Forming a Limited Liability Company (LLC) in New York can offer many benefits — from the limited liability protection it provides to the ease of formation, and flexible management structure. If you are considering an LLC for your business, you might have many questions. Here are four important questions to discuss with an experienced New York business attorney:
1. How is an LLC Treated for Tax Purposes?
LLCs have considerable flexibility regarding state and federal taxes. A single-member LLC has the option to be taxed as a sole proprietorship, an S corporation, or a C corporation. Similarly, a multiple member LLC may elect to be taxed as a partnership, an S corporation, or a C corporation. It’s best to consult with a knowledgeable business attorney to ensure you make the choice that meets your goals.
Keep in mind that an LLC is treated as a pass-through entity, unless it elects to be taxed as a corporation. This means that instead of being taxed itself, the owners are taxed directly, based on their share of the profits.
2. What is the Publication Requirement?
One of the most common questions that arises in connection with LLCs concerns the publication requirement. Under the New York State Limited Liability Company Law, an LLC must publish notice of its formation in two newspapers within 120 days after the Articles of Organization go into effect. The notice must appear in both publications for six consecutive weeks — one periodical should be circulated daily, while the other must be a weekly publication. Each publication must be in the same county as the principal place of business of the LLC.
3. What Can I Include in an Operating Agreement?
Having a well-drafted operating agreement in place is critical for an LLC. Without one, New York State law will apply as a default rules in certain situations. The default rules may not result in an intended or desirable outcome. An operating agreement can be crafted to satisfy your business and financial goals. An operating agreement contains necessary information about bank accounts, records, the registered agent, tax status, and the term of the company’s existence. An operating agreement can also specify the events that result in dissolution and the procedure for winding up. The Agreement can also define what will happen upon admitting more members.
4. Does a Non-Managing Member Owe a Fiduciary Duty?
Business owners must carefully consider how to protect their bottom line — and you may wonder whether another LLC member can compete against the interests of the company. Unless there is language in the operating agreement that specifies otherwise, New York law does not impose a fiduciary duty on non-managing LLC members. However, managing members do owe fiduciary duties to the LLC. Those members that also act as managers must act in the best interests of the LLC and other members, rather than their own.
Whether an LLC member can compete against the interests of the company depends on their role in the enterprise. Consult a knowledgeable New York business attoreny to best to address these matters in an operating agreement to avoid the potential for future litigation and ensure your company is protected.
Contact an Experienced New York Business Attorney
If you are starting a company, choosing the structure of an LLC can come with many advantages, depending on your goals. A knowledgeable business law attorney can offer strategic insight and guide you through the formation process. The New York business attorneys at Brinen & Associates are committed to providing reliable representation to business owners for a wide array of business matters. Call (212) 330-8151 or send us a message to learn more about how we can help.