Has your business partner, LLC member or LLC manager harmed your business? You are not stuck! There are ways to remove a rogue member or manager from your business, LLC, or partnership (similar to removing a rogue officer or shareholder from a company). Find out more about how we can help you here.

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Deciding what legal entity in which you buy and hold your real estate is important.  You should to consult with your financial and tax advisors along with your New York real estate attorney to figure out the right legal entity.  You should consider, among other things, the type investment property, the amount of equity and debt at stake, revenue projections and other matters like management of the property itself.

Generally, a Limited Liability company (an LLC), is the proper entity to hold investment real estate.

• Like a corporation, the members’ liability is limited to their capital investment (absent any contractual personal guaranties).  Structured properly, liability incurred on one property will not impact other real estate that is owned.

• An LLC can elect to be taxed as a partnership – with the profit and loss of the investment passed through to the members’ individual tax returns.

• An LLC has less legal formalities than other corporate structures. See my article, “Why Choose a Limited Liability Company (LLC) over a Corporation For Your Small Business?“

• There are numerous advantages in using an LLC for Section 1031 tax deferred exchanges and for estate planning.  For instance, if properly structured, the value of a gifted LLC membership interest could be done at discount (e.g., a controlling interest has greater intrinsic value over a minority interest).

You should consider hiring a New York real estate lawyer early in the process.  He or she will work closely with your tax and financial advisors to help structure your investment real estate holdings in the best way possible and can guide you through the real estate buying process by preparing and negotiating the real estate broker agreement, drafting the contract of sale, negotiating lender agreements (notes and mortgages), IRS Section 1031 exchange planning, among other things.

**This post is for informational purposes only, For legal advice contact a business and commercial real estate lawyer**

Organizers form an LLC in New York by filing the Articles of Organization, pursuant to Section 203 of the New York Limited Liability Company Law, with the Department of State. Organizers prepare, sign and file the Articles of Organization that creates the LLC. Any person or business entity may be an organizer (it does not have to be a business lawyer or corporate attorney). Organizers may be, but need not be, a member of the LLC formed. You can obtain a basic Articles of Organization from the New York Department of State here (note, this  form reflects only the basic requirements — Articles of Organization may include other provisions consistent with law).

Of course, if you have any questions on How to Form a Limited Liability Company in New York, it is best to discuss them with a New York Small Business Lawyer.

What is the difference between a NY PLLC vs. an LLC?

One or more professionals may form, or cause to be formed, a professional service limited liability company (PLLC) in New York for profit for the purpose of rendering the professional service or services that the professionals are authorized to practice. A PLLC is formed by filing Articles of Organization pursuant to Section 1203 of the NY Limited Liability Company Law.

“Profession,” as defined in Section 1201(b) of the New York Limited Liability Company Law, includes any practice as an attorney and counselor-at-law, or as a licensed physician, and those occupations designated in Title Eight of the Education Law.  Title Eight of the New York Education Law includes the following professions: acupuncture, architecture, athletic training, audiology, certified shorthand reporting, chiropractic, dentistry, dietetics and nutrition, engineering, interior design, land surveying, landscape architecture, massage therapy, medical physics, medicine, midwifery, nursing, occupational therapy, ophthalmic dispensing, optometry, pharmacy, physical therapy, podiatry, psychology, public accountancy, respiratory therapy, social work, speech-language pathology and veterinary medicine.

Of course, if you have any questions about a Professional Service Limited Liability Company in New York, it is best to discuss them with a New York Small Business Lawyer (or company lawyer).

According to Section 417 of the New York Limited Liability Company Law, the members of a New York LLC are required to adopt a written operating agreement.  The operating agreement may be entered into before, at the time of, or within 90 days after the filing of the Articles of Organization.   The operating agreement is the primary document that establishes the rights, powers, duties, liabilities and obligations of the members between themselves and with respect to the limited liability company. It is an internal document of the LLC and is not filed with the Department of State. Note, New York law is is silent on the consequences of not adopting an operating agreement, but as a general rule, it is best to have an operating agreement when the LLC has more than 1 member.

New York limited liability companies are required to publish a notice of formation.  Section 206 of the New York Limited Liability Company Law requires a notice related to the formation of a limited liability company (LLC) to be published in two newspapers. The newspapers must be designated by the county clerk of the county in which the office of the LLC is located. An affidavit of publication from each newspaper must be filed with the Department of State. A Certificate of Publication, with the affidavits of publication of the newspapers annexed thereto, must be submitted to the Department of State, with the appropriate filing fee.

Of course, it is best to discuss the Special Responsibilities and Formalities Associated With Forming a New York Limited Liability Company with a New York Small Business Lawyer (or company lawyer).

The Internal Revenue Code (IRC) allows an LLC to elect its tax status for income tax purposes. You should consult your financial or tax adviser about these “check-the-box” regulations and any changes. For income tax purposes, New York State law follows federal law.  Additionally, New York state law (and certain other states’ laws) imposes a tax based on the number of members of the LLC.  Also, depending on the nature of the business the limited liability company undertakes, the LLC may have to pay or collect sales taxes, employee withholding taxes and other taxes.

The LLC will need a taxpayer identification number (or an EIN).  Here is the link to the IRS’ How to Apply for an EIN (with separate instructions for Corporations, International Businesses, Partnerships, and Small Business/Self-Employed).  Your applying by telephone is sometimes easier than via the online method.

As a New York small business owner, you need to understand your New York State tax responsibilities (Recordkeeping, Hiring employees, Selling products or services, and other New York State taxes).  The New York State Department of Taxation and Finance site has a lot of information for those starting or buying a business.  Also, you should read the IRS’ “Publication 583 Starting a Business and Keeping Records” is available as a pdf download or viewable on the IRS web site.

Of course, it is best to discuss the above with your financial adviser or accountant along with a New York Small Business Lawyer (or corporate attorney).

(You may also want to read our related post, “How Do I Convert a Partnership, Corporation or Other Entity into an LLC?“)

The New York Limited Liability Company Laws and the Delaware General Corporation Laws have provisions to easily convert an existing limited liability company, and with respect to Delaware, general partnership, limited partnership, other unincorporated business entities, into a corporation.  Perhaps the owners want to convert the original entity into a corporation for tax reasons or perhaps the startup company/partnership is seeking venture capital financing and the venture capital investors don’t want to invest in a partnership.  Consequently, the business needs to convert to a corporation.  How is a conversion of a partnership, LLC or other business entity to a corporation accomplished?

Under Delaware General Corporation Law Section 265 et seq., “Any other entity may convert to a corporation of this State” by complying with certain procedures.  Under this Delaware General Corporation Law, the term “other entity” means “a limited liability company, statutory trust, business trust or association, real estate investment trust, common-law trust or any other unincorporated business including a partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership)), or a foreign corporation.”  This provision allows for a conversion of an LLC, partnership, trust or foreign corporation (a corporation formed under any other States’ laws) into a Delaware corporation.  If all of the procedures are followed, you will end up with a Delaware corporation where you used to have an “other entity” and the conversion will not “affect any obligations or liabilities of the other entity incurred prior to its conversion to a corporation of this State or the personal liability of any person incurred prior to such conversion.”

If you have a limited liability company formed under the laws of New York, look in Section 1001 et seq. of the New York Limited Liability Company Law.  Under these provisions, a “a domestic limited liability company may merge or consolidate with or into one or more domestic limited liability companies or other business entities formed or organized under the laws of this state or any other state or the United States or any foreign country or other foreign jurisdiction”.  Again, if all of the procedures are followed, your LLC can merge (or consolidate) with or into any other business entity.

If you are considering a conversion of a general partnership or limited partnership (or “other entity” in Delaware) into a limited liability company, make sure to check with your accountant and/or tax adviser and a New York Business Lawyer (or corporate attorney).  There may be important tax and other legal consequences to consider before making the conversion of a partnership, LLC or other business entity to a corporation.

The New York Limited Liability Company Law can be found here.

The New York Business Corporation Law can be found here.

The New York Partnership Act can be found here.

The New York General Obligations Law can be found here.

**This post is for informational purposes only, For legal advice contact a business lawyer**

(You may also want to read our related post, “How Do I Convert a Partnership, LLC or Other Business Entity into a Corporation?“)

The New York Limited Liability Company Laws and the Delaware Limited Liability Act have provisions to easily convert an existing general partnership or limited partnership (and with respect to Delaware, “other entities” as well, like trusts or other unincorporated business entities) into a Limited Liability Company.  Perhaps the owners want to convert the original entity into an LLC for tax reasons (like passing through the LLC’s losses to the owners’ tax returns) or perhaps the startup company/partnership is seeking venture capital financing and the venture capital investors don’t want to invest in a partnership.  Consequently, the business needs to convert to a limited liability company.  How is a conversion of a partnership,  corporation or other entity into an LLC accomplished?

Under Delaware Limited Liability Act Section 18-214 et seq., “Any other entity may convert to a domestic limited liability company” by complying with certain procedures.  Under the Delaware Limited Liability Act, the term “other entity” means “a corporation, a statutory trust, a business trust, an association, a real estate investment trust, a common-law trust or any other unincorporated business or entity, including a partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership)) or a foreign limited liability company.”  This provision allows for a conversion of a Delaware partnership, trust or foreign limited liability company (an LLC formed under any other States’ laws) into a Delaware limited liability company.  If all of the procedures are followed, you will end up with an LLC where you used to have an “other entity” and the conversion will not “affect any obligations or liabilities of the other entity incurred prior to its conversion to a domestic limited liability company or the personal liability of any person incurred prior to such conversion.”

If you have a general partnership or limited partnership formed under the laws of New York, look in Section 1006 et seq. of the New York Limited Liability Company Law.  Under these provisions, a New York general partnership or limited partnership can be converted to an LLC.  Again, if all of the procedures are followed, you will end up with a LLC where you used to have a general partnership or limited partnership, and under Section 1007 et seq. of the New York Limited Liability Company Law, “a partnership or limited partnership that has been converted pursuant to this chapter is for all purposes the same entity that existed before the conversion” (e.g., all property, debts, and actions or proceedings of the partnership will be same of the resulting LLC).

If you are considering a conversion of a general partnership or limited partnership (or “other entity” in Delaware) into a limited liability company, make sure to check with your accountant and/or tax adviser and a New York Business Lawyer (or corporate attorney).  There may be important tax and other legal consequences to consider before the conversion of a corporation, partnership or other entity to an LLC.

If a manager or a member of the LLC engages in conduct that harms the LLC, the other members do have standing to bring what is known as a “derivative action” to remove the member or manager from the LLC.

Generally, derivative actions are typically brought by a corporate attorney on behalf of the shareholders of a corporation demanding that the corporation take action against its directors, officers, or others for their actions that harmed the corporation (usually the acts are done outside the scope of their duties or exceeds the standard of reasonable “business judgement”).

Of course, your LLC operating agreement may set forth the rights of the members and the process to remove a manager or other member from the LLC in the event of bad behavior or for other reasons.

Although the New York Limited Liability Company Law does not explicitly provide for derivative actions to remove a manager or member from the LLC, New York Courts have recognized that LLC members do have standing to bring such a claim.  Of course, each case stands on its own facts and merits — but if you believe your fellow LLC member or manager is acting in a way that harms your business, you should contact us (or any New York Business Lawyer or corporate attorney) to discuss your options on how to remove them from your LLC.

A Limited Liability Company (an LLC) is an unincorporated business organization of one or more persons who have limited liability for the contractual obligations and other liabilities of the business. The New York Limited Liability Company Law governs the formation and operation of a New York LLC.  A  New York LLC may organize for any lawful business purpose or purposes.

The LLC is a hybrid form that combines corporation-style limited liability with partnership-style flexibility. The flexible management structure allows owners to shape the LLC to meet the needs of the business. The owners of an LLC are “members” rather than shareholders or partners. A member may be an individual, a corporation, a partnership, another limited liability company, or any other legal entity.

Of course, if you have any questions whether a New York limited liability company is right for your needs, you should call and discuss your questions with a New York Small Business Lawyer (or corporate attorney).

An LLC  combines the limited liability advantages of a corporation with the control and tax advantages of a partnership.  You can elect to have your LLC taxed as a corporation, or you can elect to have it be a “pass through” entity (taxed like a partnership – the LLC’s income and losses are reported on each member’s individual tax returns).  Unlike S-Corps, a New York limited liability company can be owned by non U.S. citizens/resident aliens (and other business entities).  A NY LLC can have unlimited number of members.

Note, however, under New York law, LLCs are required to publish the fact of the LLC’s formation in two newspapers of the county in which the office of the limited liability company is located.  This advertisement could cost as little as a few hundred dollars for an LLC formed in a less populated county to around $1,300 or so for an LLC formed in one of the five New York City counties (Bronx, Kings, Queens, New York, and Richmond (less populated counties may be a little less costly)).

Of course, if you have any questions, it is best to discuss them with a New York Small Business Lawyer.

A New York Limited Liability Company  has the following benefits:

• Liability Protection Like a Corporation. New York LLC members are generally protected from personal liability for debts and claims of the business. This means that if the business can’t pay a creditor or gets sued, the creditor cannot legally come after the member’s personal assets such as a house or car (unless the owner is hiding behind the corporate entity for his or her own unlawful or unscrupulous personal dealings, in that case the business owner might not be able to prevent personal liability if a creditor can prove facts and circumstance to “pierce the corporate veil”).

• Maintenance.  LLCs are less formal than corporations and do not have the same corporate formality requirements such as annual meetings, maintaining minute books, and having corporate bylaws (of course, these items can be addressed in the LLC’s Operating Agreement).

• Management.  An LLC provides a lot of flexibility in business organization and management. The owners can be individuals, trusts, partnerships, corporations, LLC and foreign individuals.  There are no requirements to have officers — one or more managers can run the LLC (as set forth in the LLC’s Operating Agreement).

Of course, if you have any questions about the benefits of having a New York LLC, you should speak with a New York Small Business Lawyer.