State of New York Corporations: Why and How to Incorporate

The state of New York is famous for its economic and social advancements, and it is also renowned for the power and strength of its legal system. We will expect to see some of the most advanced corporations around with a name like New York.

Let’s make a tour around some facts about corporations in New York State, their pros and cons, and the way to form one.

Types of corporations in NYS

There are three types of corporations in New York State:

1. C Corporation

The most common type of corporation formed has shareholders that can be made up of 1 or more individuals or another corporation.

This type of corporation is taxed as any other individual would be for Federal Income tax purposes and has to file its Tax return for State purposes (Taxpayer ID number required).

2.S Corporations

These are also common types of corporations formed, with shareholders that can be made up of one or more individuals or another corporation.

  • This type of corporation is taxed as any other individual would be for Federal Income tax purposes and does not have to file a separate state return (Taxpayer ID number required).
  • Unlike a C-Corporation, though, an S Corporation cannot have more than 100 shareholders and must pass two additional tests: “Distribution Test” and “classification test.”

3. Domestic Business Corporation

It was formed in 1994 as an entity that could be used for certain types of businesses. A Domestic Business Corporation must file form F-DOMBC with their Federal Tax return each year.

This type of corporation has many positives – but also many negatives to it. Since it’s not widely used, we will not go into detail about it here.

Business Formation Procedure

To do business in New York State, you have first to form your corporate entity. The process and documentation required to create a business entity in New York are different depending on the type of business entity you wish to form.

For example, to form limited liability companies (LLCs) in NYS requires Articles of Organization (ALWAYS file with Department of State Division of Corporations), Operating Agreement (when multiple members), Application for Employer Identification Number (EIN).

Step 1. Initial Requirements

The first step toward forming a corporation in New York is filing Articles of Incorporation (EITHER via the Division’s website or with the New York Department of State).

The form you will file is DSC-2 – and it asks for general information such as:

  • name
  • address
  • date of incorporation
  • name and address of agent for service

Your business must also appoint an agent to receive future legal documents; this can be done by naming either a domestic or foreign individual or company with an office within NYS. A good choice would be your CPA!

Step 2: Publication Requirements

After filing initial requirements (Certificate of Incorporation) you then publish the said document in two newspapers that are designated under Section30 of the Business Corporation Law. A newspaper is designated as one that is circulated within the county where your business’s principal office is located.

Once you file your Articles with the New York Department of State, they will return your incorporation document along with 2 stamped copies to you for filing at least 1 in each newspaper listed under Section 30 of the Business Corporation Law.

Step 3: Receiving Your Corporate By-Laws

One week following both publications you will receive a written confirmation from both newspapers stating that your article was published according to law. This confirmation should also include an affidavit showing proof that the articles were published within the designated time.

Once you receive this confirmation, it is your responsibility to file a copy with the New York Secretary of State and keep one on record at the principal office of your business.

Step 4: Receiving Your Corporate Minutes

Once you have received written confirmation from both newspapers, you must publish your corporate minutes within 30 days after filing your Articles of Incorporation.

There are no specific requirements as to how they must be published – but it should be done in a manner that will allow interested parties to inspect these documents easily.

Step 5: Filing Corporate Spirits Bond

After publishing corporate minutes as stated above you must then file a Corporate Spirits Bond ($25,000) for the benefit of those who deal with corporations in New York State.

It is required for each corporation formed in New York State to obtain a Corporate Spirits Bond. The bond must be filed before your corporation begins to do business or issue stock certificates.

Step 6: Receiving Your By-Laws

You should receive your corporate bylaws with the corporation seal within 30 days after filing the spirits bond.

If it is not received, you must publish your bylaws at least once in the newspaper designated under Section 30 of the Business Corporation Law.

Step 7: Filing Annual Statement

Once you have all this paperwork together, you are then required to file an annual statement (DSC-3) along with a registration fee which is based on the total capitalization of shareholders ($25 minimum).

Make sure that every year that you file the Annual Statement and pay the appropriate fee. Failure to do so could result in your business being dissolved by a court order!

Step 8: Filing an Amended Statement

If any information contained in DSC-3 changes (i.e., number of shares, registered agent, or office address: 1 Commerce Plaza, 99 Washington Avenue, 6th Floor, Albany, NY 12231) then you must complete an amended statement (DSC-4). You must file this form while the original remains on file.

Step 9: Stock Transfer Records

All stock certificates must also be filed with the NYS Department of State. In addition, you must keep a list showing all ownership changes for each class of stock at your principal office. Stock transfers should be made after an amendment to Articles or minutes has been recorded indicating that new owners have acquired interests in a corporation.

Pros and cons of forming a corporation in NY

Pros:

  • You can hire employees, but it is not required (unless you are an Insurance Corporation)
  • Personal liability protection; creditors cannot look to your personal assets for satisfaction of business debts.
  • Centralized management structure; officers and directors may manage the corporation without court interference.

Cons:

  • Stockholders’ meetings must be held on at least an annual basis (but this does not mean that they must be physically together). Meeting notices must be sent out to all stockholders at least 10 days before any action is taken.
  • A board of directors or managing members should decide how profits will be divided among shareholders.

How is a Corporation in NY Taxed?

Corporations in the state of New York are taxed at a rate of 8.85% on net income under Articles 9-A and 193 of the Tax law.

  1. The first tier is 8.85% on annual net income up to $50,000 plus 4% of any excess over $50,000 but not exceeding $75,000
  2. The second tier is 6.5% on annual net income over $75,000 up to $100,000 plus 3%of any excess over$100,000 but not exceeding$150,00
  3. The third tier is 6.5% on annual net income over$150, 000 up to $200, 000 plus 2 % of any excess over $200,000 but not exceeding $250, 000
  4. The fourth tier is 6.5% on annual net income over$250,000 up to $500,000 plus 1% of any excess over$500,000 but not exceeding$1 million
  5. The fifth tier is 5 % on annual net income from $1 million to a maximum of $10 million
  6. The sixth tier is 4% on annual net income exceeding$10 million

Conclusion

Forming a corporation in New York provides businesses with a number of benefits including the ability to take advantage of various Federal, State, and City tax incentives.

The availability of financing through banks/credit unions and state programs such as the NYSIDA allows businesses to start, relocate or expand with ease. Additionally, many business associations and organizations within the community provide business owners with networking opportunities as well as additional resources.

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