Several types of business entities can be formed under New York State law, including a business corporation and limited liability company, also known as an LLC. Business corporations can be formed as either a C corporation or S corporation, with an S corporation being more comparable to an LLC. While these types of business entities are similar in some respects, there are also significant differences regarding formation requirements, tax rules, start-up costs and operational formalities.
New York Business Corporations
A business corporation is formed in New York by filing a certificate of formation with the Department of State. Federal tax rules generally require that the business corporation be taxed as a C corporation, which means that it pays federal income taxes, as well as the shareholders paying income tax on any dividends. However, the shareholders can elect to be taxed as an S Corporation and, thereby, avoid having the corporation pay federal income taxes; that is, the corporation will be taxed like a partnership with the profits and losses of the corporation being distributed to the shareholders before being subject to any income tax. S corporations must also abide by certain restrictions not applied to a C corporation such as being limited to 100 shareholders and only one class of stock.
New York LLCs
A New York LLC is also created by filing the required document with the Department of State; the document is called the articles of organization. An LLC is not a recognized entity for federal tax purposes, which means the owners, who are called members, can choose to be taxed as a corporation, partnership or sole proprietorship. Whatever choice the members make for federal taxes will apply to New York taxes. If the LLC members choose to be taxed as a partnership, New York law also imposes a fee on the LLC, which is determined by multiplying the number of LLC members by $50. The minimum fee charges if $315 with the maximum being $10,000.
The start-up costs between a New York business corporation and LLC can differ significantly. Although the department of state filing fees are comparable -- $125 for a business corporation and $200 for an LLC -- the cost of forming an LLC can be much higher due to a publication requirement that does not apply to forming a corporation. After filing its articles of organization, an LLC must publish a notice regarding formation of the LLC once per week in two different newspapers for six weeks. The newspapers must be circulated within the county where the LLC’s principal place of business is located. Depending on the county, publication costs can be very high, such as in New York County, or Manhattan, where publications costs can exceed $1,000.
Both New York business corporations and LLCs must adhere to certain formalities to protect their respective shareholders and members from incurring liability for the company debts. A business corporation is required to hold annual meetings of shareholders and directors. The business corporation must also document important business decisions in minutes of meetings and written resolutions. Within 90 days of forming an LLC, the members must create a written operating agreement that specifies the rights and obligations between the LLC members.
- New York Department of State: Types of Businesses Operating in New York State
- IRS: S Corporations
- New York Department of State: Forming a Limited Liability Company in New York
- IRS: Limited Liability Company (LLC)
- New York Department of Taxation and Finance: Form IT-204-LL
- eMinutes Magazine: New York’s Irrational LLC Publication Requirements
- New York Department of State: Corporate Fee Schedule
- New York Department of State: Limited Liability Company Fee Schedule
- New York State Legislature: Business Corporation § 602. Meetings of shareholders
- New York State Legislature: Business Corporation § 708. Action by the board
- New York State Legislature: Limited Liability Company Law § 417. Operating agreement