Four Steps to Starting a Business in New York City
You’ve been thinking about starting a business and now you’re ready to make it official. You’ve identified the goods or services that you’re bringing to the market; you’ve identified your potential client base. You’ve got a great idea, a business and marketing plan, you might even have funding. Now it’s time to roll up your sleeves and get your business running. Establishing a business in New York is relatively straightforward once you make a few important decisions.
1. Choose Your Business Structure
There are three basic structures that most small startups/entrepreneurs should consider:Sole ProprietorLimited Liability Company (LLC)Limited Liability Partnership (LLP)Your choice of business structure is one of the most important decisions that you’ll make. Your structure will determine your tax reporting, registration and filing obligations, and whether your personal assets are protected. Let’s go through them:Your business structure options might be dictated by the numbers of individuals establishing the business. With a Sole Proprietorship (also referred to as a single-member LLC), all of the assets of the business are owned by one person. This is the simplest structure to establish. However, since one individual owns all of the assets of the business, the business owner is personally responsible for all debts incurred by the business.If you’re starting the business with other people, you might consider a Limited Liability Company (LLC) or Limited Liability Partnership (LLP). The LLC is a legal entity distinct from its owners (called members) and therefore protects owners from liability (similar to a corporation). However, the LLC is easier to form than a corporation and is free of many of the legal requirements that govern corporations, such as director meetings, shareholder requirements, by-laws, etc. The LLP, on the other hand, is a partnership and is not a distinct entity for income tax purposes therefore profits and losses are passed through to the partners.Both the LLC and LLP provide personal asset protection, but there are important differences. For example, members of an LLC are protected from debts and liabilities relating to the operation of the business, but they are not protected from the negligence or bad acts of another member. By contrast, a partner in an LLP is personally liable only for his or her own negligence (or of someone working under their direct supervision).
2. Choose Your Business Name
New York State has laws that regulate how your business can be named. If you’re a sole proprietor and choose to use your legal name as your business name, you won’t need to register the name of your business. If you want to use another name, then you are required to register that name with the County Clerk in the county where your business is located. Also keep in mind that your business cannot have the same name as another existing business entity in New York.
3. Register with New York State Division of Corporations
Your new business (unless its a sole proprietorship doing business under your name) must be registered with the state. If you’re forming an LLC you must file Articles of Organization and a Certificate of Publication with the state. If you’re forming an LLP, you must file a Certificate of Registration and a Certificate of Publication with the state.The members of an LLC are required to adopt a written Operating Agreement before, at the time of, or within 90 days after the filing of the Articles of Organization. The Operating Agreement establishes the rights, powers, duties, liabilities and obligations of the members between themselves and to the LLC.
4. Get Your Tax/Employer Identification Number (EIN)
Generally, all businesses need an EIN. An EIN is a nine-digit number that the Internal Revenue Service assigns to a business. EINs are free and relatively easy to obtain online at the IRS website. If you’re planning to hire employees you must register your EIN and get the necessary insurance such as workers’ compensation, unemployment and disability insurance. These are the basic steps to establish your business in New York. Although you might be tempted to use boilerplate documents in forming your business, you should keep in mind that your business is distinctive and should reflect and protect your particular interests and objectives. Consider consulting with a business attorney to discuss these structures in more detail and to draft the operating/partnership agreements that document the duties, liabilities and obligations of the business owners. You should also consider consulting an accountant or financial advisor to discuss the tax implications of your business structure.