Whether you think you have the next big invention, you’re starting out in private practice or consulting, or you have a great business idea ready for prime time, setting up a corporation has a broad range of benefits. A corporation is a separate legal entity from its founders, owners and/or employees, which has many of the same legal rights as a person (but no, they can’t vote) and shares many of the same responsibilities, including paying taxes. Besides the obvious tax advantage inherent to becoming a corporate entity, setting up a corporation allows you to share ownership in a business venture, and often protects your personal assets from corporate losses, if things don’t quite go to plan.
In New York State, there are three main types of corporations: S corporations (the largest, which can be, but aren’t necessarily, publicly traded), limited liability corporations (LLCs, which are the preferred choice for small businesses), and partnerships (a common structure for law firms and medical practices, where the individual members maintain their own accounts). LLCs are usually the easiest corporations to set up, requiring only a filing fee and a modest amount of paperwork.
In order to start your own corporation, the essential step is filing a Certificate of Incorporation with New York’s Department of State. But while this can be done with one simple form, remember that setting up a corporation is a major decision — it is strongly suggest to consult with a lawyer, a financial advisor, or both before you file the paperwork. But to give you an idea of the process and what is involved, here are some of the choices you will need to make before you file
Choosing a name for your corporation: Once you have filed this DBA (doing business as) name, it is somewhat difficult to change. Make sure you pick something that is memorable, relevant to what your business does, and most importantly of all, unique. Every corporation in New York must have a different name, and you will be required to announce your business’ name in the local Newspaper of Record.
Stating your corporation’s purpose: Normally a mere formality, in which you can keep the state’s standard language. However, if your corporation intends to practice a profession (medicine, law or engineering), or otherwise be involved in a field with state licensing requirements, such as education or child care, this is where you need to make that declaration, and there may be subsequent steps involved with your profession’s board of licensure.
County location: This one is simple – list the county where your business will be based, which is important for tax purposes, as well as possible tax credits and other development funds from county Industrial Development Agencies.
Stock structure: This is where you decide how shares of your company will be apportioned, in other words, who in your business will own how much of it. Some shares can be designated for future distribution, but since you’re filing for an LLC and the shares can’t trade on the stock market, this decision carries exceptional weight for smaller businesses. Think especially carefully about who can get a controlling stake, and combine for over 51% of the total voting shares! Accounting for this now can prevent an expensive surprise later when employees or investors try to take over.
Designation for Service of Process: Usually, but not always, your lawyer, the designatee for service is who will receive the paperwork in the event your corporation is sued.
As long as your articles of incorporation meet these five requirements, and you pay the $125 filing fee, your application should be approved. Setting up a corporation is the easy part though — now that you have a small business of your own, you may need small business financial advice to avoid the pitfalls many inexperienced business owners face.