Legal Memorandum CO02


FORMATION OF BUSINESS ENTITIES

I. INTRODUCTION

The most frequently used business entities are the business corporation and the limited liability company. The formation of these entities governed by the statutory framework of the Business Corporation Law (hereinafter “BCL”) and the Limited Liability Law (hereinafter “LLC”), respectively. Although the distinctions between these two entities are varied, this article does not attempt to address those issues. The primary consideration in choosing whether to establish a business corporation or an LLC is the tax implications under the federal tax code. Therefore, it is advised that when deciding which entity to establish, the business situation be analyzed with a mindful eye on the tax implications.

II. REQUIREMENTS FOR BUSINESS CORPORATIONS

Pursuant to Section 401 of the New York BCL, one or more natural persons who are at least 18 years old may act as incorporators of a corporation to be formed under Article 4 of the BCL.

Section 402 provides the contents required in a certificate of incorporation.

  1. A certificate, entitled “Certificate of incorporation of ..... (name of corporation) under section 402 of the Business Corporation Law” shall be signed by each incorporator, with his name and address stated beneath or opposite his signature, and delivered to the department of state. It shall set forth:

    1. the name of the corporation;

    2. the purposes for which it formed; an all purpose clause is permissible provided the corporation does not need regulatory consent.

    3. the county within the state, in which the office of the corporation is to be located;

    4. the aggregate number of shares which the corporation shall have the authority to issue;

    5. if the shares are to be divided into classes, the designation of each class and a statement of the relative rights, preferences and limitations of the shares of each class;

    6. if the shares of any preferred class are to be issued in series, the designation of each series and a statement of the variations in the relative rights, preferences and limitations as between series insofar as the same are to be fixed in the certificate of incorporation;

    7. a designation of the secretary of state as agent of the corporation upon whom process against it may be served and the post office address within or without this state to which the secretary of state shall mail a copy of any process against it served upon him;

    8. if the corporation is to have a registered agent, his name and address, within this state; and,

    9. the duration of the corporation if other than perpetual.

  2. In addition, the certificate of incorporation may set forth a provision(s) limiting personal liability of directors.

The corporation’s existence begins upon filing of the certificate of incorporation with the Department of State or on a specific date, not to exceed ninety dates from the date of filing, set forth in the certificate of incorporation. (See BCL Section 403 at the NYS Senate site.)

III. REQUIREMENTS FOR LIMITED LIABILITY COMPANIES

A limited liability company may be formed by the filing of articles of organization pursuant to Article 2 of the LLC. The articles of organization must be signed by an organizer or organizers of the limited liability company.

Pursuant to Section 203 of the Limited Liability Company Law the articles of organization shall set forth:

  1. the name of the limited liability company;

  2. the county within this state in which the office of the limited liability company is to be located;

  3. if the limited liability company is to have a specific date of dissolution, the latest date on which the limited liability company is to dissolve;

  4. a designation of the secretary of state as agent of the limited liability company upon whom process against it may be served and the post office address within or without this state to which the secretary of state shall mail a copy of any process served upon him;

  5. if the limited liability company is to have a registered agent, his name and address, within this state;

  6. if all or specified members are to be liable in their capacity as members for all or specified debts, obligations or liabilities, a statement to such effect; and,

  7. any other provisions, not inconsistent with law, that the members elect to include in the articles or organization.

IV. CONCLUSION

Although there are several types of business entities contemplated under New York State law, the two most commons are the business corporation and the limited liability company. A new business should consult with an accountant or an attorney to determine which entity is best suited for the respective business, particularly in light of the tax consequences associated with each entity.

The staff of the Division of Corporations is dedicated to providing quality services. Although we cannot provide legal advice, we are available to assist filers by answering questions regarding the filing of documents. The Division’s corporate specialists may be contacted at (518) 473-2492, between 8:00 a.m. and 4:45 p.m., Monday through Friday.

Questions regarding the status of documents presented for filing or the status of any entity on file with the Division may be obtained by calling (518) 473-2492. A representative of the Division will search up to five entities. This service will provide the exact name of the entity and the dates and types of documents on file. Other relevant information such as the service of process address, county location and name and address of the chairman of the board will also be provided. The names and address of officers, directors and shareholders are not a matter of record in New York State and are, therefore, unavailable.

All documents submitted for filing may be submitted in person or mailed to the Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231.