Benefits of an LLC in New York

If you’re considering forming a business in the Empire State, odds are you’re considering the drawbacks and benefits of an LLC in New York. You’ve probably got a lot of questions. Is an LLC worth the effort? Would a different business structure be better? Or should you pick a different state?

In this guide, we’ll help you answer some of those questions by discussing the benefits of a New York LLC. From tax flexibility to asset protection and more, LLCs present a lot of advantages to New York small business owners.

Tax Benefits of an LLC in NY

A key benefit of an LLC in New York is that this business structure offers tax advantages: pass-through taxation and flexibility.

Pass-Through Taxation

By default, a limited liability company is a pass-through entity for federal income tax purposes. That means the LLC itself doesn’t pay taxes; the tax burden “passes through” to the members. Each member reports their share of the business profits on their personal tax returns and pays whatever’s due. It’s almost identical to taxation for a sole proprietor (for a single-member LLC) or general partnership (for multi-member LLCs).

This structure also avoids the “double taxation” of a corporation. In business corporations, the business pays taxes on its profits at the corporate level before making distributions to its shareholders; then the individual shareholders pay taxes on their share of the profits. So the same money is taxed twice — and then the business pays the New York franchise tax, too.

Flexible Tax Options

Even though corporations are subject to double taxation, it can sometimes be more advantageous to be taxed like a C corporation, especially for certain larger LLCs. Smaller LLCs might gain a tax advantage by being taxed as an S corporation because S corporations also have pass-through taxation, but they also have the potential to save money on the taxes they pay for Social Security and Medicare.

The luxury of a New York LLC is that you can keep your default tax structure or elect C corp status or S corp status (as long as you qualify). You should also make sure you detail your choice in your LLC’s operating agreement. If you’re not sure which structure will be most advantageous for you, we highly recommend consulting with a business attorney or licensed accountant.

Limited Liability Protection

One of the biggest benefits of an LLC is personal asset protection. If you operated as an unregistered business, such as a sole proprietorship or general partnership, your business would be legally indistinguishable from you as a person. But an LLC is a separate legal entity from its owner. The LLC is responsible for its own debts and liabilities.

If an LLC gets into legal or financial trouble, creditors and plaintiffs can only come after the LLC’s business assets. They usually can’t seize your personal assets, such as your car, personal savings account, or home. In New York, business litigation isn’t uncommon, so limited personal liability is a crucial advantage. It’s one of the primary reasons a lot of small business owners decide they need an LLC.

Maintaining the Corporate Veil

An LLC’s personal asset protection is only valid if the LLC operates compliantly. If you fail to meet state statutes, such as maintaining any applicable business licenses, filing biennial reports, or something similar, you might lose your corporate veil. 

A court might also rule to pierce your corporate veil if you mingle your business bank account with your personal funds or commit fraud. But if you stay compliant and conduct legal business dealings, it’s hard to lose your limited liability protection.

Access to Funding and Business Resources

New York small businesses have access to a wealth of resources: the Small Business Administration, Empire State Development, New York City Small Business Services, and many more. These organizations offer training and workshops, networking, contracting opportunities, and more.

If you need startup capital, there are opportunities to get it. The New York Small Business Credit Initiative received over $500 million in federal funding to assist small businesses. Plus, you can consult with New York’s Small Business Development Center to find additional grants and financing. Venture capital firms also have a strong presence in the state, especially in New York City.

Business-Friendly Environment

New York state fosters a welcoming environment for businesses statewide. Thanks to its strategic location in the Northeast — and proximity to several key cities in Canada — New York boasts a unique blend of business industries. Plus, top universities like Cornell, Syracuse, and more keep top talent accessible to state employers. The New York Power Authority also supports minority-owned and veteran-owned businesses.

And, of course, New York City constantly propels tourism, industry, and international trade. With such a vibrant, thriving environment, it’s no surprise that New York is home to over 2.3 million small businesses.

We can help!

Starting a New York LLC is an exciting but crucial process — let us help you get it right. Whether you need help forming your LLC, a registered agent for service of process, worry-free annual compliance, or anything in between, we have your back. Let us handle the red tape so you can focus on what matters: your business.