New York, popularly known as The Empire State, offers a bunch of benefits for business owners, especially the state capital Albany has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in New York, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in New York. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In New York, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.
In this article, you will learn about how to start an s-corporation in New York. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in New York.
What is an S-Corp in New York?
An S corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.
If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in New York. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.
S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.
–LLCBuddy Editorial Team
Limitation and Requirements of S-Corp in New York
As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-
- Be a domestic corporation.
- Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
- Have just one type of stock.
- Have a maximum of 100 shareholders or members.
- Have only permitted individuals, certain trusts, and estates as stockholders or members.
If you are qualified for the limitations and requirements, you can apply for an S-Corp in New York.
How to Start an S-Corporation in New York?
To create S-Corp in New York, you must follow the below guidelines that include forming a business name, hiring a Resident Agent, filing your Articles of Organization, creating an operating agreement in New York, requesting an EIN, filing a form 2553.
Step 1: Register a Business Name in New York
After you have decided on the idea to start an S-Corp in New York, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.
If you want to set up an LLC, there is a complete guide on New York LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your S-corp.
- Avoid profanities
- The name should be available, and no other entity should have the same name in New York.
- Limit of restricted words that need a license in New York, for example, doctors, attorneys, etc.
- Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)
Step 2: Hiring the New York Resident Agent
The next step in starting an S-corp in New York is hiring a New York Resident Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence in New York. Forming an LLC and an S-corp will be easier if you have Resident Agent in New York.
Step 3: File Your New York Articles of Organization
The Articles of Organization is an important document to start your limited liability company (LLC). New York Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Articles of Organization” to be filed, you need to pay a filing fee to the state. In New York, the filing fee is $200 (by mail and online).
In California, along with the Articles of Organization, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.
Step 4: Creating an Operating Agreement in New York
After you have filed your Articles of Organization in New York, the next step is to create an LLC operating agreement in New York. The New York LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-
- Article I: Organization
- Article II: Management and Voting
- Article III: Capital Contributions
- Article IV: Distributions
- Article V: Membership Changes
- Article VI: Dissolution
After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.
Step 5: Request for EIN in New York
After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.
The application of an EIN in New York can be through the following:
- Apply Online- You can apply for EIN online, the most desirable and fastest method for users.
- Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
- Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
- Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.
If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.
Step 6: File Form 2553 for Your S-Corp Business in New York
Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.
If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In New York, you can send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Kansas City, MO 64999 Fax: 855-887-7734.
Advantages of Starting an S-Corporation in New York
Filing an S-Corp in New York has numerous benefits and advantages.
- Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.
- Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in New York apply for an S-Corp LLC.
- Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.
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Why New York S Corporation is So Important
One of the primary advantages of forming an S Corporation in New York is the tax benefits it offers to business owners. Unlike a traditional C Corporation, where the company itself is taxed on its income, an S Corporation is considered a “pass-through” entity for tax purposes. This means that the profits and losses of the business are passed through to the shareholders, who report them on their individual tax returns. This can result in significant tax savings for owners, as they can avoid double taxation on their income.
Another important benefit of choosing an S Corporation structure in New York is the protection it offers to shareholders. By forming an S Corporation, owners can separate their personal assets from those of the business, reducing their personal liability in the event of lawsuits or other legal issues. This limited liability protection can provide peace of mind to business owners, allowing them to focus on growing their company without worrying about personal financial risks.
Furthermore, forming an S Corporation in New York can also enhance the credibility and professionalism of your business. By operating as an S Corporation, you demonstrate to customers, vendors, and potential investors that you are committed to running a legitimate and reputable business. This can help attract new clients and partners, as well as build trust with existing stakeholders.
Additionally, choosing an S Corporation structure in New York can make it easier to attract and retain top talent. Many employees prefer working for a corporation with the added benefits and protections that an S Corporation offers, such as access to company-sponsored retirement plans and potential stock options. By offering these perks, you can attract a higher caliber of employees and incentivize them to stay with your company long-term.
Lastly, forming an S Corporation in New York can also simplify the process of raising capital for your business. With an S Corporation structure, you have more flexibility in issuing stock and bringing in new investors. This can make it easier to access funding for expansion, acquisitions, or other business opportunities.
In conclusion, the benefits of forming an S Corporation in New York are numerous and can have a significant impact on the success and growth of your business. From tax advantages to limited liability protection to enhanced credibility, choosing this structure can provide a solid foundation for your company to thrive and prosper in the dynamic New York business environment. So, if you’re considering starting a business in the state, be sure to explore the advantages of forming an S Corporation and see how it can benefit your company in the long run.
Conclusion
In conclusion, starting an S-corp in New York is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Certificate of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in New York.