As a business and corporate attorney representing startups and established companies, I am frequently asked for a checklist of items to consider when starting a business. Below is a “10,000 foot” overview of what needs to get done in starting or buying a large or small business in New York. For more information, click to watch the video, “6-Step Business Startup Checklist” .
As lawyers to many NYC startups, seed and early-stage companies we understand that your new business may have limited financial resources. If you are launching a startup, consider our Fixed Fee Legal Startup Package for Entrepreneurs.
- Choose Your Business Structure
What type of structure is right for your small or startup business? In New York, your choices are: sole proprietor, partnership, corporation or limited liability company. You should speak with your accountant/financial advisor to see what structure is the best for your tax situation and speak with an attorney to discuss various structure options. Also, you will want a structure that is flexible as your business grows. For example, if you hope to attract investors (or even become a publicly traded company in the future) a limited liability company or corporation (perhaps you are a tech startup) might be a good structure. Of course, forming a New York limited liability company has the added expense of publishing the formation of your LLC in two newspapers (see my other post about LLC vs Corporation). Keep in mind, a sole proprietorship does not offer the limited liability protection of an LLC or corporation.
You should formalize your structure with a written agreement signed by the business principals and by filing the proper documents with the Secretary of State of New York. Please note, if you are doing business with other people without the proper written agreement in place, you may be in a de-facto partnership without knowing it (e.g., your partner could enter into agreements and monetary obligations in the name of the partnership and all partners would be liable for those obligations).
- Choose a Name for your Business
New York has laws regarding certain naming conventions that must be used.
Corporations must contain the word “corporation”, “incorporated” or “limited”, or an abbreviation of one of such words (click through to Laws of New York (bottom of page) to see Section 301 of New York Business Corporation Law (BCS)). Also, the name of the corporation cannot be the same as any other New York corporation, limited liability company or limited partnership. Search the New York Corporation and Business Entity Database for existing business and not for profit corporations, limited partnerships, limited liability companies and limited liability partnerships, as well as other miscellaneous businesses.
New York regulates or prohibits the use of certain terms in corporate names (or only allows them after approval). For example, certain phrases must have a legend so not to be confused with a “governmental agency”. You cannot use certain terms like “state police”, “urban development”, “chamber of commerce”, “state trooper”, “urban relocation”, “community renewal”, and “tenant relocation”, among other names. Also, certain names have additional requirements or approvals like “bank”, “guaranty”, “insurance”, “trust”, “doctor”, and “lawyer”. (click through to Laws of New York (bottom of page) to see Sections 301 and 302 of New York Business Corporation Law (BCS)).
Caution should be used to not name your small business company or tech startup in a way that might be confusingly similar to an existing trademark. You should also consider a corporate name that is available as a domain name (however, that may mot be as important if you have a domain that has brand appeal). If your company will be doing interstate business (across state lines), may want to protect your corporate name with a trademark or trade name under federal trademark laws (check out the U.S. Patent and Trademark Office’s FAQs) or state trademark and trade name laws.
- Form Your Large or Small Business. Once you have selected the name of the company, you need to form the business by filing the proper documentation with the New York Department of State. See the Division of Corporations website for FAQs regarding the different entity requirements or engage a New York Business Lawyer as your corporate attorney or start-up lawyer.
- Enter Into a Written Agreement with your Fellow Business Owners. If you are going into business with other people, you need to enter into a written agreement with them setting forth the rights and responsibilities of the owners — this generally is in the form of an operating agreement (for a limited liability company), a shareholder agreement and corporate bylaws (for a corporation), or a partnership agreement (for a partnership).
- Get a Tax Identification Number and Learn about your Tax Obligations. Speak to your financial advisor or accountant, but generally it is a good idea to have a separate federal tax IS (or EIN) even if you are a single-member LLC (select a “disregarded entity”). 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 or tech startup, 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.
- Open a Business Bank Account. Once you have your federal tax ID, you should open bank account(s) in the name of the business. You should consider a bank with “commercial” services — in my experience its better to avoid “retail” banks that don’t have a lot of experience in sophisticate business needs. Generally the bank will need to see your business entity formation documents (including banking resolutions). The bank can provide you with generic banking resolutions, but if you are incorporated, you should include these in your corporate by-laws (with specific banking resolutions and officer powers). If you have questions, you can call a New York Small Business Attorney or start-up attorney.
- Get the Necessary Licenses and Permits Necessary for your Business. Go to the New York State’s Business Express website to see what permits and licenses are required and call a New York Small Business Attorney (or start-up lawyer).
Have a New York Small Business Lawyer (or startup attorney) review and/or draft and negotiate the important business agreements, including, among other things, the business owners’ agreement (operating agreement, shareholder agreement and corporate bylaws, and/or partnership agreement, as the case may be), office and other commercial space leases, contracts with your customers and vendors, web site development and hosting agreements and any technology/intellectual property licenses.
Of course, it is best to discuss the above New York Small Business Startup Checklist with a New York Small Business Attorney (or corporate attorney).