By Amanda Bruno
You have a mind-blowing idea for a New York City startup, but you don’t know the first steps to take in how to make it happen.
Do I need to hire an attorney?
How do I go about finding a reputable business attorney in NYC anyway?
One of the first things on your checklist should be to obtain an Operating Agreement. So what exactly is that? It’s more common than you think, and it’s likely been in the plain site.
LLC, or limited liability company, is the more recognizable term. Chances are, if you have an LLC, there is an Operating Agreement attached. An Operating Agreement is the primary document that establishes the rights, powers, duties, liabilities and obligations of the members between themselves and with respect to the LLC as stated on the New York State Department website.
An LLC is an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business.
If you decide to form an LLC, you really should consider consulting a lawyer. Like anything, there are pros and cons. We’re going to discuss the benefits.
Here are five advantages in forming a New York LLC:
1. It’s cheap
Creating an LLC isn’t going to cost you thousands of dollars. In New York, applicants must file the articles of organization either my mail, in-person, fax (yes, fax machines still exist) or online, which is recommended as it’s processed in one day at no additional cost. The state filing fee is $200. It can take between 3 to 4 weeks if you file by mail. Next, you must publish your LLC in a New York newspaper (yes, those still exist as well). Once published, the paper will mail you a proof of publication, which you need to send to the New York Department of State along with a publication affidavit and a $50 filing fee.
2. Your assets are protected
It’s a scary statistic, but at least 75 percent of startups fail. Suppose, worst case scenario, your dream company doesn’t work out, and now you’re buried in business debt, which is a whole other nightmare in itself. Naturally, these initial thoughts may run through your mind: Could I lose my apartment, house, deplete my savings, etc.? No, no and no. Creditors cannot go after your personal assets in order to pay off business debts, so you can let out a sigh of relief. Also, if the business is sued, members, who are the owners, are protected from litigation.
3. You won’t get double taxed
Who in their right mind wants to pay double taxes? It’s a problem many small business owners face. An LLC prevents double taxation as you are separate from your company. Also LLCs do not pay taxes as a business. Under the LLC business structure, the company is taxed like a sole proprietor or a partnership. Whatever profits you make under the company, they are “passed through” and reported on the personal income tax return of the shareholders.
4. Fewer restrictions
Unlike an S corporation, LLCs are more flexible. You are allowed to have as many owners as needed and when it comes to profit sharing, members distribute them whenever. LLCs are also easily modifiable. If your company grows or changes over time, you won’t have to fret about changing the name, directors, etc. Transferring ownership is a breeze as this can happen any time without the company needing to be restructured.
Whether it’s proving your company is legit to potential clients and customers or establishing business credit, credibility goes a long way. Since your business is a separate entity, you can create a new credit profile. Have bad credit? No problem. It’s wiped clean under an LLC and has nothing to do with your personal credit history. You can open up a company credit card and take out loans, so you don’t have to worry about your ridiculous student loan debt that you’re tirelessly trying to pay off while trying to launch your dream startup.
Fisher Stone- Business, Corporate & Startup Law 25 Broadway Fl 9 New York, NY 10004 (212) 256-1877