LLC and PLLC Formation in New York
What formation actually involves
Forming a limited liability company in New York takes about ten minutes online. Doing it so that it holds up takes longer, and the parts people skip are the parts that matter: the publication, the operating agreement, and the question of what the company is actually for.
We form limited liability companies, professional limited liability companies for licensed professionals, and the operating agreements that go with them — most often for rental property, for family-owned real estate, and for professional practices.
Articles of Organization are filed with the Department of State, naming the company and the county where its office will be. The Secretary of State is designated as the company's agent for service of process, with an address for forwarding. That much is straightforward.
Then two things follow that are easy to miss.
The publication requirement
New York is one of the few states that requires a new limited liability company to advertise its own existence. Within one hundred and twenty days of formation, a copy of the articles or a notice of their substance must be published once a week for six consecutive weeks in two newspapers — one weekly and one daily — in the county where the company's office is located, and both newspapers must be ones the county clerk has designated for the purpose. You do not get to choose them. A certificate of publication with the printers' affidavits attached is then filed with the Department of State.
In Manhattan this is genuinely expensive, which is why so many companies simply do not do it. Before you decide to be one of them, here is what the statute actually says happens.
What failing to publish does — and does not — do. If the publication is not made and the certificate not filed within the hundred and twenty days, the company's authority to carry on, conduct or transact business in this state is suspended. That is the whole penalty, and the statute then says two things that are almost always left out of the warnings: the failure or the suspension does not affect the validity of any contract or act of the company, and it does not make the members, managers or agents liable for the company's debts. The suspension is annulled when the certificate is eventually filed.
So the common warnings — that your company will be dissolved, or that you will lose your limited liability — are both wrong. What you actually lose is the ability to bring an action in your own name in New York until you cure it, which tends to be discovered at the worst possible moment: when the company needs to sue a tenant, or when a purchaser's lawyer runs a search before a closing.
The operating agreement is required, and there is a deadline
New York law says the members shall adopt a written operating agreement, and it may be entered into before, at the time of, or within ninety days after the articles are filed. It is mandatory language, not a recommendation. The statute prescribes no penalty for skipping it, which is the honest reason it is so often skipped.
The reason to have one anyway is that without it, the default rules in the statute govern everything that matters and they will not be what you would have chosen: how profits are split, what happens when a member wants out, who can bind the company, what happens on a member's death or divorce, and whether the others can be forced into business with a member's heirs. For a single-member company holding one building, the agreement is short. For anything with family in it, it is the document that prevents the argument.
The biennial statement
Every two years, in the same calendar month the company was formed, a statement must be filed with the Department of State updating the address to which process is forwarded. The fee is nominal and it is filed online. Missing it is common and easily fixed, but a stale service address means a lawsuit can be served on the Secretary of State and forwarded to an address nobody reads — and a default judgment is the first anyone hears of it.
Professional limited liability companies
Licensed professionals in New York who want to practice through a company use a professional limited liability company. It works like an ordinary LLC with one significant addition: the licensing authority has to certify, before the articles are filed, that each member and manager who is an individual is authorized to practice the profession the company is being formed to practice. That certificate is attached to the articles.
For most licensed professions that certificate comes from the State Education Department. Law is the exception, and it is worth stating because it is so often got wrong. A professional limited liability company formed to practice law needs a certificate of good standing from the appropriate Appellate Division, not an Education Department certificate — and a law PLLC remains subject to the regulation and control of the Appellate Division and the Court of Appeals in the same way an individual attorney is, including the power to suspend or annul its articles of organization.
A professional company does not shield a professional from liability for their own professional conduct. It shields them from liability for the firm's ordinary business debts and for the professional conduct of others in it.
Property in an LLC, and the two questions to ask first
Putting a rental building into a limited liability company is usually sound. Two things should be checked before the deed is signed rather than after.
The first is the mortgage. Most mortgages contain a clause allowing the lender to call the loan if the property is transferred, and lenders do sometimes enforce it. Ask first.
The second is transfer tax. A transfer to a company you wholly own is generally treated as a change of form rather than a sale — but where a mortgage remains on the property, the position is less certain than the internet suggests. It is worth twenty minutes of advice before rather than an assessment afterwards.