Choosing the Right Type of New York Corporation
New York is a great state in which to start a business. From the metropolis of the Big Apple to the other cities and regions of the Empire State, there are plenty of opportunities for entrepreneurs. If you’re looking to form a corporation in NY, you’re in the right place — this is where we’ll guide you through every step of what you need to do to start a business in New York State.
Should You Form an LLC, an S Corporation or a C Corporation in New York State?
Most New York entrepreneurs will need to decide between making their business an LLC, an S Corporation or a C Corporation. Each entity is treated differently by the NY Department of State, the law, the IRS and other official bodies.
Here’s a quick overview of each type of business entity.
New York Sole Proprietorships and Partnerships
These are the simplest type of business and will be the “default” type of NY business you have if you do not choose to form a separate business entity. These types of businesses do not provide you with any special protections or benefits and can leave your personal assets vulnerable. We do not recommend them.
New York Limited Liability Companies (LLCs)
LLCs are a great option for smaller NY businesses. LLCs are quick and easy to create, inexpensive to administer, light on regulations and have simple taxation and rules.
New York S Corporations
A NY S Corporation is the middle-ground between a simple LLC and the more complex C Corporation. They have more complex regulations, taxation, compliance and legal requirements than an LLC, but they do provide tax advantages for their owners.
New York C Corporations
If you plan to start a large business or want to trade your shares on the public stock market, a NY C Corporation is your only choice. Be aware that New York C Corporations are subject to many rules and regulations, and they have a substantial amount of administrative overhead. Additionally, the tax rules for a New York C Corporation are not as advantageous as for a NY S Corporation or LLC.
There are some other business entity structures, including nonprofits, Limited Liability Partnerships (LLPs) and B Corporations, but they will not be relevant for the majority of entrepreneurs.
The Advantages of Forming a Corporation in New York State
New York corporations have several benefits for business owners.
- New York corporations provide the strongest form of liability protection possible. They insulate your personal assets and finances from those of your business.
- This means that any liabilities created by your corporation (debts, obligations, damages, bankruptcy or other liabilities) should not impact your personal money, property or assets — they are considered completely separate from a legal perspective.
Choosing a New York S Corp or C Corp Over an LLC
There are several reasons an entrepreneur might choose to form a NY corporation instead of a New York LLC.
When you incorporate a business as a corporation, the New York Department of State will treat your business as a C Corporation by default. A C Corporation will become an S Corporation when all shareholders wish to change the corporation’s status to an S Corporation with the IRS. You can make this choice when you first form your New York corporation or at any time after you incorporate.
There are some similarities and some differences between S Corps and C Corps:
- Similarities: New York S Corporations and C Corporations have similar rules and regulations for liability, governance, management and ownership
- Differences: Key differences are taxation and the ease of buying, selling and transferring stock
Taxation Benefits of a New York S Corporation Over an LLC
A New York S Corporation will often pay less self-employment tax on owner earnings than an LLC. Note that a NY LLC can choose to be treated as an S Corporation for tax purposes by filing Form 2553 with the IRS, which removes this restriction. New York C Corporations do not have this advantage over an LLC.
New York State S Corporations and C Corporations Make It Much Easier to Transfer Stock and Ownership
If you want to easily transfer ownership through buying and selling stock, you will need a NY C Corporation or an S Corporation. C Corporations have much more flexibility than S Corporations, and both are better than LLCs for stock and ownership transfers.
If You Want Maximum Flexibility for Buying and Selling Stock, Choose a New York State C Corporation
C Corporations provide certain benefits when it comes to buying, selling and transferring stock. Here are the rules for both S Corps and C Corps:
- If you want up to 100 shareholders who are U.S. citizens or residents and want to issue one type of stock, you can be an S Corporation or a C Corporation.
- If you want more than 100 shareholders, want to issue more than one type of stock or have international shareholders, you will need a C Corporation.
- If you want to allow the public to buy and sell shares in your company after an Initial Public Offering (IPO), you will need a C Corporation.
The Advantages of S Corporations in New York State
In addition to the general benefits above, NY S Corporations provide several other advantages:
- New York S Corporations can have up to 100 shareholders.
- Running an S Corporation in New York is simpler than running a C Corporation.
- It is easy to transfer ownership in an S Corporation by selling your stock.
- In some cases, part of the income from an S Corporation can be paid as a “distribution” rather than “salary,” so it would not be subject to self-employment tax. Find out how this can save you money using our S Corporation Tax Calculator.
- LLCs can choose to be taxed as S Corporations to take advantage of this.
The Advantages of C Corporations in New York State
In addition to the general benefits above, New York C Corporations provide several other advantages.
- Ownership in a New York C Corporation is very fluid and determined by who owns stock in the business.
- New York C Corporations can list their shares on a public stock exchange. This stock can be bought and sold by anyone.
- New York C Corporations can sell stock to investors inside and outside the U.S.
- New York C Corporations can issue more than one type of stock.
- New York C Corporations can raise more funds by issuing more stock.
Important Points About Forming a Corporation in New York
Here are some areas to be aware of when you’re creating a corporation in New York.
First, NY corporations are formed on the state level by filing Articles of Incorporation with the New York Division of Corporations. Incfile specializes in helping entrepreneurs form New York S Corporations and C Corporations and can collect the information and file this form on your behalf.
Rules and Regulations for New York Corporations
All NY corporations must issue stock to shareholders
All NY corporations must hold Annual General Meetings (AGMs)
All NY corporations must have an elected Board of Directors
All NY corporations must appoint officers
All New York corporations must follow stringent compliance rules and regulations. These include financial reports, bylaws, corporate formalities, taxes, fees, business licenses and the like. You can find links to these below.
Are you ready to start your New York corporation? If so, we can help. We provide comprehensive corporation formation services for both S Corporations and C Corporations in New York.
C Corporation
Detailed Information for Your New York State Corporation
You’ll find plenty more insight and guidance on the other pages of this guide, including:
Forming Your New York Corporation
The six steps you need to take to start a New York S Corporation or C Corporation.
Naming Your New York Corporation
How to search the New York business registry of the NY Secretary of State and find the right name. Includes information on naming rules, fictitious names, reserving a New York corporation name and more.
New York Registered Agents for Your Corporation
How to appoint a New York Registered Agent to your new corporation or change to a different Registered Agent. Includes information on Registered Agent rules and searching for New York Registered Agents.
Fees and Requirements for Your New York Corporation
How to understand the various fees you’ll need to pay and the requirements you’ll need to meet for both federal and New York rules. Includes details of Employee Identification Numbers (EINs), New York and federal business licenses, New York Statement of Information reports and more.
Federal, State, Sales and Other Taxes for Your New York Corporation
How to understand the various taxes you will need to pay to the federal and New York government. Includes details of federal taxes like income and self-employment, and New York taxes like sales tax and income tax.
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