Forming a business is something that should always be done with careful planning and the best possible legal advice. Every business has different needs, of course, and selecting the proper entity type for a business helps ensure the business’ success.
Sole Proprietorships
New York, like other states, recognizes a variety of businesses forms, and regulates each form according to specific rules. The simplest business form is Sole Proprietorship, which gives the sole owner full control and profits, as well as personal liability. Business income is taxed through a personal tax return. The only formation requirement is to file an Assumed Name Certificate with the clerk of the county or counties where the business is conducted. If the business name is that of the sole proprietor, there are no formation requirements.
Partnerships
Partnerships, the next simplest form of business, involve two partners who—at least in a general partnership—share control of and profits from the business, as well as personal liability for debts and liabilities, unless there is an agreement otherwise. In limited partnerships, limited partners, however, have limited liability which is commensurate to their capital contributions only. In partnerships, business income is taxed through the personal tax returns of the partners. Forming a general partnership requires filing a Certificate of Assumed Name with the clerk of the county or counties in which the business is conducted, while limited partnerships are formed by filing a Certificate of Limited Partnership and a Certificate of Publication with the Department of State.
Limited Liability Companies
Limited liability companies involve filing Articles of Organization and a Certificate of Publication with the Department of State. The articles include information like the company name, the legal structure, and how the business is managed. In LLCs, the personal liability of members (owners) is limited, and taxation depends on federal tax classification—an LLC can be taxed like a corporation, a partnership, or a sole proprietorship, depending on the circumstances.
In our next post, we’ll continue looking at business formation in New York, as well as business dissolution, and the importance of working with an experienced attorney when forming and dissolving businesses.