New York LLC Operating Agreement

New York LLC Laws and Definition

A limited liability company (shortly LLC) is a legal form of a business entity that combines the principles of protecting the company’s members and owners against any financial liability and risks and a flexible partnership structure.

According to New York Consolidated Laws (Section 417(a)), every local LLC must develop a written operating agreement regulating its internal and external business processes and routines. Besides, an operating agreement is an indispensable attribute for multi-member LLCs since the stated distribution of roles and responsibilities of all partners will help avoid conflicts and disputes during the working process.

Whether you opt for a single-member or multi-member business entity, we strongly advise you to develop an operating agreement. You will not regret it, as it is an excellent way to ensure that the local courts uphold your limited liability status, thus ultimately supporting its profitable business standing.

New York has passed specific legislation regulating all LLC-related matters, including registration procedures and operating agreement compilation rules. For more details, you can (and should) refer to the New York State LLC Law, which is a part of the Consolidated Laws of New York. Different sections of this code apply to various aspects of creating, running, and dissolving the company.

Below are the essential legal requirements to register an LLC in the state:

1. First of all, you need to receive the Articles of Organization. The paper is somewhat similar to the certificate of title. Typically, it reflects the company’s initial contact data and basic management principles.
2. Second, you need to think through your operating and marketing strategies. You can do so when compiling an LLC operating agreement. Usually, the Board members negotiate and assign the company’s responsible person, who will then decide on its governing arrangements and operational policies. If there are multiple owners, they shall unanimously agree on the respective management terms and conditions, including decision-making.
3. At the following stage, you need to decide on another crucial matter—the company’s finances and membership interests. Those must represent the relevant proportions of income and other monetary amounts distribution between the company members.
4. Last but not least, you must describe the company’s liquidation process in detail. You can negotiate rules, conditions, and restrictions regarding dissolution with other Board members and then include them in the operating agreement.

Steps to Forming an LLC in New York

Starting a new company may seem challenging and complicated. In the state of New York, the process of creating an LLC can be split into six milestones, as follows:

1.  Create an Appropriate LLC Name

When choosing your LLC’s name, you should follow the existing New York state naming requirements. The brand name should include the “limited liability company” phrase or its abbreviated forms. The selected name cannot comprise any elements misleadingly implying a public body (such as the CIA or Bureau of Land Management, for example). If the company’s name contains a component from the word list of restricted items (such as Attorney, University, Bank, doctor, or lawyer), the company’s personnel would be obliged to have a corresponding license to perform particular practices on a commercial basis.

It is worth mentioning that the owner(s) should check if the suggested name is available and distinguishable from other companies in the market. Once you have chosen a proper company name, you may as well check if the relevant web-domain is vacant.

2. Assign Your NY Registered Agent

By default, a registered agent for all NY LLCs is the Secretary of State.  In either case, the agent is the primary contact person to refer to when any customers or partners initiate claims against the subject LLC. Besides, the Secretary of State submits formation documents, taxation and reporting documents, and any court documents to the company’s principal mailing address.

The company’s founders may also decide to appoint another person to be its registered agent, with the following grounds advocating for this line of action:

1. Lowering publication costs. According to the local legislation, a recently established limited liability company must place a notification of formation in local printed media. Since the cost of such publications in the state may exceed $1500, it is reasonable to assign a registered agent in the vicinity to use their legal address for this purpose.
2. Ensure privacy considerations. According to the NY law, the LLC’s principal address must be disclosed to the public. This is particularly so for small and medium enterprises registered at the founder’s home address. Arguably, they would not want their personal address known to the locals. Therefore, to avoid such situations, we strongly advise you to appoint a registered agent and use their address for personal privacy considerations.

3. File for the LLC Operational Articles

If you have decided to reside in New York, you have to obtain relevant Articles of Organization to operate in the state legally. Once you settle this formality, you should deliver the Articles to the Secretary of State online or via US mail. The Articles of Organization is the primary legal instrument of any business entity. The paper contains such crucial details as to its legal name, location, contact details (including the valid mailing address), effective date, and other relevant information. The responsible person has to pay registration fees (precisely $200 US) and file the receipt along with the Articles.

4. Ensure Publication of the Articles

According to the local legislation, it is compulsory to publish the Articles of Organization text in a local weekly or a daily newspaper. The founders have 120 days from the LLC registration to do so. Otherwise, the company will be subject to a penalty. The mass media you intend to publish the text in must be approved by the local county clerk. That same person will certify a publication affidavit issued by the editorial and confirm your LLC registration. The respective affidavits and Certificates of Publication should be sent to the state Division of Corporations office.

5. Draft and Sign the Operating Agreement

According to New York state legislation, limited liability business entities must compile an operating agreement implying a legal document that describes the company ownership and internal regulations.

The parties should sign the agreement to make it valid. Both the recipient and the company should append their signatures and the agreement’s effect in the document’s respective sections. If there is more than one company representative involved in the signing procedure, they should put their signatures on the designated blank lines.

6. Obtain an EIN for Tax Matters

Once you register your LLC, you need to obtain the Employer’s Identification Number (EIN). It is a nine-digit number assigned by the Internal Revenue Service and designed to identify the company and monitor its business activity for tax reporting purposes. If you need to open a corporate bank account, recruit or hire new staff members, file federal and state tax reports, you must have an EIN.

7. Submit Yearly Reports in Time

In the state of New York, all LLCs must submit the so-called Biennial Report, which is due once in two years during the company’s anniversary month. However, there is no overdue penalty for companies that fail to submit their reports in time. Still, the delay could result in the company losing its good-standing, which can ultimately affect the overall prospects of running the business in this state.

Upon conclusion of the operating agreement, all concerned parties get to keep their respective counterpart for individual record keeping.

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