A New York corporation is a legal entity that stands separate from its owners. Corporations benefit owners by protecting their personal assets from business debts. Creditors and plaintiffs usually cannot reach the personal assets of business owners to satisfy judgments against a corporation. However, corporations are subject to what is sometimes known as “double taxation.” Corporations are taxed when they take in profits, and shareholders pay tax on any dividends or capital gains.
A corporation can be a C corporation or an S corporation. A C corporation is the more traditional of the two, while an S corporation somewhat avoids double taxation by “passing through” its profits to the individual tax returns of its owners. An organization that prioritizes control over “going public” may be structured as a close corporation. A close corporation (or “tightly held” corporation) is usually limited to a small number of shareholders and often restricts how stocks are sold or transferred. Close corporations work well for organizations such as family businesses.
Regardless of how an organization chooses to incorporate, it is important to follow all the steps of incorporation properly. The benefits and protections of the corporate structure, such as protection from liability, may not apply if a business is not properly incorporated.
An incorporator may name their New York corporation almost anything so long as it is distinguishable, does not mislead the public, and contains the word “corporation,” “incorporated,” “limited,” or an abbreviation of these words.
Use New York’s Business Search tool to determine whether a business name is unique.
A New York corporation’s name may not imply an unlawful purpose or any purpose other than its stated purpose. The corporation’s name also may not mislead the public by implying that the corporation is an agent or instrumentality of the state or federal government. It may not contain an “indecent or obscene” word or phrase. It also may not contain certain restricted words or phrases, such as “board of trade” or “trust,” without appropriate approval. A full list of restricted words can be found at NY Bus Corp L § 301.
A corporation name may be reserved with the New York Department of State for a fee. The reservation will last for 60 days and may be extended twice upon request. It may be a good idea to also check if the web domain is available for purchase. A corporation operating under a name other than its legal name will need to file a Certificate of Assumed Name. Finally, a registered name is not a trademark. Trademarks are registered with the U.S. Patent and Trademark Office or a state trademark office.
2. Choosing a Registered Agent
A business’ registered agent receives service of process, government correspondence, and compliance documents on behalf of the business. A registered agent can be an individual or an entity, but a corporation cannot be its own registered agent for service of process. However, a director or officer may serve as an agent. Some businesses, especially larger ones, prefer to employ a registered agent service. Regardless, New York requires that a registered agent meet the following criteria:
Is at least 18 years old
Maintains a physical address in New York
Is available in person during normal business hours
A New York Certificate of Incorporation will designate the Secretary of State as the statutory agent for service of process. Thus, all lawsuits will be delivered to the Secretary of State first and then to the corporation’s registered agent.
3. Choosing a Share Structure
In order to complete the Certificate of Incorporation, incorporators and directors must choose a share structure. A share structure will include the number of shares that the corporation is allowed to issue (the authorized shares), the total number of shares actually issued to shareholders (the issued shares), and any share classes with defined rights and privileges.
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A business attorney can be helpful when starting a corporation, especially when a corporation desires a multiple share class structure. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.
Unlike some states, New York does not dictate a par value, meaning a threshold value under which a stock cannot be sold. Instead, incorporators choose whether or not the stock will have a par value in the Certificate of Incorporation.
4. Executing the Certificate of Incorporation
The Certificate of Incorporation is the official document that creates a New York corporation. It can be filed online, in person, or by mail with the New York Department of State for a filing fee. New York’s standard form (DOS-1239-f) only provides for a corporation with 200 common shares with no par value. A corporation desiring a different share structure must draft its own document. A business lawyer may be helpful in this situation.
The Certificate of Incorporation includes:
The corporate name
The county in which the corporation is located
The number of authorized shares that the corporation is allowed to issue
The corporate service of process agent’s name and street address
The fee is $125.
File the Certificate of Incorporation by mail or in person at:
Department of State
Division of Corporations
State Records and Uniform Commercial Code
One Commerce Plaza
99 Washington Ave.
Albany, NY 12231-0001
5. Holding an Organizational Meeting
The first meeting with the incorporators and potentially the initial corporate directors (appointed by the incorporators) is used to make key decisions. Attendees of the first organizational meeting will usually:
Set up a corporate records book to maintain all important records
Create and approve bylaws
Select initial directors and officers
Select a corporate bank
Set the corporation’s fiscal year
Execute an Incorporator’s Statement
Adopt the Certificate of Incorporation
The organizational meeting should be memorialized in meeting minutes by an incorporator or director and stored with the corporate records. New York mandates recording of meeting minutes.
At least one director must oversee the corporation. A corporate director is responsible for the adoption, amendment, and repeal of operational bylaws and the election, supervision, and removal of officers.
During an organizational meeting, the incorporators should elect the board of directors, or the initial directors should appoint officers.
The initial corporate directors will serve on the board until the first annual shareholders meeting, at which board members are elected by the shareholders.
7. Executing an Incorporator’s Statement
The Incorporator’s Statement includes the complete name and address of each initial director. Initial directors serve until the board of directors is elected during the first shareholders meeting. The Incorporator’s Statement should be preserved with the rest of the corporate records.
8. Preparing Corporate Bylaws
Bylaws are simply a corporation’s rules dictating the actions of its members. Bylaws must be kept up-to-date and are amended by calling a special meeting. Bylaws may provide:
A quorum is the minimum number of members that must be present at a meeting to make the proceedings and any votes held therein valid.
How the corporation will be governed (the roles of the directors and officers)
How meetings are held, how voting is done, and how officers and directors are elected
How notice of meetings will be given (notice is required in New York if stockholders will be required or permitted to act at the meeting)
How records are kept and managed, including meeting minutes (required in New York)
How disputes are resolved
How contracts are negotiated
How bylaws are amended and kept up-to-date
Fiduciary duties to the corporation (e.g., the duties of care and loyalty)
9. Issuing Stock
Stock may be issued to shareholders in exchange for a variety of valuables, including cash, property, services, or all three. A stock transfer ledger should record each shareholder’s name and contact information.
Shares of stock are considered securities. Federal law exempts private offerings (non-advertised sales of stock to a limited number of individuals) from federal securities law, so long as a corporation files Form D within 15 days of the first sale. If a corporation uses Rule 506(b) as its exemption, the stocks issued will be restricted securities.
New York similarly exempts the non-advertised sale of shares to 40 or fewer investors. However, these corporations must either register with the Investor Protection Bureau or apply for an exemption from registration.
Corporations interested in selling stock publicly or to a large number of investors should consult a business lawyer.
10. Filing a Biennial Statement
The New York Biennial Statement must be filed every two years. It is primarily filed online, although a paper form can be requested from the New York Department of State’s Division of Corporations by email. The biennial statement is due in the calendar month in which the original Certificate of Incorporation was filed with the Department of State.
Biennial Statement Fees
The fee to file a biennial statement in New York is $9.
11. Complying with New York Tax and Regulatory Requirements
A corporation must apply for an Employer Identification Number (EIN) or Federal Tax Identification Number (FTIN) to open its business bank account, pay federal and state taxes, and hire employees. A corporation may apply for an EIN from the IRS online or by mail.
Business Bank Account
Opening a business bank account will also protect an owner’s personal assets by separating them from the business.
If a New York corporation elects to operate as an S corporation, it must submit Form 2553 Election by a Small Business Corporation to the IRS. Form 2553 must be filed within two months and 15 days of the beginning of the tax year when it is to be effective. A corporation may also make a New York S corporation election with the state.
Incorporators should check for other necessary business licenses, such as health permits if opening a restaurant. Licenses may be necessary on the federal, state, and local levels. New York offers a Business Wizard to help identify applicable licenses, permits, certifications, taxes, and regulations.