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The Ultimate Guide to Starting a Business in New York

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New York State’s economic options are boundless, with a market of 8.5 million potential clients. New York is a terrific environment to start a business and begin your entrepreneurial adventure, with tax-based incentives, varied tools, and training for business owners.

If you’ve been considering starting a business in New York, you’ve come to the correct location. This article will lead you through the various things new business owners should know and handle to get their new ventures up and running.

1. Make minor adjustments to Your Business Concept

Entrepreneurs should conduct due diligence before investing time and money in launching a business in New York to verify that their business plan has the potential to flourish. 

A feasibility study can assist you in making an informed “go” or “no go” decision. Consider running your proposal by trustworthy advisors such as SCORE mentors, business consultants, accountants, and attorneys who can assist you in identifying red flags.

2. Develop a Business Plan

With so many moving factors in beginning a business in New York, drafting a business plan will help you focus on your business goals and tactics for attaining them. 

A business plan is a document that explains and defines your objectives as well as the steps you will take to achieve them. Some company plans should be lengthy and detailed, while others should be brief and to the point. 

The type of business you are launching will determine the degree of difficulty. A comprehensive business plan is required if you intend to seek funding from outside sources.

A typical business plan usually includes the following sections: 

  • Executive Summary 
  • Company Overview 
  • Product and Service Descriptions 
  • Market Analysis 
  • Competitive Analysis 
  • Sales and Marketing Plan 
  • Management and Operations Description

Online, you can find business plan templates to use as a starting point for building your own.

3. Give Your Company a Name

Aside from selecting a business name that works well for marketing and branding, ensuring the desired name is available in New York is critical. By forming an LLC or corporation in New York, you prevent another business with a similar name from using it. 

Registering for a state trademark might provide additional security. A firm must follow entity-specific name rules when founding a legal business entity (for example, a Limited Liability firm must use an approved form of “LLC” behind it).

Sole proprietorships and general partnerships are exempt from registering their businesses. They must, however, file a Registration for Application of Trade Name if they use a name that does not include the legal names of the firm owners. 

Furthermore, while forming a legal corporate entity, a corporation must follow entity-specific name rules (for example, a Limited Liability corporation must use an approved form of “LLC” behind it).

Registering a company in a state only protects the company’s name inside that state. Entrepreneurs who want to expand their business to other states or make sure their company’s names are protected in all 50 states can search for a trademark to see if the name they want is available in all 50 states of the United States.

Furthermore, if your trademark application is approved, it prevents similar businesses from using the name in other states.

4. Select a Type of Business Entity

Nonprofit Corporations, Limited Liability Companies (LLC), Limited Partnerships, General Partnerships, and Sole Proprietorships are all accessible in New York.

Which entity type is ideal for your company? Several aspects must be considered, including the demand for personal responsibility protection, tax implications, ownership and management flexibility, and company compliance requirements.

Let’s take a look at a couple of the companies and go over the highlights of each.

Sole Proprietorships

  • In a Sole Proprietorship, the business and its owner are regarded as the same entity, which means the company’s assets and liabilities are the same as the owner’s. While this creates operational and tax efficiencies, it can also be a drawback. For example, if the company is sued or the corporation cannot pay its payments, the owner may lose personal money and property.
  • Another potential downside of a sole proprietorship is that if the owner dies, the company can only be given to the owner’s heirs to be continued, reformed, or dissolved. 

Because sole proprietorships have limited funding possibilities, investors often hesitate to finance enterprises that are not correctly established as statutory entities. 

Individual federal tax returns for sole proprietors include business profits and losses. The owner does not get a company paycheck that includes withholdings for federal income tax and payroll taxes. 

As a result, they must file quarterly anticipated federal income tax payments, which include self-employment taxes. The self-employment tax rate is 15.3%, with 12.4% going toward social security (old-age, survivors, and disability insurance) and 2.9% going into Medicare (hospital insurance). 

The self-employment tax burden can be relatively high sometimes, prompting a lone owner to consider business structures that can reduce those costs.

  • A partnership is a type of business not registered and co-owned by two or more partners.
  • A partnership is a straightforward, low-cost option for establishing a multi-owner firm. No state, federal, or local paperwork is required for a partnership to register formally. Partners can simply make decisions without the meeting formalities that corporations require.
  • In addition to the risk of personal liability for business owners, other potential disadvantages of owning a general partnership include limited funding options, a high self-employment tax burden, and the end of the business if a partner leaves (unless the agreement of partnership states otherwise).

LLCs (Limited Liability Corporations)

  • A Limited Liability Company (LLC) separates the owners (members) from the firm legally and financially. 
  • An LLC structure provides peace of mind to business owners who don’t want to risk having their personal assets, such as retirement savings and bank accounts, used to settle their company’s debts or legal problems. 
  • However, from a tax standpoint, the LLC and its members are treated as a single tax-paying entity. As a result, the LLC’s revenues and losses are recorded on the owners’ federal personal tax returns.
  • Single-member LLCs (also known as disregarded entities) are treated as sole proprietorships, whereas multi-member LLCs are taxed as partnerships.
  • One of the most appealing aspects of the LLC structure is its federal income tax flexibility, which allows an LLC (assuming it fulfills all IRS qualifying requirements) to choose whether to be taxed as a C Corporation or an S Corporation.
  • Every two years, LLCs must file a Biennial Statement with the New York Department of State. A biennial report keeps the state informed about a company’s critical information.
  • Series LLCs are variations on the LLC structure that provide each series with its own membership interests, assets, and activities, which are not permitted in New York. Each series in a Series LLC has its own name and works autonomously, with its own bank account and financial records.

LPs (Limited Partnerships)

  • A limited and general partner are both involved in a limited partnership. The general partners are The owners who run the business. 

Because there is no barrier between the individuals and the businesses, they suffer the same personal responsibility concerns as a General Partnership. 

The limited partners do not manage the corporation. Instead, their function is to provide funding for the company. As a result, their personal liability is limited to the amount invested in the company.

  • One downside of an LP is that it can be challenging to manage from an accounting perspective, and limited partners have no voice in how the company operates after they have invested. Furthermore, the formation and operation of an LP might be costly.

C Corporations

  • C Corporations in New York provide the highest level of personal liability protection for their owners (shareholders).
  • The C Corporation is treated as a separate legal and tax entity. 
  • C Corporations need to appoint a board of directors to monitor the company’s affairs and ensure the business is handled in the best interests of its shareholders and stakeholders.
  • C Corporations also have greater financing possibilities. They can, for example, sell stock to raise funds, and investors are more interested and confident in backing enterprises registered as Profit Corporations.
  • The fact that C Corporations are subject to double taxes which frequently discourages businesses from choosing this entity type. This term refers to how profits delivered to shareholders as dividends are taxed twice: once to the corporation at the corporate tax rate, then again to the individual shareholder at the corresponding individual tax rate.
  • Corporations that fulfill the IRS’s qualifying standards can choose the S Corporation tax classification to avoid double taxation.
  • Other downsides of the C Corporation structure include more significant formation expenses and more comprehensive ongoing compliance obligations (such as producing annual reports, board of directors meetings, holding shareholder and, and other procedures).

S Corporations

  • As stated in the LLC and C Corporation overview, an S Corporation is a tax election choice, not an entity type.
  • Qualified LLCs or C Corporations can elect to be treated as S Corporations by submitting IRS Form 2553
  • If a C Corporation elects an S Corporation, it receives pass-through tax classification and avoids double taxation. 
  • If an LLC elects an S Corporation, it preserves its core legal structure, so compliance needs remain modest. It also keeps pass-through taxation, but unlike the default LLC taxation, not all firm profits are subject to self-employment taxes.
  • Only the earnings and salary of an S Corporation’s owners are liable to Medicare and Social Security taxes; owner income from company profit distributions is not.

5. Designate a New York Registered Agent

In New York, it is a must for businesses to appoint a state Registered Agent. The Registered Agent needs to have a physical address in New York and be available to take service of process (formal government documents, legal papers, etc.) for the company from Monday to Friday, 9am to 5pm.

Any registered business, including LLC, C Corporation, or other entity, will bear severe consequences if it fails to maintain a Registered Agent.

Countick provides Registered Agent services in New York and throughout the United States, saving businesses wishing to expand into other states the time and expense of finding a Registered Agent in each state.

6. Register Your New Company

Here is a list of some of the first documents needed to start a business in New York:

Sole Proprietorships:

In New York, business owners who operate as Sole Proprietorships are not required to file organizational documents. If the business name is not the owner’s first and last name, a trade name (also known as a Doing Business As, a DBA, or a Fictitious Name) file is required.

In addition, sole proprietorships, like fully registered firms, must get the required licenses and permits to operate legally in state and municipal jurisdictions.

General Partnerships

Partnerships don’t need to register their enterprises formally. The state does not require registration. The Partnership must register a DBA if it uses a business name that does not match the legal names of the business partners.

 Partners might also consider creating a written partnership agreement to document all business partners’ responsibilities and rights, even if state law does not require it. Partnerships must get all relevant licenses and permits to move legally in the state, county, and local communities.

You May Also Like to Read: The Most Comprehensive Guide To General Partnerships

Limited Partnerships

The general partner(s) can form a limited partnership by drafting a partnership agreement, submitting a Certificate of Limited Partnership to the New York Department of State, and paying a filing fee of $200.

 Related: A Simple Guide To Limited Partnerships

Limited Liability Companies (LLCs)

Articles of Organization must be filed in New York to incorporate an LLC, and the LLC must pay a filing fee of $200. In order to file formation documents online, you need to go to the Department of State Online Filing System

Members of an LLC should consider drafting an operating agreement. Although the state does not require it, it is crucial in outlining how the LLC should be administered and describing the responsibilities of the LLC’s members (and management).

C Corporations To incorporate a business in New York, the state needs them to file and pay a filing fee of $125. Profitable corporations must appoint a Board of Directors, develop bylaws, and hold regular board meetings in New York. 

Furthermore, every New York business organization must specify the number of shares it will be authorized to issue in its certificate of incorporation.

7. Get an Employer Identification Number (EIN)

Any company that hires employees must get a Federal Tax ID Number from the IRS, often called an Employer Identification Number (EIN). Before creating a business bank account, a bank frequently demands that a corporation have an EIN. Other government documents may also request a business’s EIN.

The IRS provides EINs for free, and Countick can assist businesses by completing and submitting the application (Form SS-4) on their behalf. It is worth noting that the IRS has announced that it is revamping the EIN application process in order to improve security.

Read More: What Exactly Is An Employer Identification Number (EIN)

8. Establish a Business Bank Account

Opening a business bank account is essential to your entrepreneurial journey. Maintaining a business entity’s financial paperwork and records distinct from those of the business owners is critical for correct bookkeeping and legal reasons. 

Setting up bank accounts, credit card accounts, and other accounts solely for work usage aids in separation. Suppose the proprietors of an LLC, LP, C Corporation, or other registered firm mix personal and business spending and revenue. Their personal liability protection is jeopardized in that case, and they may face further penalties.

9. Understand Business Taxes and Fees

If your company is formed in New York State, conducts business there, or engages in certain other activities, you may be required to file an annual New York State corporation tax return in order to pay a franchise tax under the New York State Tax Law.

In New York, the following taxes and fees may be required:

Biennial Report Cost

 This cost is calculated based on gross revenue earned in New York.

State Sales Tax

The current sales tax rate in New York is 4%. Each county levies an additional sales tax ranging from 3% to 4.5%. The Metropolitan Commuter Transportation District (MCTD) requires counties to collect a 0.375% sales tax.

Related: The Guide to Tax Returns for Seed Stage Companies

The Department of Taxation and Finance oversees state payroll taxes in New York. Employer taxes include the following:

  • Progressive Income Taxes: 

New York has a progressive income tax range of 4% to 8.82%, depending on an employee’s salary level.

  • New York City Taxes

 There is an additional tax if employees live in New York City, ranging from 2.907% to 3.876%.

  • Supplemental Wages

 Additional compensation, such as bonuses and commissions, is taxed at a rate of 9.62%.

  • Yonkers Supplemental Taxes

 Yonkers residents are subject to an additional fee of 1.61135% on supplemental wages.

  • New York City Supplemental Taxes

 Employees in New York City must pay an additional 4.25% surcharge on supplemental wages.

  • Unemployment Insurance (UI)

 Most New York employers must pay unemployment insurance taxes through the New York State Department of Labor (NYSDOL). The rate cannot exceed 3.4% and is set annually based on the Unemployment Insurance Trust Fund amount.                              

  • Employer Compensation Expense Tax (ECET)

 New York companies can pay an Employer Compensation Expense Tax (ECET) to offset employees’ federal taxes.

  • Re-employment Services Fund (RSF)

All New York State employers must contribute to the re-employment services fund. This fund gives assistance and training to the unemployed in order to help them return to employment. The RSF is a flat 0.075% tax on the total quarterly payroll.

  • Paid Family Medical Leave (PFML) and State Disability Insurance (SDI):

Employees/employers in New York are also required to contribute to Paid Family Medical Leave (PFML) and State Disability Insurance. Employers might divide the contribution or make employees face the entire burden.

The New York Department of Taxation and Finance can help business owners determine what taxes they need to pay and how to pay them. An accountant or tax expert can also assist you in determining your tax responsibilities.

10. Investigate Other Business Essentials

Other things to think about while beginning a business in New York are:

  • Business Licenses and Permits

Depending on the type of industry, businesses may require specialized licenses, permits, or other federal, state, or municipal government authorizations. 

The New York Business Express website has compiled a thorough business permit and licensing guide. It’s a valuable resource for explaining the requirements that may apply to your company.

Countick may also assist you in identifying the business licenses and permits required in the area where you intend to establish your firm.

  • Zoning

Physically located businesses in New York State must follow the zoning restrictions of the local municipality.

  • Insurance

 Research the forms of business insurance you want or are required for your industry to safeguard your firm in the event of unforeseen and terrible occurrences.

  • Starting Capital

 Will you need to apply for loans, find investors, or raise more funds to get your business off the ground?

  • Payroll Taxes and requirements

 If your company intends to hire staff, there are numerous human resource-related responsibilities and requirements to adhere to. Learn how to register for payroll taxes in New York to help you get started with your new employees.

Maintain Compliance

To be in good standing and operate legally in New York, businesses must keep up with their biennial reports and tax filing requirements. If you are unsure about your responsibility to maintain corporate compliance, seek advice from an attorney and a tax professional.

Other Resources to Have on Hand

When it comes to beginning and running a business, you don’t have to go it alone. Make a list of resources that can assist you with knowledge and insight.

Here Are a Few Examples

Finally, after consulting with your legal and accounting experts to identify what you need to accomplish, Countick is here to assist you with your business registration and compliance files. We will save you time and money while guaranteeing that your filings are completed correctly and on schedule.

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