Doing business in New York can be performed through a number of legal structures ranging from sole proprietorships to corporations. This advisory provides basic information on the different legal forms and the services that can be offered by Murray LLP for your business.
DIFFERENT TYPES OF LEGAL FORM
Sole proprietorship is the simplest form of operating a business. It is a one person owned business and the person operating the business is personally liable for any debts incurred, even if a trade name is used. Any profit or losses from the business activities are reported on the individual's personal tax return. While there will be no entity formation costs, there are federal and state requirements for tax and other matters depending on its activities (e.g. a license from the state or worker's compensation).
Partnerships in New York can either be performed at will (arising by law) if two or more persons are conducting a business together or by two or more persons entering into partnership agreement. It is always recommended that a written partnership agreement is entered amongst the partners. The partnership agreement regulates the internal affairs of the partnership, including allocating the respective profits and losses to partners. The partners in the partnership will normally be liable for any debts incurred by the partnership. Murray LLP will prepare the partnership agreement for the constitution of your partnership.
Establishing a corporation provides the owners with the business with protection in that, subject to certain exceptions, the liability of the corporation is limited. Stockholders liability will ordinarily be limited to their contribution to the corporation. The tax affairs of the corporation are normally separate from the owners (see reference to "S Corporations" for the tax treatment of those corporations). Murray LLP can form the corporation and prepare all of the constituent documents, including any stockholder agreements.
An "S" Corporation is identical to other corporations in many respects, except for the fact that it has made an election for Federal tax purposes to pass through its income and losses to its stockholders. It is therefore taxed on a similar basis to a partnership. Stockholders will report their own proportionate interests in such losses or gains on their own Federal tax returns. In order to gain "S" Corporation treatment the Corporation must meet certain requirements and Murray LLP can advise on those requirements and if it will be suitable for your purposes. Non-U.S. persons cannot participate in an S Corporation.
A limited partnership can be set up in New York, where the persons or entities investing in the partnership are deemed limited partners. As limited partners their liability for the debts of the limited partnership will be limited to their investment. Limited partners role in the limited partnership is purely passive, and they must not participate in the management of the limited partnership otherwise they will lose their protection as a limited partner and become generally liable for debts. Each limited partnership must have a general partner, which is ordinarily a corporation responsible for managing the affairs of the limited partnership. The liability of the general partner for partnership debts is not limited. Limited Partnerships are often used for investment purposes, such as hedge funds or real estate investing.
LIMITED LIABILITY CORPORATION (LLC)
A Limited Liability Corporation (normally known as a LLC) is often described as a hybrid between a corporation and partnership, as the limitation on liability for investors is similar to a corporation, but it is managed in a similar manner to a partnership. Each of the participants in the LLC is known as a managing member. The liability of the managing members in the LLC is limited, similar to stockholders in a corporation. The managing members participate in the management of the LLC in the same way that partners do in a partnership, there being no board of directors. The LLC for tax purposes is ordinarily treated as a partnership.
NEW YORK OR DELAWARE?
Delaware is the state of choice when deciding where to establish your legal entity. There are a number of reasons for this including, flexibility in organizing the internal affairs of the entity and low formation and ongoing costs. Note, however, that if you are doing business in New York or another state and your entity is established in Delaware you will be required to qualify your entity to do business in New York or such other state. The formalities for this in New York are quite straightforward although there are costs involved. In addition, the entity will of course be subject to the local laws and taxes that apply in New York or other states applicable to businesses operating there. We will advise you of the advantages and disadvantages of where to form your entity so that you can make an informed choice. We can also provide information on other jurisdictions.
WHAT CAN MURRAY LLP DO FOR YOUR BUSINESS?
- Advise you as to the most suitable and effective legal entity form for your business;
- Guide you on federal and state registrations;
- Prepare, review and negotiate your business terms to give you the best advantage;
- Review and comment on contracts with third parties you are wishing to engage;
- Prepare and review investment, participation and stockholder agreements.
Please contact Anthony Murray of Murray LLP, Attorneys New
York for further information:
Tel: + 1 (917) 678 9046
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.