New York Limited Liability Companies
A Limited Liability Company is a business entity created by the New York Limited Liability Company Law ("NY LLC"). Sometimes people say that an LLC is a hybrid between a corporation and a partnership; an LLC offers its owners (called members) protection from business liabilities like a corporation would, but functions more like a partnership. It is not considered a separate corporate entity and its membership interests are not freely transferable.
Advantages and Benefits of New York Limited Liability Companies
- New York LLC members enjoy Limited Liability protection, which means they are mostly personally protected from any liability of the LLC and successful judgments, as well as from the LLC itself.
- A New York LLC allows for “multi-tiered” ownership wherein an S or C corporation can be a member with no residency restrictions. This can allow for substantial tax benefits, and increased liability protection.
- The LLC allows for the "special allocation" of profits--the disproportionate splitting of Member profits and losses (in different percentages than their respective percentages of ownership). This means that Members can enjoy the benefits of receiving profits (and writing off losses) in excess of their individual ownership percentage, as long as it is clearly stated in the Operating Agreement.
- Managing Members' share of net profit is considered earned income because the Managing Member is considered to be an active owner--therefore qualifying the Managing Member for special "fringe benefit" treatment.
- The Members' share of the bottom-line (“net”) profit of an LLC is not considered earned income, and therefore is not subject to self-employment tax.
- Members are compensated using either distributions of profit or guaranteed payments. A distribution of profit allows each member to pay themselves by merely writing checks--whenever they need the money (provided the business has the available cash). Guaranteed payments represent earned income to the members, thereby qualifying them to enjoy the benefits of tax-favored “fringe benefits.”
- The Managing Member of an LLC can deduct 100% of the health insurance premiums he or she pays, up to the extent of their pro-rata share of the LLC's net profit, because the profit is considered earned income.
- As a Member, you can contribute capital or other assets to the LLC, or loan the LLC money to put dollars or value into the business. You can take dollars out by taking a repayment of your loan (plus interest), a distribution of profit or a guaranteed payment. If any of the members die, the LLC can continue to exist--subject to the unanimous positive vote on the part of all remaining members or a proviso in the Operating Agreement.
- Credibility- Having the “LLC” after the company’s name will go a long way towards establishing it as a credible company, or enhancing its current credibility, and would be an excellent way to attract potential investors looking for opportunities aligned with good organization and limited liability.
- Management Flexibility- New York LLCs great amount of flexibility with respect to how they are to be managed. As long as it is properly noted in the Operating Agreement, there are virtually no restrictions .
- Confidentiality- Only the director and the resident agents are disclosed as a matter of public record in New York. Depending on the type of formation (LLC, etc.), a corporation can hold shares of stock. There are rules requiring that any business formation (LLCs included) keep accurate records reflecting names, tax status, etc., or members, officers, shareholders, etc.
- Strong Economy- Ranked 11th in the world and with added value from name recognition alone, having a New York based corporation will provide financial and business access to the most recognized business environment in the world, with a robust economy, and access to one of the largest ports/shipping centers in the world.
Tax Advantages- New York corporate tax is 7.5%, with income and taxation advantages available depending upon the type of corporation formed.