The New York Limited Liability Company (LLC) is a hybrid business entity which combines the best features of partnerships with corporations. LLCs are commonly used for real estate ventures and family partnerships because of their tax advantages.

The LLC is formed by the filing of Articles of Organization with the New York Secretary of State and publishing a notice in two newspapers for six weeks. The operating agreement, which is similar to the by-laws of a corporation, sets forth the members’ rights and obligations and the required procedures for the LLC’s operation.

LLCs have the following advantages over other types of business entities, especially for the acquisition and holding of real estate:

Greater informality and flexibility of management. Members can participate in management and/or structure control of decision-making as desired.
No stock structure and shareholder limitations as in S corporations. The flexibility in the allocation of income, gain, and loss is very advantageous. Whereas an S corporation can have only one class of stock, more than one class of ownership interest can be created in an LLC.In addition, distinctions can be made between the equity interest of employees, investor-nonmanagers, or investor-managers based on the future success of the business, a part of the business, or realization of loss on the sale of the business.
Inability of creditors of members to force a sale or dissolution of the LLC.
Ability to hold real estate in the LLC name, which allows transfers of interest within the LLC without recording requirements.
Partnership “pass-through” tax treatment. LLC, like partnerships, are not subject to income taxation. Gains and losses flow through the company and are taxed to or deducted by the members.
Special allocations and distributions. LLC members may divide income and tax liability among themselves. For example, a 10 percent member could obtain 10 percent of cash flow but 40 percent of depreciation deductions for a particular property.
Ability of investors to participate in management without losing their liability protection as in a limited partnership.
Avoidance of corporate-level income tax gain when appreciated property is sold.

If you’d like to discuss setting up legal protection for your business, give me a call at (585) 484-7432 for a legal consultation.

Setting up a business entity can be done affordably and quickly – no matter where you reside in the state of New York.