How to Incorporate in New York vs. How to Start a New York LLC

People looking to start a business often ask whether they should set up an LLC or incorporate for their new venture. Like everything else in life, the answer depends. Below you’ll find the three factors we think will help you make an informed decision.

• Ease of maintenance
  LLCs are simply easier to maintain compared to corporations. Both offer solid liability protection from lawsuits, but a corporation has so many moving parts. Corporations have to hold shareholder meetings, elect directors, create bylaws, and keep notes from all the meetings. Tedius to say the least, but worth it if you are looking to grow your business big. For the rest of us, the LLC is perfect. You form it. You manage it, or higher someone to manage it for you. File your annual report. Boom. Easy.
• Desired tax structure
  By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level. The income or loss as shown on this return is ‘passed through’ the business entity to the individual members, and is reported on their individual tax returns. Less paperwork. More straightforward. A corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Complicated. Paperwork. The Colorado LLC wins this one.
• Investors
  When it comes to investing in a company, most investors feel most comfortable investing their hard earned money into corporations. The biggest reason investors prefer corporations is their favorable taxation rules. Unlike LLCs, a corporation’s shareholders are not taxed on company profits unless profits are distributed, which means the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. If you plan to grow your small business into a larger entity and attract investors, forming a corporation is your best bet.

Don’t sleep on the idea of prestige either. While “Uncle Joe’s Plumbing Service, LLC” is a fine upstanding company, it just doesn’t sound as fancy as Nike, Inc. When you hear the word corporation, many people think of Amazon, Apple, and Walmart. While the LLC is perfect for the small to medium-sized business, it doesn’t carry the same cache as the corporation. While LLCs first came into being in the late 1970s, the corporation is the oldest recognized business entity in the US, and thus they carry with them an aura of prestige.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of New York. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

While we’ve already broken down the differences between an LLC and a corporation, we’re going to dig a bit deeper into the pros and cons of forming an New York LLC or corporation. Take a look below to see what makes New York LLCs and corporations unique:

• Biennial Statement
  A majority of states require your business to file annual reports. Often time those reports cost $50 or more. Some even ring the bell at $300+. New York charges a $9 fee every two years. We’re no math geniuses, but that seems like a pretty good deal.
• High Effective Individual Tax Rate
  The effective tax rate of an individual in New York, factoring in the average rate at which their earned income, such as wages, and unearned income, such as stock dividends, are taxed. In New York, according to Wallethub, that tax rate hits your pockets at 13.74%. Yowza that is steep.
• Certificate of Publication
  When you form your New York LLC, the state requires that you to publish a notice of formation or the LLC’s Articles in two local newspapers. Once your notification is published (the state allows you up to 120 days to publish) in two papers, you’ll receive a formal Certificate of Publication. A quick online search shows that an LLC in New York City could be expected to spend over $500 just to publish it’s notification. When you form your LLC with Active Filings, you can escape the cash grab of the big city papers and publish using our address in Albany, where publication costs are much more affordable. Either way, New York’s Certificate of Publication is an added wrinkle in a process that already costs the business owner too much.
• LLCs Must Have an Operating Agreement
  Limited Liability Companies in New York must have a written Operating Agreement. This document should include provisions relating to the business of the LLC, the conduct of its affairs, and the rights, preferences, limitations, or responsibilities of its members. While it is recommended that most LLCs form and execute an actual operating agreement, New York is one of the very few states that requires LLCs to have one.

New York requires corporations to file a Certificate of Incorporation with the Division of Corporations, State Records and Uniform Commercial Code (wow, that’s a mouthful). The Certificate of Incorporation costs $125 to file, and you can file the document online or by mail. Once filed with the state, this document formally creates your New York corporation. Hire Active Filings and we’ll fill out and file your Certificate for you. Our address and information will appear on the public documents, which will allow your info to remain private.

The state filing fee for New York LLC Articles of Organization is $200. You’ll file it with New York’s Division of Corporations, State Records and Uniform Commercial Code. Section 206 of the New York State Limited Liability Company Law requires that within 120 days your LLC must publish in two newspapers a copy of the articles of organization or a notice related to the formation of the LLC. A Certificate of Publication, with the affidavits of publication of the newspapers attached, must be submitted to the New York Department of State, Division of Corporations. The fee for filing the Certificate of Publication is $50. So $250 all in and a bunch of hoops to jump through for your New York LLC.

Below we’ll fill you in on how to organize and file your Articles. If you want to save yourself the headache you can always hire Active Filings.

What is the New York Biennial Statement?
All businesses doing business in New York are required to file a Biennial Statement every two years with the New York Department of State. The Biennial Statement must include the name and business address of its chief executive officer, the street address of its principal executive office, and the address to which the state shall forward copies of process accepted on behalf of the corporation.

How much does it cost?
$9.

When is the statement due?
Your statement is due every other year of your anniversary month. For example, if you formed your business on May 15, 2019, New York wants to hear from you at the end of May 2021. When you hire Active Filings you’ll never miss a filing.

No one likes taxes. America was built on not liking to pay taxes. Nevertheless properly paying your business taxes is an important part of running a small business. While we’re not tax professionals, Active Filings hopes to give you a simple and informative overview of the way your LLC or corporation may be taxed.

How will my corporation be taxed?
Corporations face “double taxation.” First they pay taxes on net profits from the business, and then get hit a second time when taxed on the dividends they receive from those earnings. Dividends are taxed at the shareholder’s personal tax rate. An LLC doesn’t have this problem, which means anyone looking to form a corporation should take note of a state’s corporate income tax and personal income tax. One way of avoiding double taxation may be to elect for your corporation to be taxed as an S Corp. By filing IRS Form 2553 (Election by a Small Business Corporation), a corporation with 100 or fewer shareholders can elect to be taxed as an S Corp. Of course, if a corporation chooses S Corp status, they’ll have to jump through a few extra hoops and meet certain requirements required by the IRS.

How will my LLC be taxed?
Single member LLCs, meaning it’s just you running your business, are treated like sole proprietorships by the IRS. This means that any profits or losses your LLC experiences, will pass-through to you as the single owner. All you have to do is file a Schedule C, which reports profits or loss from your business, with your personal tax return (IRS Form 1040). It should be noted that an LLC can elect to be taxed as a corporation under Subchapter C, by filing IRS Form 8832 (Entity Classification Election), or as a corporation under Subchapter S by filing IRS Form 2553 (Election by a Small Business Corporation).

What if my LLC has more than one member?
As with a single member LLC, the IRS will view your multi-member LLC as a partnership. The LLC will retain it’s pass-through tax status, with a few wrinkles with regards to paperwork. Instead of one member filing a 1040, instead each member will have to file a Return of Partnership Income form (IRS Form 1065). This document lets the IRS check and make sure each owner is reporting their income properly. Beyond that, each LLC owner will attach a Schedule K-1 (Partner’s Share of Income, Deductions, Credits, etc.) to their Form 1040. This form shows the IRS each member’s share of the LLC’s profits and losses.

Here’s a tip: If your LLC is going to have more than one member, it would be a good idea to draw up a simple operating agreement. Most states don’t require an LLC to have one, but with so many cooks in the kitchen, you’ll want clear documentation with regards to ownership percentage, voting rights, distribution of profits and losses, as well as rules for buying out a member. You won’t be require to file the agreement, but it should be signed by each member and kept with the LLC’s important documents.

Beyond the basic information you’ll also need:
• payroll documents
• bank and credit card statements
• accounting documents
• partnership agreements
• depreciation schedules
• gross receipts
• checking and savings account interest

What tax forms do I need to file?
Corporations: Form CT-3
Partnerships: Form IT-204.1
LLCs: Form IT-201 (IT-203 for non-resident)

What is the New York corporate net income tax rate?
7.1% . There is a minimum tax of $100-$1500 depending on your county and assets.

What are the New York personal net income tax rates?
$0-8,000                    4%
$8,000-11,000          4.5%
$11,000-13,000        5.25%
$13,000-20,000        5.9%
$20,000-200,000      6.85%
$200,000-500,000    7.85%
$500,000 +                8.97%

There are also a lot of local income taxes with an average rate of 1.17%.

When are my tax returns due?
New York corporation tax returns are due within 2 1/2 months following the end of your reporting period. For calendar year filers, this deadline is March 15th. If you cannot file by that date, you can apply for a New York tax extension.

Can I get an extension to file my taxes?
A New York business extension will give a corporation 6 additional months to file its return. To apply for a New York Corporate tax extension, use New York Form CT-5 (Request for Six-Month Extension to File). You must file Form CT-5 and pay your estimated New York tax balance by the original deadline of your return (March 15) in order for your extension to be approved. To make an extension payment, use New York Form CT-200-V.