Table of Contents
A limited liability company (LLC) is a legal structure for a business that protects the company’s owners from the liabilities of the company. LLCs are a great fit for founders that want legal protection and a more informal structure than a corporation. Any income earned by the business is passed to the company’s owners and taxed as personal income. This is different from a corporation where income is typically taxed twice: corporate income and personal income when it gets to the owners.
- Pick a name that is distinguishable and available. While the meaning of “distinguishable” varies by state, it typically means a name should be different enough from an existing business name to avoid confusing a consumer. Here’s an example:
-“Delicious Cookies” and “The Delicious Cookie” are not different enough.
-“The Most Delicious Cookie” and “Delicious Cookies” are different enough to pass the test.
- Available means no one else claimed the business name in the state.
New York considers the following things as "distinguishable" enough to allow the business to use the name:
- each name contains one or more different letters or numerals, or has a different sequence of letters or numerals, except that adding or deleting the letter “s” to make a word plural, singular, or possessive shall not make a name distinguishable; or
- one of the key words is different; or
- the key words are the same, but they are in a different order; or
- the key word or words are the same, but the spelling of at least one key word is different.
New York does not consider the things listed below as "distinguishable" enough to allow registration:
- differences in punctuation or hyphenation, use of plural or possessive form of the same word, differences in tense, including present versus past tense, or the addition or omission of spaces between words or letters;
- as determined by the Department of State, the addition or omission of any article of speech, preposition or conjunction or use of a contraction of words in the name of the existing entity or reserved name;
- as determined by the Department of State, use of the commonly used abbreviation of a word in one name and the spelling out of a word in another name;
- the use of special characters instead of spelling out the names of special characters or what they stand for, or vice versa, as determined by the Department of State. The use of the special character shall be considered the equivalent of the spelling of the name of the special character;
- addition or exclusion of special characters other than those listed in subparagraph (b)(2)(ii) of this section;
- the expression of a number or numbers using letters instead of Arabic numerals;
- the inclusion or exclusion of an entity indicator (e.g., “corporation,” “limited liability company,” etc.) or any abbreviation thereof;
- addition or omission of the word or abbreviations of “company” or “companies”;
- deviations from or derivatives of the same key word, as determined by the department;
- differences between upper and lower case letters, typeface or font.
- Every LLC has to use a corporate suffix to indicate the company is a LLC. This means the last word in the name must be: “Limited Liability Company” “L.L.C.” “LLC”.
- New York allows you to reserve a name prior to registering the company. This prevents someone else from registering the name. WizForm recommends against reserving a name as its generally an unneeded expense for the company.
LLCs cannot use a prohibited word. While this list is made for Michigan, the rules apply to most other states. These words are reserved for companies with specific permissions to operate as a doctor, banker, or other profession listed.
What is a Fictitious Name? How do I register a Fictitious Name in New York?
Fictitious names, also called DBAs/Trade Names/Assumed Names/Alternate Names, are made-up names that you can use to market your business.
- Companies want to market their company in multiple different ways. Imagine Coca-Cola Company vs. Coke.
- There is a large company that owns multiple smaller companies with distinct brands. Imagine Alphabet, Inc. vs. Google.
- A company registered in one state cannot use their original name in a new state because the original name isn't available. They need a fictitious name.
Article of Organization is the document that every domestic LLC in New York has to file to register their company with the state of New York.
The Article of Organization includes topics such as business name, mailing address, and LLC members (someone with an ownership interest in the LLC). You can file the Article of Organization on the New York Secretary of State website.
- 1. Protecting your privacy. When you file the Article of Organization, all the information on the document is public (your name, your address, email, phone number). Anyone can look it up and use that information to send you mail/email/phone calls. If you use WizForm, we will incorporate on behalf of you and protect your privacy by using our name, address, email, and phone number.
- 2. Filling out the form correctly. While most of the sections are self-explanatory, there are some key sections that can be confusing. These include the company's duration, if the company should be run by a member or manager, the effective date of the company, and picking the right name. Additionally, you want to be careful that you don't over-disclose on the filing if your business needs to evolve in the future.
- 3. Using a Registered Agent. See the section below for more on registered agents and why you should use one.
- 4. Setting up an operating agreement. Operating agreements are the rules that govern how a business is run. You need to make sure that your operating agreement covers situations like how to dissolve the company, transferable interests (if someone dies or gets divorced), rights of members, and voting procedures.
All LLCs in New York (domestic and foreign) are required to file a newspaper notice. Publication must be done once a week for six successive weeks in two newspapers in the county in which the registered office of the limited liability entity is located. One newspaper must be "printed daily" and the other "printed weekly." The newspapers must be designated by the county clerk.
After the newspaper notice is done, the LLC has to file a Certificate of Publication with proof of publication (the newspaper will send this to you) with the New York Secretary of State. If the company doesn't do this, New York can dissolve the LLC.
A registered agent is a person or company acting as your company’s contact when the government needs to reach you about a legal matter. This person is the person that is “served” a lawsuit. It’s smart to use a registered agent to protect your privacy and to ensure your company is reachable if a legal matter arises. If you appoint yourself as a registered agent and aren’t around when someone tries to serve you a lawsuit, the court can enter a default judgment for the other side (which is expensive).
New York is unique in that the Secretary of State will act as your registered agent for free but this restricts your ability to set a registered office in the county of your choosing (which affects your newspaper publication costs).
Most states require you to have an operating agreement for your LLC. These rules range from how profits are distributed to dissolving the company. All LLCs need an operating agreement because the government will control how you run your company without one.
- Does the state limit indemnification?
- Voting Rights of Members
- Appraiser and Dissenter Rights
- Transfer Rights and how divorces/deaths affect the rights of members
- Profit Distribution
- To set up a bank account and get paid by other vendors, you will need an Employer Identification Number (EIN). The IRS provides EINs for free.
- You will use your EIN to pay taxes with the federal government.
Every business has to pay local, state, and federal taxes. LLCs are unique in that they aren't technically a federal tax classification like a corporation. The default tax status of an LLC is a sole proprietorship or a partnership. This means that all business income is passed to the business owners and taxed as personal income.
LLCs have the choice to elect a different tax status such as a C-Corporation or a S-Corporation. See the S-Corporation section below if you are curious about electing to be a S-Corporation to save money on taxes.
If your business sells items that require sales tax, you need to register with the NY Department of Revenue to get a sales permit.
If you have employees that earn wages in New York, you need to register with the New York Department of Revenue to set up wage withholding, worker's compensation, and unemployment insurance.
If you are running your business in NYC, you will need to sign up for business licenses and permits. To identify and obtain the licenses and permits you need for your business, use NYC Business Express at www.nyc.gov/nycbusinessexpress.
If you live in New York city, you also might have several additional taxes on top of state and federal taxes. See here for the full guide (summarized below for LLCs)
- An individual who is a resident of NYC is responsible for paying NYC Personal Income Tax (max rate of 3.8%) on any income that is earned.
- Commercial Rent Tax: NYC requires most tenants to pay the CRT based on the tenant’s base rent (generally at an effective rate of 3.9%) where the annual base rent exceeds $250,000. The CRT is imposed only with respect to “taxable premises.”
- Any item that requires state sales tax has to also charge 8.8% for NYC sales tax.
S-Corporations are a type of Corporation that allow for more beneficial tax treatment but come with certain restrictions.
LLCs can elect to be taxed as a S-Corporation (less taxes) while keeping the structure of a LLC (more informal than a Corporation).
The main benefit of combining a LLC and S-Corporation is how your profits are taxed. Let's look at an example.
- Company A has $100,000 in profits. Let's say that the personal income tax rate is 35%. A standard LLC (without S-Corp status) would have 100% of the profits passed to the founders, and 35% of that money would go to taxes. The founders would give $35,000 to the government and keep $65,000.
- Company B has $100,000 in profits. Let's say that the personal income tax rate is 35%, and the long-term capital gains tax rate is 20%. An LLC with S-Corp status would allocate 60% of the profits to "reasonable salaries" and 40% to dividends. The 60% (or $60,000) would be taxed at 35%, and the founders would have to pay $21,000 to the government. The 40% (or $40,000) would be taxed at 20%, and the founders would have to pay $8,000 to the government. The result is that the founders would pay $29,000 to the government and keep $71,000. The founders would save $6,000 a year on taxes compared to the company with normal LLC status.
S-Corps have very specific requirements and can be quite time consuming to form. Check out our S-Corporation guide to understand the pros and cons to forming an S-Corporation.
In order to file for S-Corporation status, you need to first register as an LLC and then file a Form 2553 with the IRS. You also need to ensure that your operating agreement is not in conflict with specific IRS requirements.
State governments refer to out of state companies as "foreign." This term includes out of state and out of country.
States require you to register as a business if you "do business in a state." This term isn't super clear as each court will evaluate a business on a case by case basis. In general, you should register your business if you do any of the following:
- You have contracts with people or companies in the state.
- You have employees or offices in the state (this includes the founders)
- You have bank accounts in the state.
- You are paying local taxes or sales taxes in the state.
- You use wholesalers or affiliates in the state to sell your pro
If you are an e-commerce company that is selling goods on Etsy or Amazon, you probably don't need to register in every state that a customer lives in.
The key is if you are doing business consistently or in a 1-time transaction. If you are consistently doing business in a state, you need to register there.
- Obtain a Certificate of Existence from the first state you incorporated in.
- File an Application for Authority. The document must be mailed.
Suppose the original legal name of your business isn’t available in the state. You will need to register a fictitious name.
- File Newspaper Publication Notice and file Certificate of Publication with Secretary of State.
- Need to adhere to all tax requirements and annual filing requirements like domestic LLCs.
- Every domestic or foreign LLC is subject to an annual filing fee. An LLC that elects to be treated as a corporation for federal income tax purposes is not subject to the filing fee. The fee is paid to the Department of Taxation and Finance (often just called the Tax Department) using Form IT-204-LL. The fee ranges from $25 to $4,500, depending on the LLC's income.
- All LLCs must file a Biennial Statement online once every two years. Expedited handling is not available.