LLC in New York: What are the advantages and disadvantages?
Are you planning to form an LLC in New York but aren’t sure whether it’s the best decision?
If so, then this article is for you.
Granted, New York is one of the best states for starting a business, especially with a city like the New York City that boasts a strong business and cultural environment.
Besides, New York is a global hub with a ton of amenities such as:
- Easy access to capital.
- Connection to the public and private sectors.
- Valued social networking.
- Large consumer base with per capita disposable income of more than $63,000.
But here’s the thing—before you set up a New York LLC, you need to understand the benefits and limitations you’re going to face.
That’s why we have prepared this article, to discuss the advantages and disadvantages of starting a Limited Liability Company in New York to help you understand what to expect.
Let’s get started.
Advantages of running an LLC in New York
1. Limited liability protection
Typically, the main benefit of running an LLC in New York is that your personal assets are protected in the event you cannot pay debts or you get sued.
This means that should your business face a lawsuit, build up debts, or incurs a loss, you won’t be personally liable for any financial liabilities.
Thus, no one can claim your financial assets, whether debt collectors or investors of your company.
2. Tax advantages
New York is known to have higher business taxes than most competing states.
Here is a breakdown of New York City’s tax rates:
Image via Tax Foundation
Luckily, creating an LLC in New York gives you the choice to decide how your company should be taxed.
For instance, if you’re running a single-member LLC, you can choose to be taxed as a Sole Proprietorship.
If you start an LLC with multiple members, you can choose to get taxed as a Partnership.
Besides, members of an LLC pay taxes from their share of profits but the business is not taxed directly.
3. Simplicity
It’s extremely easy to set up your LLC in New York. Unlike other types of business entities, forming an LLC requires little paperwork or expense. In fact, you’re exempted from formal officer roles, you’re also not required to hold meetings or create bylaws.
Check out this Incfile review to understand how you can apply for your LLC online and have it up and running soon in New York.
4. Ownership and management flexibility
An LLC is structured in such a way that members can decide how profits are shared. With a General Partnership, partners are required to share company profits equally
However, an LLC follows the terms outlined in the operating agreement when it comes to sharing profits between members.
So, irrespective of the members’ stake, they could earn more or less from the LLC. This is a great advantage of starting an LLC in New York as it gives you a lot of flexibility.
5. Fewer operating rules and restrictions
Operating an LLC in New York comes with more flexibility in terms of operation and annual reporting requirements.
Even though you need to file Articles of Organization to be acknowledged by the state of New York, you’re not required to hold meetings with members or record minutes of the meetings.
You will be required to craft an LLC Operating Agreement that shows member responsibilities together with a written document that can be used in court in case a member sues the company.
6. The LLC doesn’t affect your credit score
Your credit score helps you get access to financial assistance and credit. If you have a bad credit score, it can be difficult for you to get access to financial products in New York.
The best part about LLCs is that they don’t affect your personal credit score. In fact, you make LLC transactions from a separate business bank account, so there’s no question about that influencing your own credit history.
7. Forming an LLC in New York increases your credibility
Credibility is the key to business success. However, gaining it isn’t an easy task.
A Limited Liability Company has a more formal business structure than a Partnership or Sole Proprietorship, thus bringing added credibility.
This level of credibility can help you attract customers and partners in New York.
Disadvantages of running an LLC in New York
Granted, forming an LLC in New York is advantageous in many ways. However, there are a few limitations that might make you reconsider your decision.
1. Complexity
Compared to a Corporation, starting a Limited Liability Company in New York is simple. However, it is more complicated compared to forming a Sole Proprietorship.
You’ve to file your Articles of Organization and create an Operating Agreement.
2. Registration fee
When filing your Articles of Organization with the state of New York, you will be required to pay a compulsory $200 fee.
After there, you will be required to submit a biennial report yearly to run your LLC in New York, which costs $9.
This makes it costlier than Sole orships and Proprietorship or Partnership.
3. You will require a registered agent
Every LLC in New York is required to have a Registered Agent who will be available to accept legal notices and other communications from the government.
While it is a benefit, you’re not required to have an LLC Registered Agent when forming a Partnership or Sole Proprietorship. This can add to your costs of running the LLC.
Conclusion
Forming an LLC in New York is a huge business decision. Thus, you need to know exactly what to expect in terms of the benefits and limitations to make an informed decision.
If you had been postponing creating a Limited Liability Company due to fear of the unseen, we hope this article has opened up your eyes.
Get started now.
Author bio
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.
