On a state level, New York is off to a fantastic start in 2021. In the first half of 2021, there was considerably more venture capital activity in the state than in the same time of 2020, as in many startup ecosystems.
The data from CB Insights portrays a clear picture: New York-based companies raised $7.6 billion in 667 rounds in the first half of 2020. However, in the first half of 2021, those figures jumped to $22.4 billion from 847 transactions. Many of these companies were found to be LLCs.
START-UP NY program
New York Governor Cuomo’s latest project, START-UP NY, aims to create statewide tax-free zones and provide significant incentives to businesses looking to relocate, start-up, or expand in New York. Businesses will be able to operate tax-free on or near university campuses for 10 years, and their employees will not be subject to state or municipal personal income taxes.
For the first five years, employees pay no income taxes on wages up to $200,000 for individuals, $250,000 for a head of household, and $300,000 for taxpayers submitting a joint return. Furthermore, businesses may be eligible for further benefits.
The program accepts applications from a wide range of businesses. Businesses must support the academic mission of the institution or university with which they wish to collaborate in order to participate.
To participate, a company must create net new jobs in one of three ways:
- as a new start-up
- as an out-of-state company relocating to New York State; or as an existing company relocating to New York State.
- expansion as a current New York State company example, a corporation starting a new line of business or constructing a new advanced manufacturing facility—rather than merely relocating existing employees.
Retail and wholesale businesses, restaurants and hospitality, professional practices such as law firms and medical practices, and energy production and distribution organizations are all excluded from the program.
There is no minimum amount of net new employment that must be created, but all participating businesses must do so in order to benefit from the program.
What tax benefits will participating companies receive?
While partnering with higher education institutions, START-UP NY will enable new and expanding businesses that create net new employment with the option to operate totally tax-free, including no income tax for employees and no sales, property, or business tax. Tax benefits for businesses and employees will be available for up to ten years. There is a restriction on the number of employee earnings that are exempt from Personal Income Tax after five years for extraordinarily high-earners.
Starting a business in NY
As mentioned above, starting a new business in New York is one of the ways to qualify for the START-UP NY incentive. Many entrepreneurs choose the option of starting an LLC. Below we will discuss the steps to follow when starting an LLC in NY as set out by LLC University:
Suggested Video from LLC University:
In the event that your business is sued, a New York Limited Liability Company (LLC) is a legal framework that protects your personal assets (house, car, bank account). A limited liability company (LLC) can be used to run a business or to hold assets (such as real estate, vehicles, boats, or aircraft).
In New York, forming an LLC is simple. To meet the NY Publication Requirement, search the state database for your New York LLC name, file your LLC Articles of Organization and pay the state filing fee of $200, and then publish two advertisements.
File your Certificate of Publication for a fee of $50, complete your Operating Agreement, receive a Federal Tax ID Number, and file your Biennial Statements after your New York LLC is approved.
Advantages of forming an LLC in NY
An LLC has the most freedom in terms of how it will be taxed under federal law. Below we will discuss how to form an LLC in NY:
A single-member LLC (also known as a single-member LLC) can be taxed as a sole proprietorship, an S corporation, or a C corporation. A multiple-member LLC can opt to be taxed as a partnership, an S company, or a C corporation. The decision will be based on a number of criteria and should be made in collaboration with a tax expert.
A limited liability company (LLC) can have as many members as it wants, whereas an S corporation can only have 100. A-C corporation can have more members, but its operations will be subject to double taxation and greater regulation.
The process of incorporating an LLC is less complicated than that of forming a corporation. Articles of incorporation must be filed with the New York Department of State, Division of Corporations, in order to incorporate a limited liability company in New York (commonly referred to as the Secretary of State). An LLC is not required to hold annual meetings or retain detailed minutes in the same way that a corporation is.
Aside from borrowing money, an LLC may have an easier time raising cash than a sole proprietorship or general partnership. Although neither of these other types of businesses can accept investors without making them partners, an LLC can accept new members without giving them full control over management.
Starting an LLC is a great option when considering business models. New York is not known for being the most business-friendly state in the country, but it has implemented a number of tax benefits and incentives to support small business owners. The tax advantages of an LLC combined with the START-UP NY initiative make not only this business model but also New York, in general, all the more appealing.