Key Considerations When Forming an LLC

If you are starting a business, a limited liability company (LLC) can help separate your business obligations from your personal finances. You can form an LLC on your own or with other owners, and you generally are not personally responsible for the company's debts simply because you own the business. This structure works for many types of businesses, though certain professions have different requirements. 

Starting a business can be exciting, but choosing how to structure it can raise questions about personal liability, taxes, ownership rights, and management responsibilities. If you are starting a business with others, you may also need to decide who will make important decisions and what happens if an owner's circumstances change. 

At Rutkin & Wolf PLLC in White Plains, New York, I help business owners meet legal requirements and make key decisions when forming an LLC. I can assist with formation documents, operating agreements, and ownership and management issues. Contact me today to schedule a free consultation. 

Determine Whether an LLC Fits Your Business

An LLC can help separate your personal finances from your business's financial obligations. In New York, simply owning or managing an LLC generally does not make you personally responsible for the company's debts and liabilities. This protection is one reason many business owners consider forming an LLC. 

However, an LLC is not the right choice for every business, and its liability protection is not absolute. Before forming one, consider how many people will own the business, who will manage it, how you want it taxed, and whether you expect to bring in new owners or investors. 

You should also compare an LLC with other structures, such as a corporation or partnership, before deciding. I can provide business formation guidance and help you evaluate the structure that best fits how you plan to own and operate your business. 

Choose the LLC's Name Carefully

Your LLC needs a name that meets New York's legal requirements. The name must include “Limited Liability Company,” “LLC,” or “L.L.C.” It must also be distinguishable from the names of certain entities already on file with the New York Department of State. 

Some words and phrases may require approval from another New York agency before you can use them in your LLC's name. For example, names containing terms such as “bank,” “trust,” “insurance,” or “university” may be subject to additional requirements. 

Even if the state accepts your LLC's name, that does not necessarily mean you have the right to use it in every context. You may also need to check whether another party has trademark or other rights in the name. If you conduct business under a name other than your LLC's legal name, you must file a Certificate of Assumed Name with the Department of State. 

Decide How the LLC Will Be Managed

When you form an LLC, decide who has authority to run the business. In New York, the members generally manage the LLC unless the Articles of Organization state that one or more managers will handle that responsibility. A manager does not necessarily have to own the company. 

If your LLC has multiple members, you should also decide how you will make business decisions. Your operating agreement can address each member's voting rights, the level of approval required for major decisions, and how profits and distributions will be handled. 

Setting these rules early can prevent uncertainty about who has authority to act for the LLC. For example, you can establish who may sign contracts, take on significant financial obligations, or approve major changes to the business. 

Prepare a Written Operating Agreement

New York requires LLC members to adopt a written operating agreement. You may enter into the agreement before, at the time of, or within 90 days after filing the Articles of Organization. The operating agreement is an internal company document and is not filed with the Department of State. 

An operating agreement can address the rights and responsibilities of members and managers, voting procedures, management authority, contributions, allocations of profits and losses, distributions, and other rules governing the company. 

For a multi-member LLC, the agreement can also address transfers of ownership interests and changes in membership. At my firm, I can help you prepare an operating agreement that reflects how you intend to run the company rather than leaving important matters to New York's default rules. 

Understand the LLC's Tax Treatment

Forming an LLC does not automatically determine how your business will be taxed. For federal income tax purposes, the IRS generally treats an LLC with one owner as part of the owner's tax return unless the LLC elects to be taxed as a corporation. An LLC with two or more owners is generally taxed as a partnership unless it elects corporate tax treatment. 

New York has its own filing requirements and fees. For example, certain single-member LLCs with New York-source income or other reportable activity must file Form IT-204-LL and pay a $25 filing fee. For LLCs taxed as partnerships, the filing fee generally varies based on New York-source gross income. 

Your tax classification can affect how you report business income and meet your tax obligations. Because the best option depends on your business and financial circumstances, consider discussing the tax consequences with a qualified tax professional before making a tax election. 

Complete New York's Formation and Publication Requirements

You form a New York LLC by filing Articles of Organization with the New York Department of State. The Articles include required information such as the LLC's name and the New York county where its office will be located. 

New York also generally requires a newly formed LLC to publish a copy of its Articles of Organization or a notice related to its formation once a week for six consecutive weeks in two newspapers designated by the county clerk. After publication, the LLC must submit a Certificate of Publication, along with the newspapers' affidavits of publication, to the Department of State. 

Failure to complete the publication requirement and file the Certificate of Publication within 120 days after formation results in suspension of the LLC's authority to carry on, conduct, or transact business. Filing the required Certificate of Publication and affidavits later can annul the suspension. 

I can help you identify and complete the required formation filings and address the operating agreement and other legal documents that accompany the formation process. 

Keep Up With Ongoing State Requirements

Your New York filing obligations continue after formation. Domestic LLCs must file a Biennial Statement two years after filing their Articles of Organization and every two years thereafter. The filing period is the calendar month in which the Department of State originally filed the Articles. 

The Biennial Statement provides the address where the New York Secretary of State should mail a copy of any process accepted on the LLC's behalf. An LLC that fails to file will be shown in Department of State records as past due, which can interfere with certain business transactions. Other requirements may apply depending on your business activities, tax classification, employees, licenses, and location. 

Plan for Changes in Ownership

If your LLC has multiple members, consider what will happen if a member wants to transfer an ownership interest, leaves the business, dies, or can no longer participate. Addressing these possibilities in the operating agreement gives members established rules to follow if ownership changes. 

Your agreement can address restrictions on transfers and procedures for changes in membership. It can also set voting and decision-making rules that matter when members disagree. If a disagreement develops over management, contracts, ownership interests, or other company matters, the operating agreement and the underlying facts can affect how a business dispute may be addressed.  

Establish Your New York LLC With Legal Guidance From Our Attorneys

Forming an LLC involves decisions about ownership and management, a written operating agreement, tax treatment, state filings, publication, and ongoing compliance. Addressing each requirement when you establish the company can provide clearer rules for the owners and help the LLC comply with New York law. 

At Rutkin & Wolf PLLC in White Plains, New York, I assist business owners in New Rochelle, the Bronx, Lower Westchester County, and surrounding areas with LLC formation and other business law matters. I can help you prepare formation documents, draft an operating agreement, and meet the legal requirements to establish your company. Contact me today to schedule a free consultation.