fees, protections of ownership rights, operational flexibility, and fiduciary standards and duties. Please reach out to an experienced Attorney to further clarify these distinctions.

Formation. Creating an LLC in New York, like many States, is pretty straightforward. An LLC can be created for any lawful business purpose. To start, one or more persons known as the "organizer(s)" will file its Articles of Organization (please note a "Professional Limited Liability Company" (PLLC) has different Articles that are filed) with the Department of State. Under NY Law, at the time of filing, there need to be at least one (1) member of the LLC. A "member" can be an individual or entity that has an ownership interest in the LLC (please note there are differences to who can "own" part of the LLC if it is being filed as a PLLC).

Naming Your LLC. One exciting step in the process is getting to name your business. There are certain naming limitations depending on your profession and industry (e.g. Attorney Ethical Regulations for naming their law firm). To start, you should check out the New York Corporate Search Database to see if there is an existing business with the name you want. Please note there may be other legal issues with choosing your business name as it relates to trademarks and copyrights that you should ask your attorney before filing. In NY, you will need to include "Limited Liability Company" or an abbreviation (i.e. LLC. or L.L.C. after the business name). Same is true for PLLCs.

Articles of Organization. As mentioned, to form your new business you will need to file the Articles of Organization with your Department of State. When you download your form (please see links above), you will notice the following sections:

  1. Name of the LLC

  2. County in which office of LLC is located

  3. Duration of LLC, if not perpetual

  4. Designation of the Secretary of State as an agent for service and process - unless you decide to choose your own registered agent

  5. Name and address of registered agent, if any

  6. If all or specified members are to be liable in their capacity as members of the LLC

Employer Identification Number (EIN). Right around the time you file your Articles you will want to apply for an EIN with the Federal Government. This process takes 5-10 minutes and is pretty painless. Following your application, you will receive a PDF form stating your new EIN number for tax reporting.