STARTUP

The High Costs of Filing an LLC in New York

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I’m going through the steps of starting up FamiliesGo!, a travel planning website for families, and I would like to file the business with New York State as a limited liability company. I have the papers on my desk. In fact they’ve been sitting on my desk for a couple of months now.

I haven’t actually filed them because forming an LLC in New York City will eat up about a good 10 percent of my start-up costs and I can’t bring myself to do it.

New York City’s mayor Micheal Bloomberg has done a lot for entrepreneurs in New York. What he hasn’t done and should do —loudly and publicly—is lobby the state legislature to dismantle an archaic rule that founders need to provide public “notice of formation“ within three months of filing their LLC papers. We have to provide this “notice” by running an ad in two local newspapers for six weeks. Online services that help you file this paperwork estimate the publication costs to be anywhere between $800 and $1,200 in the five boroughs of New York City. To add insult to injury, I’ll then have to file a certificate of publication from each of the newspapers at $50 a pop.

In theory, the point is to put the public on notice in case some scoundrel attempts to launch his latest medicine show on an unsuspecting public. But when was the last time you perused the newspaper classifieds to see what new local businesses were opening? When was the last time you looked at the classifieds at all? The public would be better served by requiring new companies to announce themselves on Facebook, or Craig’s List. (Not to mention, it would be free.)

Moreover, I can’t even find out what the list of approved publications is for Kings County, where my business is located, so that I can budget accordingly. The state doesn’t list them online and neither does my county clerk’s office. Apparently, once I file my LLC documents (with a check for $200), I can go to the clerk’s office and he’ll give me the names of two publications. I tried calling the clerk this week to ask about this, but no one answered the phone.

If you’re borrowing $100,000 in start-up capital, piling on $1,100 to $1,500 in filing and publication fees would seem like a drop in the bucket.  But you can launch a small consulting shop for several hundred dollars these days. You can bootstrap a viable tech company for a few thousand. It seems obscene to spend 10% or 15% of a start-up budget on red tape that provides no value to the company or the public.

I can’t imagine why Bloomberg, an entrepreneur himself and probably the most business-friendly mayor New York has ever had, puts up with it. I suspect the revenues the newspaper companies derive from this rule has something to do with its longevity.

Some founders get around this cost by creating S Corporations. It’s not a bad option, but it’s more cumbersome than an LLC. I would have to make myself a salaried employee immediately, which creates ongoing expenses and paperwork. There might be state and city taxes due that I would avoid with an LLC. And an S Corp has to hold shareholder and director meetings annually, which seems way too bureaucratic when the shareholders (and directors) are one investor, my co-founder, and me.

So my choice is an LLC, which would make my life simpler but cost start-up capital I could put to much better use, or an S Corp, which avoids the big up-front fees but comes with ongoing expenses and other formalities.

I’m going to have to think about this some more. I would like to base this decision on what makes the most sense for my business, not which one offers up few unnecessary costs and hassles. I hope someone in the mayor’s office and state legislature—someone focused on entrepreneurs and new-business creation—is reading.

 

 

 

Last updated: Jul 20, 2011




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