Limited Liability Companies in New York – How they might be useful to you

I have gotten a lot of questions lately regarding limited liability companies (LLCs).  I thought it might be a topic of general interest, so I assembled a set of questions and answers below describing this important legal tool.

What is an LLC?

An LLC is a legal entity that you can create pursuant to the laws of your state.  Every state in the country has an LLC statute. New York has the New York Limited Liability Company Law (NYLLCL).  You can find the text of the law here:  www.nysenate.gov/legislation/laws/LLC .

Why create an LLC?

The most common reason to create an LLC is to operate a business.  If you were a plumber, for example, and wanted to start a plumbing business, you could create “ABC Plumbers, LLC”.  People also often create an LLC to own investment properties.  For example, if you bought a duplex to rent out for income, you could create “ABC Properties, LLC” and take title to the duplex in the name of the LLC.

What is the benefit?

If you start the plumbing business in your own name or buy the duplex in your own name, all your assets would potentially be subject to the liabilities of the business or investment property.  For example, if you own the duplex in your own name and someone is injured there and sues you, they could potentially recover against all your personal assets.  Instead, if the duplex is held in an LLC, the person suing can generally only recover against the assets of the LLC.

Are there different types?

Yes.  In addition to LLCs, there are Professional Limited Liability Companies (PLLCs).  PLLCs are created by licensed professionals in New York for their businesses.  For example, if you are a licensed architect in New York and wanted to create an LLC for your business, you could create a PLLC.

What is a Family LLC?

A Family LLC is not a different type of LLC in New York but is simply an LLC owned by members of the same family.  Family LLCs are sometimes used as part of an estate planning strategy to reduce the taxable estate of one of the family members.

How is an LLC created?

You create an LLC by filing Articles of Organization with the New York Department of State.  After the Department of State receives the Articles of Organization, you must publish a Notice of Formation in two newspapers once a week for six weeks.  The newspapers need to be newspapers designated by the County Clerk for that purpose.  In Saratoga County, the Saratoga Today newspaper is such a designated publication.  After the publication is finished, you need to file an Affidavit of Publication from each newspaper with the New York Department of State.

Any other requirements?

Yes.  Every two years after the LLC’s formation, you need to file a Biennial Statement and pay a $9.00 fee with the Department of State.  In addition, if your LLC is active in New York, you may need to file a Form IT-204-LL with the New York State Department of Taxation and Finance and pay a fee.  You may want to seek the assistance of an accountant regarding that requirement.

Is there more to do?

Ideally, after you create an LLC, you should have an initial meeting of the LLC members and adopt an operating agreement.  The LLC operating agreement is the equivalent of by-laws for a corporation, because it states the rules for the conduct of the company.  You should keep minutes of your initial meeting for your LLC’s records.  It is also generally a good idea to hold an annual meeting of the LLC each year.  Special meetings can also be held as necessary.

Do I need a lawyer?

You do not necessarily need a lawyer to create an LLC, but using a lawyer would be helpful in making sure that all of the legal requirements are taken care of.  A lawyer can also be of particular assistance in helping to draft an operating agreement that is appropriate for your business.

How about the name?

If you are interested in a particular name for your LLC, you can search the New York Department of State Business Entity database to see if it is available.  Here is a link to the database:  https://apps.dos.ny.gov/publicInquiry/  If the name is not already taken, it would potentially be available – subject to the approval of the Department of State.

Should I put my house in an LLC?

Generally speaking, you should not put your home in an LLC.  If you do so, it may jeopardize your eligibility for the STAR property tax exemption your eligibility for a capital gains tax exempt ion if you sell your home.

LLCs have a myriad of uses in New York.  You can use them to start a business, own investment property, and do estate planning.  To learn whether forming an LLC is appropriate for you, you should contact a legal professional with experience in working with this flexible legal entity.

Matthew J. Dorsey, Esq. is a Shareholder with O’Connell and Aronowitz, 1 Court Street, Saratoga Springs, NY. Over his twenty-nine years of practice, he has focused in the areas of elder law, estate planning, and estate administration. Mr. Dorsey can be reached at (518)584-5205, mdorsey@oalaw.com and www.oalaw.com.