FORMING YOUR BUSINESS? DON’T FORGET THE DETAILS
by, Sheheryar T. Sardar, Esq., Media & Policy Editor
In this difficult economic climate, unemployed professionals are looking to exercise their entrepreneurial skills by starting their own businesses. Hoping to be the next Google, Apple or Facebook? Looking to reinvent finance as a boutique? While thinking big goes far, understanding the cumbersome technicalities of business formation is just as vital to your success. Below is a step-by-step guide in how to form your business entity in New York State. You may ask yourself, “why New York?” You may be focusing your operations in Colorado or Georgia, for example. While other states may differ on some of the rules and deadlines, describing the New York process has two benefits: (1) As soon as you conduct business in New York, you must follow this process; and (2) New York guidelines can serve as a model to understand how the nature of business formation generally. With that heavy dose of ambition and freedom comes responsibility. No longer will you be at the receiving end of the paycheck. You must proactively seek it. Similarly, keeping your business administration in order requires a proactive approach. To keep things simple, I discuss the Limited Liability Company (LLC):
1) Based on the type and nature of your business, you may need to procure special licenses and/or permits by New York State. For example, if you are involved in the sale of firearms, you will need a license to do so.
2) Your LLC must apply for a Federal Identification Number (EIN). The EIN will enable you to open business accounts and maintain proper tax payments and records.
3) You will need to open a Business Bank Account, which you can accomplish with your EIN.
4) You are required to apply for a “fictitious name certificate” or “business certificate.” This applies to any business that conducts its business under a name other than the name of the individual owner. If this is the case, you will need to apply for this certificate, depending on where your principal business office is located. If you are a law firm, you will be limited to using your name, either in whole or part, in the business name.
5) Publication/Notice Requirement: You are required, within 120 days of the formation of your LLC, to publish the fact that the LLC was formed, in two publications/ newspapers, as required by New York LLC law. This process has several steps, including submitting the filing receipt with the County Clerk’s Office, receiving information on the two newspapers which will publish your LLC, publishing the LLC notice (once a week for six weeks), and then filing affidavits of notice with the New York Department of State, all within 120 days. Anticipate a cost amounting to $1,000 – $1,500.
6) Drafting and Filing the Operating Agreement (if multiple members). This document will control how profits and losses are divided, who will manage the business affairs of the LLC, how withdrawal from the LLC shall be conducted, what, if any, are members’ contributions to the LLC, and how death of a member and dissolution shall be handled.
7) Taxation: The LLC will be taxed based on the individual member(s) profit. There is no double taxation, but only the income generated, minus expenses, is taxed upon the individual owner/member. You will need an accountant to manage the LLC’s taxes. Please note that there may be quarterly tax payment obligations, depending on your income generation.
8) The LLC will need to file a biennial statement every two years with the Department of State setting forth the address to which the Secretary of State shall mail a copy of any process accepted on its behalf.
9) In court, an LLC is required to be represented by an Attorney: New York Law states that a corporation (including an LLC), “shall appear by attorney…” regarding any issues or disputes which requires the attention of a court of law. Yes, hate me.
Sheheryar T. Sardar, Esq. is a Partner at Sardar Law Firm LLC, a full-service law firm based in downtown Manhattan. He specializes in business law, international trade, commercial litigation, and election law. Please visit www.sardarlawfirm.com for more information.
