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Consider a limited liability company for your New York business startup

On behalf of Steven Skolnik

An LLC is a relatively new business entity that can be set up with flexibility and that has unique advantages.

One of the most important initial decisions to make when launching a new business is the choice of business entity type that will best enable the entrepreneur to meet his or her goals. Only in existence in the U.S. since the 1970s and in New York since 1994, the LLC is a hybrid entity that combines certain advantages of both the corporation and the partnership.

A creation of state law, the LLC is a flexible business association of members who, like shareholders in a corporation, are personally limited in their liability for LLC business debts and liabilities. Usually any liability will be capped at the level of a member’s contribution to the LLC, unless the member is found to have engaged in abusive control of the business.

The limited personal exposure of members to business debt and other liabilities may make LLCs attractive vehicles for businesses or ventures that are particularly risky.

The other main advantage of an LLC is that it is taxed at the federal level like a partnership with so-called pass-through or flow-through status, meaning that the income and losses of the LLC are reported on the individual tax returns of the members, with corresponding taxes paid by them personally. This is often seen as advantageous to being taxed like a corporation when taxes on income are paid once by the business at the corporation level and again when distributed to the shareholders as their own personal income.

An LLC may choose to be taxed as a corporation, however. The tax classification chosen by the LLC will also be the classification used by New York state tax authorities and by any applicable city tax agency.

A New York LLC can have any number of members, but must have at least one. Members may be people or other legal entities like corporations, trusts, other LLCs or others. The LLC is legally formed when its organizers prepare articles of organization and file them with the New York Secretary of State, although the articles may say that the actual date of formation is in the future. Initial organizers are not required to become LLC members, although they may.

Management of the LLC’s business is either the responsibility of the members themselves, or of managers hired or approved by the membership. The articles will indicate whether the LLC will be managed by managers. If the articles are silent on the matter, the LLC is automatically member-managed.

An LLC’s members must also adopt an operating agreement for internal use that specifics any variation of the rights and duties of the members from those specified in the New York LLC law.

This introduces the basic features of a New York LLC. Anyone considering the launch of a new business should consult with an experienced business lawyer to understand whether the LLC or another kind of legal entity like a corporation or partnership might be the preferred choice, considering the short- and long-term goals of the business.

From offices in Manhattan, throughout New York, in New Jersey and Colorado, the attorneys of Cox Padmore Skolnik & Shakarchy LLP represent clients throughout the process of establishing new businesses and in many other commercial matters.