Starting a Limited Liability Company (LLC) in New York can be an exciting venture for any entrepreneur. This article will walk you through the process of founding an LLC, from coming up with a business name to understanding the costs and benefits involved. Whether you're a seasoned business owner or new to the entrepreneurial world, understanding how to navigate the formation of an LLC is crucial.
As we get into the specifics of starting a business, keep in mind that starting an LLC is more than simply paperwork — it's about building a stable and profitable business.
How to start an LLC in New York in 7 steps
01. Pick your business name
Step one for starting a business in New York is to select a name for your LLC. This isn't just a creative process, it's a legal one too. Your business name should be unique and must not be the same as or too similar to other names on record with the New York Secretary of State.
You'll want to make sure your chosen name ends with "LLC," "L.L.C.," or "Limited Liability Company" to comply with state requirements.
Follow these recommendations to create a business name that stands out and complies with legal standards.
Check for availability: Use the New York Secretary of State's online database to search for existing business names.
Follow naming guidelines: Avoid restricted words that could confuse your LLC with a government agency (e.g., FBI, Treasury).
Consider your online presence: Check the domain availability if you plan to also focus on building a website, which can be easily done through platforms like Wix.
Tip: If you're having trouble coming up with a unique name for your business, consider using a business name generator.
02. Choose your registered agent
Every LLC in New York must have a registered agent, an individual or company that agrees to accept legal papers on behalf of your LLC. Your registered agent must be available during regular business hours and have a physical address in New York.
To choose the right registered agent, consider the following factors:
Reliability: Confirm they're dependable and can handle confidential documents.
Availability: They should be consistently available at the listed address during business hours.
Compliance: Verify that they meet all legal requirements set by the state of New York.
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03. Obtain state business permits
Depending on the nature of your business, you may need specific permits or licenses to operate legally in New York. These could range from general business licenses to industry-specific permits.
To obtain the necessary permits in order to register your business, follow these steps:
Identify requirements: Check with local and state agencies to determine what permits you need.
Complete the applications: Fill out all required paperwork accurately and submit them to the appropriate authorities.
Pay any fees: Be prepared to pay any associated fees for obtaining your permits.
Let’s say you want to start a landscaping business in the state. First, you’ll need a general business license from the New York State Department of State. You may also need additional licenses or permits depending on your specific services.
For example, if you plan to use pesticides in your work, you'll need a Pesticide Applicator (Commercial) Certification from the New York State Department of Environmental Conservation. If you plan to offer tree trimming or removal services, you'll need a contractor license from the New York City Department of Consumer Affairs.
Learn more: How to get a business license
04. File a Articles of Organization
The Articles of Organization is a critical document that officially creates your LLC in New York. You'll file this with the New York Secretary of State, either online or by mail, along with the required filing fee.
Filing involves these essential actions:
Gather your business information: You'll need details like your LLC's name, registered agent information and management structure.
Fill out Form DOS-1336: This is the specific form used for filing an LLC's Articles of Organization in New York.
Submit and pay fees: Complete the submission process by paying the $200 filing fee.
05. Draft your LLC operating agreement
While not required by law in New York, creating an operating agreement is highly recommended for outlining ownership and operating procedures.This internal document outlines ownership structures, member roles and operational procedures for your type of business.
Here’s why an operating agreement is important:
Clarifies business rules and guidelines: It sets clear expectations for members regarding operations and conflict resolution.
Protects LLC status: Helps maintain limited liability status by proving that your LLC is a separate business entity.
Prevents misunderstandings: Reduces potential disputes among members by detailing policies and procedures for how the business should be run.
06. Apply for an EIN and pay relevant taxes
An Employer Identification Number (EIN) is like a social security number for your LLC. It’s necessary for hiring employees, opening bank accounts and filing taxes.
Securing an EIN involves:
Applying online or via mail: The IRS provides free EIN registration through their website or via mail submission.
Understanding your business tax obligations: Learn about state-specific taxes that apply to your LLC, such as franchise tax or sales tax. In New York for an LLC owner this includes a 15.3% self-employed tax (12.4% social security, 2.9% Medicare). For more information, visit the New York Department of Taxation and Finance website.
07. Organize annual reports
New York requires LLCs to file biennial reports to keep their information up-to-date with the state. These reports include current contact information and details about your business operations over the past two years.
To ensure you’re compliant with this make sure to:
Know due dates: Your New York Annual Report is required biennial by the end of the anniversary month of your LLC.
Maintain proper records: Keep accurate records throughout the year to simplify report preparation when due dates approach.
Submit and pay fees: Complete the submission process by paying the $9 filing fee.
How much does it cost to start an LLC in New York
When you decide to start an LLC in New York, understanding the associated costs is crucial for planning your budget. Here's a breakdown of the expenses you can expect during the formation process:
Filing fee for Articles of Organization: You will need to pay a fee to file your Articles of Organization with the New York Department of State. This is a one-time cost that is mandatory for all new LLCs. For an LLC it costs $200.
Registered agent fees: If you choose to hire a professional registered agent, there will be an annual fee for their services.
State business permits and licenses: The cost varies depending on the type and number of permits and licenses your specific business requires.
Operating agreement: While drafting an operating agreement isn't associated with a direct state fee, you may incur costs if you hire an attorney or use a professional service.
Employer Identification Number (EIN): Obtaining an EIN from the IRS is free of charge.
Annual fees: Although New York doesn't require annual reports for most LLCs, there may be other ongoing fees related to business licenses or state taxes.
Additional costs may include:
Legal or financial consulting fees: If you seek professional advice during the formation process, these services will add to your startup costs.
Domain registration and website creation: Costs may include domain registration and potentially hiring a web designer or using a website builder like Wix.
Business insurance: Depending on your industry, you might need various types of insurance to protect your LLC.
Learn more: Cost to start an LLC
Who can start an LLC in New York
To form an LLC in New York, there are specific eligibility criteria that need to be met. It's crucial to understand who can start an LLC in the state before you begin the process.
You must be 18 years or older to form an LLC in New York.
There's no residency requirement, meaning you don't have to live in New York to start an LLC there.
You do not need to be a U.S. citizen or permanent resident to form an LLC in New York.
An LLC can be formed by one individual (a single-member LLC) or multiple people (a multi-member LLC).
Your LLC must be formed for a lawful business purpose. New York does not allow the formation of LLCs for illegal activities.
Benefits of starting an LLC in New York
Business owners may find a number of benefits from forming an LLC in New York to be quite appealing. With its many advantages—including tax breaks and legal safeguards—it is a well-liked option for business owners.
Limited personal liability
Members of an LLC are protected from personal liability for business debts and claims, which means personal assets are typically not at risk.
Launching your business as an LLC is a great way to separate your business from your personal assets. Should your company face a lawsuit, an LLC can protect your home, car, or personal bank account from being impacted. Shylene D’Addario, VP and associate general counsel at LegalZoom
Flexibility in management
LLCs have fewer formalities and can be managed by the members or appointed managers, providing flexibility in how the business is run.
Credibility with customers and partners
Having 'LLC' after your business name can enhance your credibility with potential customers, suppliers and financial institutions. You can then choose an .llc domain for your website to reinforce this credibility.
Ease of formation and maintenance
Compared to other business entities, LLCs are relatively easy to set up and maintain with fewer annual requirements.
Disadvantages of starting an LLC in New York
When considering forming an LLC in New York, it's important to weigh the benefits and potential drawbacks. Understanding these disadvantages will help you make an informed decision about whether an LLC is the right business structure for you.
Here are some challenges you may encounter with an LLC in New York:
Publication requirement costs
The unique requirement in New York for LLCs to publish a notice of formation can be costly.
Limited growth potential
Unlike a corporation, an LLC does not issue shares of stock, which may limit options for raising capital.
Self-employment taxes
Members of an LLC may be subject to self-employment taxes on their share of the profits.
Franchise tax
Depending on your revenue, you may be subject to New York's franchise tax.
Why start an LLC over another business entity in New York?
Choosing the right business structure is crucial for entrepreneurs. In New York, forming an LLC is often preferred due to its unique advantages. But it's important to compare it with other types of business structures to understand why an LLC might be the best choice for your situation.
Here's how an LLC stacks up against other business entities:
Sole proprietorship: Unlike a sole proprietorship, an LLC provides personal asset protection, separating your personal liabilities from those of your business.
Partnership: An LLC offers more protection for each member compared to a partnership, where each partner can be personally liable for the debts of the business.
Corporation: While corporations also provide limited liability protection, they’re also subject to double taxation (taxes on both corporate profits and shareholder dividends). An LLC avoids this with pass-through taxation.
LLCs also offer these unique advantages:
Operational flexibility: Corporations are required to have a formal structure with directors and officers, while an LLC can be managed by its members or managers, providing greater operational flexibility.
Fewer record-keeping requirements: An LLC has less stringent requirements for record-keeping and reporting compared to a corporation.
Profit distribution flexibility: Profits in an LLC can be distributed in any manner agreed upon by the members, unlike corporations that distribute profits according to the number and type of shares held.
You've formed your LLC in New York, now what?
After successfully forming your LLC in New York, there are several important steps you should take to ensure your business operates smoothly and remains compliant with state laws.
Here's what you need to do next:
Open a business bank account
Keep your personal and business finances separate by opening a bank account solely for your LLC.
Obtain necessary business insurance
Protect your LLC with the right insurance policies, such as general liability insurance or professional liability insurance.
Stay compliant with state laws
Make sure to understand and adhere to any specific New York state requirements for LLCs, including tax filings and renewing business permits.
Additionally, focus on these areas to manage and grow your LLC:
Understand ongoing compliance requirements: Familiarize yourself with any annual filings or fees required by the state of New York to keep your LLC in good standing.
Develop a strong brand identity: Create a logo with a logo maker, establish a brand voice and build a professional website to present a cohesive image to customers.
Implement a good accounting system: Good financial management is essential for any business. Set up an accounting system that allows you to track expenses, profits and financial growth accurately.
Looking to start an LLC in a different state?
How to start an LLC in New York FAQ
How long does it take to form an LLC in New York?
The time it takes can vary. Once the Articles of Organization are filed, it typically takes the Department of State 1 to 2 weeks to process. However, the publication requirement can extend this timeline by several weeks.