Quite often a business name ends with these three letters: L.L.C. which stands for Limited Liability Company. You may be wondering why one would set up a business under this type of structure. To put it simply, as the name implies, protection from liability is the most attractive element to setting up a business as an LLC. You would not want your personal assets taken away from you in the event of a negative outcome in a lawsuit which can happen without the protection that an LLC affords.
Another advantage of LLCs is that under Federal and New York State tax laws, the entity is not taxed. Rather the LLC’s income is “passed through” to the owners (or members) of the Limited Liability Corporation, thereby avoiding taxation of the corporate entity.
While both LLCs and Corporations protect you from personal liability, and S-Corporations also avoid double taxation, the LLC affords some tax advantages that will be the subject of a subsequent blog.
Before you make the leap, you may want to become familiar with the legalities that must be followed in order to file a business as an LLC. Of course, each state has their own set of steps to follow. Here we will discuss the appropriate legal steps to take in the State of New York. Before we get started on this topic, it is important for you to know that you can run your LLC as either a single member or a multimember LLC. In other words, it can be either a very simple business or a complex business and still be legally filed as an LLC.
If you are not ready to file your LLC with the state, you may want to reserve your chosen name. In that case, your first step is to make an “Application for Reservation of Name” with the New York State Department of State. This filing will reserve your entity’s name for 60 days. It is useful to keep in mind that the name you chose is required to end with either “Limited Liability Company” or one of its two appropriate abbreviations LLC or L.L.C.
The Division of Corporations’ online database can be used to find out whether your desired name is currently in use. Please be advised that the law restricts certain words from being used without the proper paperwork of a licensed individual. Some words that fall under this category include, but are not limited to: Bank, Attorney, and University. Also, words that can confuse an LLC with a federal or state agency are entirely prohibited. Some examples of prohibited words include, but are not limited to: FBI, Secret Service, and Treasury. A list of prohibited words may be found within the statute. However, even that list is not exhaustive.
An Article of Organization filed with the New York Department of State, pursuant to Section 203 of the Limited Liability Company Law creates the LLC. The Article of Organization will consist of basic information including the company’s name, the county where the principal office is located, and the name and address of the individual filing the papers. It also must designate the New York Secretary of State as an agent for the LLC*.
In addition, an Operating Agreement must be drafted for the LLC. The length of this draft will differ depending on whether the business is single member or multimember. The Operating Agreement may include the agreed responsibilities of each founder, board meeting bylaws, and a description of how profits will be distributed among the business partners. This is a strictly internal document that is not filed with the state.
Within 120 days of filing your LLC paperwork, a local notice of formation of the LLC must be posted. What this means is that the LLC’s founder must run an advertisement for the business in two local newspapers (one weekly print publication and one daily print publication) for six weeks. The county clerk will designate the appropriate newspaper in which to advertise your LLC. After your ad is hot off the presses, the newspaper publisher will provide you with an affidavit of publication which will need to be notarized and attached to your Certificate of Publication. These papers must be filed with the County Clerk within the same 120-day period. This publishing requirement is unique to the state of New York and can be costly, particularly if the LLC’s principal office is located within New York County (borough of Manhattan.)
Due to the advent of social media marketing, you may be wondering why this step exists. The purpose of the local notice of formation is to allow time for existing businesses within the area of operation to raise any possible issues associated with the formation of the LLC such as name infringement. In a 2011 Inc. Magazine article, this step came into criticism for being “archaic” and costly. Regardless of how you may feel about this step, it is still a law in New York State which has to be abided by in order to create a Limited Liability Company in the Empire State.
Whether or not you plan to hire employees, you’ll need to register with the IRS for an employer identification number (EIN). The New York Department of Taxation and Finance will help you register for New York State employment taxes, if the company intends to hire employees.
When dealing with government agencies, it can be hard to predict how long a process like setting up an LLC will take. The publishing process may throw a monkey wrench into what is usually a quick and easy procedure. It is best not to expect smooth sailing. Remember you are the captain of this ship. If you maintain diligence through the tough waters, you will arrive at your destination in due time.
* This means that legal papers, such as papers commencing a lawsuit against the LLC may be served upon the Secretary of State. The Secretary of State then will forward the papers to the LLC.
Recommended link: Creating a Business? A DBA May Be Right for You (http://www.calgreenberg.com/blog/creating-business-dba-may-right/)
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If you think an LLC is right for you, please contact me for counsel by email at firstname.lastname@example.org or by phone at (718) 324 7200.
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