Why you need a Business lawyer NYC for Entity choice and Business Formation
When starting a new business in New York, entrepreneurs are required to make a variety of choices, including the selection of an ideal business structure.
In making an entity choice, there are many details to consider including the following:
- How many co-owners are in the business?
- What are your sources of finance, and up to what extent will you seek external investors?
- What level of structure and formality are you prepared to manage?
- What are the time and money requirements of forming and maintaining your business entity choice?
- What are the tax implications of your preferred ownership structure?
- What will be the extent of your business’s vulnerability to lawsuits – liabilities or obligations?
Do you need to access business cash for personal use?
While entrepreneurs may be tempted to consider the variables by themselves to minimize costs, this is not advisable. Making a wrong and uninformed selection can prove to be very expensive. As such, you should consult with a business lawyer NYC, who will guide you through the entire process based on your business plan and business goals. Furthermore, a New York attorney will explain all the legal jargon involved in entity formation in an easy to understand manner.
The Proper Business Entity for your Business Plan
There are multiple business entity choices available, with varying benefits and tax implications. As a new business, your likely choices will be a sole proprietorship, general partnership, limited liability partnership (LLP), limited liability company (LLC), subchapter C Corporation, or subchapter S Corporation.
Unincorporated Business Entities
These are entity choices that can be formed without requiring you to draft and file formal paperwork. They are advantageous for start-ups because of their low coast, simplicity, and flexibility. However, this formation does not allow the entrepreneurs to benefit from the protective features of formal business entities (have unlimited liability), and requires a lot of involvement by the owner(s).
There are two unincorporated business structures
Sole proprietorship: this structure is thought of as an extension of yourself, and does not require formal procedures or public filings. However, most people opt to operate under a “doing business name”, which requires you to file a Certificate of Assumed Name with your local county clerk’s office.
General partnerships: the partners are free to conduct the business as an extension of themselves, and no legal paperwork is necessary. However, the partners should agree in advance on future contributions, level of involvement, and what to do in the event of liquidation.
Incorporated Business Entities
These are the formations that require filing of specific documentation with either state or local officials. The extra requirements impose multiple challenges to new business owners, though this entity choice provides the owners with valuable protections and benefits.
- Limited partnerships: where partners have limited liability – based on their level of investment. It also has limited input in management decisions, which attracts silent investors.
- Corporations: C corporations are very common, and operate as unique legal entities, separate from owners, taxable, and can be sued. Owners are shareholders, which makes it easy to attract investment from external entities. S corporations offer more benefits, but the formation is not recognized in New York City.
- Limited Liability Company: provides members with limited liability, as well as operational flexibility and tax efficiencies of partnerships.
Whichever entity you pick for your business, your NYC attorney will ensure that it is formed properly and promptly. Your NYC attorney will guide you in the entity formation process, including registration with the Department of State, as well as filing of any necessary tax documents with the Department of Taxation and Finance as well as the IRS. If there are multiple owners, your attorney will assist in drafting and negotiating the necessary agreements. Once your business becomes profitable, your attorney will be available for all of your future business needs.