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How to Start a Business in New York

How to Start a Business in New York

Starting a business in New York is an exciting prospect, with small businesses fueling the state’s economy. Small businesses represent 99.8% of all New York businesses, according to the U.S. Small Business Administration Office of Advocacy. In New York City alone, there are more than 200,000 businesses with 20 or fewer employees.

“The biggest draw of New York is its client base,” said Lior Rachmany, CEO and founder of Brooklyn-based Dumbo Moving + Storage. “New York is part of the global market and a tourist destination, making it an excellent place to expand your business because of its large pool of customers.”

Whether you’re planning to start a business in the Big Apple, the Bison City or another part of the Empire State, there are certain steps you’ll need to take to set your new venture up for success.

How to establish a business entity in New York

Every state has a set of guidelines business owners must follow to open a new business and New York is no different. The following is a checklist of items you’ll need to cross off to make your business legal.

1. Choose your business structure

First, you’ll need to decide how you want to structure your business. In New York State, you can operate as a:

  • Business corporation, including S-corps and C-corps
  • Non-profit corporation
  • Limited liability company
  • General partnership
  • Limited partnership
  • Sole proprietorship

The difference between each one centers on your personal, legal and financial responsibility for the actions of the business. With a sole proprietorship, you and the business are regarded as being one and the same. An LLC structure, on the other hand, would separate you and your personal assets from those of the business. In an S-corporation, all income of the business is taxed on a pass-through basis, meaning it’s treated as your personal income. A C-corp designation, on the other hand, taxes business and personal income separately.

2. Name your business

If you’ve chosen a business structure, the next step is picking a name for your business. How you name your business is entirely up to you, though there are a few helpful guidelines to keep in mind:

  • Check for any trademarks on your proposed name with the U.S. Patent Office. While registering a trademark isn’t required, it can help prevent others from starting a new business (in New York or elsewhere) with the same name. You may also choose to register your trademark with the New York Office of the Secretary of State for $50.
  • Search the New York State Corporation & Entity Database for business names that are similar or identical to the one you’ve chosen.
  • Perform a general web search to see if there are any other businesses with the same name in New York or elsewhere.

3. Register your business

New York State doesn’t require you to register your new business if you’re operating as a sole proprietorship. But you’ll have to be legally registered if you’re starting a C- or S-corporation, partnership or LLC. Filing a certificate of incorporation requires a $125 fee. Articles of organization for an LLC is $200, plus a $50 certificate of publication. General partnerships need to file an assumed name certificate with the clerk’s office in the county you’re starting your business in — costs for such “doing business as” arrangements may vary. Limited partnerships must file a certificate of limited partnership with the state for a $200 fee.

Say that you want to start an LLC, which is generally easier to establish than a corporation or partnership. To do that in New York, you’d need to:

  • File articles of organization with the Department of State.
  • Create an operating agreement that spells out the rights, duties and responsibilities of all LLC members.
  • Publish a copy of your articles of incorporation or a notice of forming an LLC in two newspapers for at least six consecutive weeks.

You also have the option to name a registered agent for your business, though it isn’t required by the state. A registered agent is authorized to accept mail or be served on your behalf. If you don’t name a registered agent, you can provide the New York Department of State with your name and address where you can be served.

Certain types of businesses also have to register with the New York State Department of Taxation and Finance. For example, you’ll have to register if:

  • You have employees or plan to hire workers. This covers every type of business, regardless of what kind of products or services you offer.
  • Your business sells cigarettes or alcohol. For example, if you run a bar or convenience store, you’d be required to register.
  • You sell taxable tangible property or services, even if you do so from home.
  • You’re a tax preparer. If you fail to register, you won’t be able to represent your clients before the Division of Taxation or Division of Tax Appeals.

You’d need to register as a sales tax vendor if you expect to collect state and local sales tax. To do that, you’ll have to create a NY.gov business account and provide relevant information about your business.

If you have employees, new hires will also need to be registered. The information you need to report includes their name, date of birth, Social Security number, street address and the date they were hired.

4. Check zoning and licensing requirements

Whether you need special permits or licenses will depend on what kind of business you have and the county or city you’re doing business from.

If you’re planning to open an in-home daycare, for instance, you’ll need to check local zoning laws to make sure you can run a business from your home. Assuming that’s not an issue, you’ll need to apply for a license or certificate to satisfy requirements set by the New York Office of Children and Family Services if you’ll be caring for three or more children, three or more hours per day. You could use the Business Wizard which will create a custom checklist for your particular business or industry, including what licenses you may need.

5. Establish an Employer Identification Number (EIN)

An Employer Identification Number or EIN is a unique number that’s used to identify your business for tax purposes. If you’re operating as anything other than a sole proprietorship, you’ll need to get an EIN, unless you’re a single-member LLC.

The good news is, that’s easy — and free — to do. You can apply for an EIN through the IRS website. To get an EIN, you’ll need to tell the IRS:

  • Your name and Social Security number
  • The legal name of the business
  • Your business entity
  • The business’s primary activity
  • When the business was started
  • Where the business is located and your address
  • Why you’re requesting an EIN

Once you get your EIN, you’ll also need to register online with the New York State Department of Labor.

6. Open business bank accounts

Once you’ve gotten all the legalities of starting a business in New York checked off, you can open a bank account for your business.

You’ll need a checking account for receiving payments, paying business expenses and covering payroll if you have employees. It’s also a good idea to open a business savings account so you can start building some cash reserves.

To open business bank accounts, you’ll need your:

  • Business EIN (or Social Security number if you’re a sole proprietor)
  • Articles of incorporation or operating agreement
  • Business license, if applicable

Take time to compare banks to see which accounts offer the best combination of features and minimal fees.

Costs of starting a business in New York

Beyond the costs we’ve already mentioned, there are some other costs to be aware of as you start your New York-based business.

1. State taxes

New York expects business owners to pay their fair share of taxes in addition to federal taxes you may pay. How you’re taxed depends on the type of business you have.

C-corporations, for instance, pay corporate tax rates — New York’s maxes out at 6.5%, according to the Tax Foundation. But if you’re a sole proprietor, LLC, S-corp or partnership, your business income is taxed at your personal income tax rate. New York has one of the highest personal income tax rates at 8.82%.

In addition to income tax, you’ll have to pay:

  • Sales tax
  • Property tax if you own business property
  • Withholding tax

Paying withholding tax is non-negotiable if you run a New York-based business — taxes must be withheld if you’re paying wages to employees.

When you have to pay state taxes depends on your business type. Sole proprietors, LLCs and S-corps will have to pay quarterly estimated taxes in January, April, June and September. Income tax returns are also filed in April for sole proprietors and C-corporations. LLCs, S-corps and partnerships would file annual tax returns in March. These requirements are the same for federal taxes. State sales tax is paid monthly.

2. Insurance

Insurance is important for protecting your business financially. In New York State, you’re required to have:

Workers’ compensation and disability benefits insurance if you have employees. This type of insurance offers financial benefits to your employees if they become injured or disabled and can’t work.

Unemployment insurance, again, if you have employees who work in the state.

Health insurance is required if you have 50 or more people in your employ. If you have fewer than 50 employees, there are several options for getting health insurance for yourself and your staff. It’s not required, but you can compare options offered through the New York State of Health Small Business Marketplace, a health care exchange such as Health Pass New York or New York Health Alliance, or via low-cost options through the Department of Health’s Healthy NY program.

If you’re leasing a space for your business, your landlord may expect you to have liability coverage to protect against damages. If you own the space your business operates from, you’d likely need property and casualty insurance to protect against fire damage or theft.

Other kinds of coverage that might be necessary include:

  • Life insurance for yourself
  • Life insurance for your employees
  • Auto insurance for business vehicles
  • Personal liability insurance
  • Umbrella insurance for additional liability coverage
  • Home office insurance if you run your business from home
  • Equipment insurance
  • Disaster insurance
  • Business interruption insurance (which protects you against losses if your business has to close temporarily due to forces outside your control)

The amount you’ll pay for different kinds of insurance vary. On average, workers’ compensation coverage costs $3 to $3.49 per $100 of payroll costs paid. The New York State Insurance Fund sets the minimum annual premium for disability coverage at $60 per year. The actual cost you pay for workers’ compensation, disability or any other business insurance you purchase will depend largely on your financial profile, the amount of coverage needed and your choice of carrier.

3. Hiring and training employees

Last but not least, you’ll need to budget for the cost of hiring and training employees. That might involve paying for things like:

  • Advertising and marketing job openings
  • Recruiting or headhunting services
  • Pre-hire credit or health screenings
  • Background check fees
  • Drug testing costs
  • Training or education classes
  • New uniforms
  • Licensing or certification fees

According to the Society for Human Resource Management, it costs $4,129 on average to hire and train a new employee. So keep that in perspective if you’re working with a limited startup budget.

Financing your business

If you don’t have a lot of cash at the ready to fund your business, you might consider financing as an option. According to Jared Weitz, CEO and founder of Great Neck, New York-based United Capital Source, New York offers many business incentive programs and grants for new business owners.

Those include:

  • Job Development Authority Direct Loan Program — This program provides financing to manufacturing businesses to help purchase equipment and machinery.
  • Metropolitan Economic Revitalization Fund — This program offers funding to businesses that are committed to creating private-sector jobs in economically distressed areas of New York.
  • Bridge to Success Program — This program offers short-term bridge funding to women- and minority-owned businesses.

Aside from state-based programs, there are other ways to fund your New York business. Some general small business financing options include:

With any funding option, be sure to compare the interest rates, fees, borrowing limits, collateral requirements and approval guidelines to find the right fit.

The bottom line

Starting a business in New York can seem a little overwhelming but having a clear roadmap to follow can help. Covering the legal side first — choosing an entity and a business name, registering your business, getting an EIN and opening business bank accounts — can prepare you for managing the costs of starting a business. The Empire State Development Corporation and the New York Department of State are excellent go-to resources if you have questions about launching a business or relocating an existing one you already own to New York.

 

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