Legal Question in Business Law in New York

Re: S-Corp or LLC and Tax Question

Just a clarification on taxation of pass-through entities. Neither LLC nor a sub-chapter S corporation is taxed at the entity level. Instead, members or shareholders are taxed on their gains and losses from the company (not necessarily on what they take out in distributions). In an LLC, an Operating Agreement may sometimes allocate taxable gains on the basis other than proportional ownership of LLC interests so in that respect LLC is a little more flexible than a sub-S corp. Sub-S corporations are also subject to a number of other restrictions on who may own stock, transfer of stock, number of shareholders, classes of stock, etc. Otherwise, at least in terms of tax impact, the differences between these two forms of business organization are negligible, whether you pay yourself a salary or not.

One non-tax aspect you should be aware of is the cost of the publication fee for a New York LLC, which in the New York County can add a sizable chunk of expense to organizational fees. On the other hand, maintenance of internal documents for a corporation may over time be more expensive than for a member-managed LLC (which can be managed more informally as a partnership).

Otherwise, what you refer to as "paperwork" is not something that can be quantified based on the choice of an entity. The complexity of founding documents typically has more to do with the number of equity holders and differences in their status, voting powers, capital contributions, etc. and complexity of the capital structure.

The New York corporate income tax is sometimes referred to as a "franchise tax" but is measured by net income and by the value of subsidiary capital allocated to New York. (New York net income is your entire federal net income with adjustments.) Your accountant or tax professional can help you determine the income from your business that's taxable in New York and when it may be payable. One of the first things to ask an accountant to do is to select the tax year for your new entity to minimize the initial tax bite and filing requirements. The New York S corporation minimum franchise tax is $325.

If you need legal representation for the purposes of creating an appropriate business entity, feel free to contact me.

This reply is in the nature of general information, is not legal advice and is not to be relied upon as such.

Re: S-Corp or LLC and Tax Question

Dear sir or madam:

Most of your questions have been adroitly addressed by my colleagues on this site. My firm does offer discounts, deferred payment plans, and accepts credit card payments to accomodate start-up micro-businesses such as yours.

You may contact me at [email protected] to discuss specific fees and discounts.

Thank you,

Anthony S. Park

Re: S-Corp or LLC and Tax Question

THe information given on the previous post answers your question well. We are a small business law firm and do give discounts to start-ups. The only discount we cannot give is the incorporation or LLC set-up, most of which goes to the Fees anyway. Please feel to contact me to get the particulars

Re: S-Corp or LLC and Tax Question

I concur with Bill, but add the following. If you were to be one-man business owner, your tax preparation costs for a LLC might be less than for a Sub "S" corporation, as a one-man LLC need only file a Schedule "C" on his personal return, rather than a full corporate return required even of a one-man corporation. If there will be other owners a LLC files Form 1065 (Partnership Return). Annual tax preparation costs can make using the LLC cheaper in the long run, even if the start-up costs may be higher. Also, if you intend to include your children as owners (sometimes this is a good idea for start-up businesses for estate planning reasons), the LLC gives you more flexibility even if they are minors. I suggest you talk to a tax attorney, like myself, familiar not only with business formations, but also estate planning and other non-business matters, as it may help you decide not only what is good at the inception, but also for the long run. One other concept, as a corporation, you are considered an employee and any wages you pay yourself are subject to all of the tax reporting and payments as if you were a true employee (withholding, social security, regular tax deposits, unemployment, etc.). As a LLC, you pay taxes on the net profits, and would probably have to file estimated taxes rather than regular tax depositing, but the social security cost portion of your "income" is slightly less than what you would pay as a corporate employee. If the business is profitable, this differential can save you several hundred dollars a year.