The Third in a Series of Articles for Entrepreneurs
by Bukre Ayan
As explained in our previous articles, in NY there are many ways to operate a business. Corporations, Not-for-Profits (NFPs) and Limited Liability Companies (LLCs) all require the approval of New York State. In this article, the operation of for-profit businesses will be discussed. NFPs will be the subject of a separate article in the future.
A corporation is a legal entity that is owned by its shareholders, guided by its board of directors, and operated by its officers. It is formed when its Certificate of Incorporation is filed with the NY Department of State (the “NY DOS”), (https://dos.ny.gov/certificate-incorporation-domestic-business-corporation). Formation can be completed by mail or online, and after their formation, corporations need to obtain an Employer Identification Number (EIN) – a federal taxpayer identification number – through an online application with the IRS (https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online).
Bylaws govern how the corporation acts, and usually include operational guidelines; rights, responsibilities and powers of shareholders, directors, and officers; procedures to elect and remove officers and directors; when, where, and how the board of directors can call and conduct meetings; and voting requirements.
Board of Directors and Officers
At the initial meeting the incorporator appoints the board of directors, who in turn appoint the corporation’s officers and adopt the corporation’s by-laws. In future years, shareholders will elect directors at their annual meetings. Corporations are required to have at least one director to supervise the business. Directors may be shareholders, but do not need to be.
Usually, the board of directors appoints the officers. Similar to the directors, officers may also be shareholders. The numbers of officers, their titles (like president, vice president, secretary, treasurer) and responsibilities are described in the bylaws.
The fiduciary duties of directors and officers are to manage the corporation. While the board of directors is responsible for making major business decisions, the officers are responsible for making daily decisions and implementing the board’s business policies.
A Limited Liability Company is a legal entity formed for any lawful purpose by one or more persons. Its owners are called members. The LLC’s organizer begins by filing Articles of Organization with the NY DOS (https://dos.ny.gov/articles-organization-domestic-limited-liability-company-0). The filing can be completed by mail or online. After its formation, similar to corporations, an EIN has to be obtained.
After formation, its members have an initial meeting. At the initial meeting members adopt an operating agreement that governs the operation of the LLC. An operating agreement usually includes these terms: percentage of each member’s ownership, voting rights and responsibilities of members, selection of managers (if any), powers and duties of members and managers (if any), and distribution of profits and losses.
Operating agreements also provide whether the LLC will be managed by its members or by managers. Managers may be selected from among the members or may be an individual or individuals hired by the members.
An LLC is required to publish a notice of its formation in two newspapers – one weekly one daily – once a week for six weeks. After the publication requirement is met, affidavits given by the newspapers confirming their publication are filed with the NY Department of State. (Please see the link https://dos.ny.gov/certificate-publication-domestic-limited-liability-company-0)
DOING BUSINESS WITHOUT AN ENTITY
As explained in detail in a previous article, “The Advantages of Forming an Entity,” doing business without first forming an entity means you, or you and your partner(s) are the business. That means, whenever there is a claim against the business you and your partners will be responsible for defending against the claim, for all attorneys’ fees, and for paying all debts and liabilities. Therefore, we recommend forming a legal entity as soon as possible, and protecting your personal assets.
(For more information, please consult with an attorney. Our next article will be on Professional Entities (i.e., PC and PLLC). Their formation and operation will be discussed.)
Please be advised that this article is not intended to provide you with any legal advice, and prior results do not guarantee a similar outcome.
Ms. Bukre Ayan is an international associate with the firm of Reed CNY Business Law, P.C., specializing in business, immigration and real estate law. Bukre received her LLM degree from Syracuse University College of law in 2020 and is admitted to practice in both New York State and the Republic of Turkey. The Spanish translation was done by Ms. Sylvia Espinosa, a Mexican law student who is completing her studies at SU College of Law.
If you have any questions or comments about these articles, you can contact them at Reed CNY Business Law, P.C. at (315) 558-0642 or email firstname.lastname@example.org or find them at www.reedbusinesslaw.com.
Photos by Christina Morillo and Sora Shimazaki from pexels