
One New York LLC law is hurting small businesses - nehalm
http://pando.com/2013/12/26/one-new-york-llc-law-is-hurting-small-businesses/
======
rayiner
The explanation in the article leaves out a key piece of the whole rationale
for the law. The person spearheading the change says that "[t]he original
intent was to educate the public that an entity has been formed." This is only
part of the story. The real purpose is to give the public notice that a
_limited liability entity_ has been formed.

Historically, limited liability has not been the default, but rather has been
the exception. Thus, it was considered important to give the public, including
service providers and potential vendors, notice of the existence of a new
limited liability entity. This way, the public, in contractual dealings with
the entity, knows that their legal right to sue is circumscribed to suing only
the entity itself, not the people who own and control the entity. This is a
real consideration for, e.g., manufacturers that provide inventory on credit.

Of course, in the internet age it's easy for any vendor to quickly check the
status of a potential customer with an internet search. Also, limited
liability has basically become the default for business entities, so potential
service providers and vendors are always wary of the issue. And of course:
nobody reads newspapers anymore. But people saying that the law is "corrupt"
are way off the mark. There was a very legitimate purpose behind such notice
requirements, which have long been a part of the process of creating limited-
liability entities.

~~~
vonmoltke
> Historically, limited liability has not been the default, but rather has
> been the exception. Thus, it was considered important to give the public,
> including service providers and potential vendors, notice of the existence
> of a new limited liability entity. This way, the public, in contractual
> dealings with the entity, knows that their legal right to sue is
> circumscribed to suing only the entity itself, not the people who own and
> control the entity. This is a real consideration for, e.g., manufacturers
> that provide inventory on credit.

My understanding is that there is no difference, with respect to liability,
between LLCs and traditional corporations. Thus, how can you justify this
requirement applying only to LLCs?

~~~
rayiner
LLCs were actually quite controversial when they were introduced, because they
offer the limited liability of a corporation without a lot of the procedural
protections to the public of the corporate form. A corporation is "less
dangerous" because those procedural formalities create greater separation
between corporations and their owners, reducing the risk that they will be
used to simply limit liability that should rightfully be borne by the
proprietor.

------
will_brown
The law firm I used to work for had a great _hack_ for this law. Essentially
the LLC was formed with a mailing address in a county where the publishing was
exceptionally cheap and after the publishing was completed the LLC address was
amended to the HQ/principal place of business address. We did the publishing
requirement for clients at the time of formation, for $284.95 (this was in
addition to: NEW YORK STATE FILING FEES, ATTORNEY'S FEES, LLC SEAL AND BOOK,
ARTICLES OF ORGANIZATION, LLC MINUTES, LLC REGULATIONS, MEMBERSHIP CERTIFICATE
AND PRELIMINARY NAME SEARCH which we charged $234.95). Total w/publication
$519.90, which falls in line with the article to some degree, whether that is
reasonable is for the client to decide.

For those that care. Section 206 of the Limited Liability Company Law of the
State of New York states: Upon the effectiveness of the initial Articles of
Organization of an LLC, a copy of same or a notice containing the substance
thereof shall be published once each week for six successive weeks, in two
newspapers of the county in which the office of the LLC is located, one must
be a daily newspaper and the other a weekly newspaper designated by the County
Clerk. Proof of such publication by the Affidavit of the publisher or printer
of each newspaper must be filed with New York State within 120 days after the
effective date of the Articles of Organization of the LLC.

As a side, I am generally pro-LLC (this is a serious legal analysis, do not
just make a decision based on others advice see a corporate lawyer), but my
understanding this runs counter to the general principal of SV where they are
pro-Corp.

~~~
nehalm
Are there any issues with filing articles of organization with an address that
you know will change?

~~~
will_brown
I can not answer your question as I am not a New York lawyer.(unauthorized
practice and all)

However, more generally it is very common for a small business to file
articles with different address and immediately amend after filing. Why?
Because it is the chicken and egg problem, a business can not sign a business
lease in the business name without the articles being filed and articles can
not be filed with a business address before the lease is signed. Therefore it
is normal course of business for small businesses to file articles with a home
address, then upon formation sign a lease in the business name, then amend the
articles to reflect the new business address, and all along the businesses
know they will do this.

Checked out plainlegal.com (mobile), very nice.

Edit: for clarification I am a FL attorney, my old firm has offices in 7
states (including NY) and the UK

------
jweir
I hate this law.

This fee is to have your LLC advertised in a newspaper. This is not going to
the state, but to a newspaper or journal. The fees can be high, over a $1000
in Manhattan from what I understand.

This is to inform the public that you have formed an LLC with the name so they
can contest it or what not.

The most amazing thing is the moment you register your LLC it is published on
a state website. The day after I formed mine I got about 6 calls from banks
wanting to setup my business account.

So the law is 100% unnecessary and corrupt.

I didn't pay to have advertisements taken out. My LLC is not in good standing.

What does that mean, well from what I have read I am not allowed to sue as an
LLC until I come in compliance.

[http://www.masurlaw.com/1182/new-york-llc-publication-
requir...](http://www.masurlaw.com/1182/new-york-llc-publication-requirement/)

"In addition, the Secretary of State has indicated it will not keep a record
of LLCs that are not in compliance, further reducing any real liability for
failing to publish."

Now, my LLC is small and exists purely for organization of income, banking and
taxes. If I had real liabilities, employees or large contracts, I would think
twice.

\--edit--

I just remember one more thing about the law, theater groups are exempt.

[http://www.dos.ny.gov/corps/llcfaq.asp#pubreq](http://www.dos.ny.gov/corps/llcfaq.asp#pubreq)

~~~
nehalm
Others have suggested that the implications of not publishing may be worse,
and you may lose limited liability protection.
[http://www.businesslawpost.com/2010/05/llc-publication-
requi...](http://www.businesslawpost.com/2010/05/llc-publication-requirement-
present-and.html)
[http://www.kramerlevin.com/files/Publication/71ccb940-3fa6-4...](http://www.kramerlevin.com/files/Publication/71ccb940-3fa6-45b0-88f5-01dd57e49ca6/Presentation/PublicationAttachment/57698c8a-8591-4bd8-9732-05746dcc00f5/4138_Memo_Lord_v5.pdf)

------
TheBiv
"Whether or not this is true, it’s outrageous that small businesses are forced
to spend money that does not go to the state nor help with incorporation."

How does a journalist end a story with "whether or not this is true"?

~~~
evacuationdrill
"Madhani speculates it could be due to the newspaper lobby."

That's the end of the previous sentence and the antecedent to "this".

------
sheetjs
On the other hand, one New York benefit for tech companies is ST121.3 (sales
tax exemption for hardware):
[http://www.tax.ny.gov/pdf/current_forms/st/st121_3_fill_in.p...](http://www.tax.ny.gov/pdf/current_forms/st/st121_3_fill_in.pdf)
I had some issues with the 5th ave apple store, but the lincoln center store
handled everything smoothly.

The publication cost, even in manhattan, is less than the savings on a few new
macs

------
bbanyc
To clarify, this law also applies to LLCs formed in Delaware or elsewhere if
they are operating within New York. It does not apply to corporations,
regardless of the state of incorporation or the tax status (C or S).

~~~
arikrak
Its interesting that its more difficult and expensive to create an LLC while
in New York than to create a corporation.

------
yummyfajitas
An idea - don't incorporate in business unfriendly state like NY.

~~~
xachen
Even if you incorporate in say Delaware, if you are physically present running
your business in New York you must register your LLC there (Authority to
Transact Business) which comes with the same requirements.

~~~
yummyfajitas
Interesting - sounds like things are worse than I thought. What does
"physically present running your business" mean for a web service?

(Really curious here because my cofounder lives in NY.)

~~~
sfall
if you are living and working in a state that your company should be
registered in that state

~~~
yummyfajitas
What if owners of a company don't live or work in the same state as each
other? What if they don't even live in the US?

~~~
sfall
i honestly dont know about operating a us company from a foreign country but
if you have two owners in two states you would have a primary state where you
incorporate and the other state you would set up a foreign corp (basically
says one company is working in a new state) additionally you could choose a
third state like delaware then have a foreign corp in each of the other states

------
big_maybe
When I turned my sole proprietorship in NYC into an LLC, I researched this
rule extensively, and came to the conclusion that you can safely ignore it. I
believe the law is silent on actual consequences of publishing the notices
later when you supposedly need it (for legal purposes). IANAL.

It's a bet, but a pretty safe bet. After all, opening a small business is
already betting with your time and money. Just add this decision to the risk
and forget about it. I'd rather bet the $1000 towards an endeavor with more
potential upside.

------
wandernotlost
As someone who has been living in NYC and is currently considering what state
in which to register an LLC, I feel like the sub-$1000 difference filing in
NYC would make to my registration is barely a factor. If you're trying to do
business in NYC, this is not a significant amount of money.

~~~
jgalt212
I agree. This public notification requirement is a small nuisance, not a true
impediment to building a business.

Of course, I'd rather it not exist but there are many, many more important
things to focus on than this when building a business.

~~~
nehalm
There are also better uses of startup capital than expensive newspaper notices
that aren't benefiting the public as the same information is available on
state websites. In the aggregate, millions of dollars are being transferred to
newspapers each year through this law.

~~~
jgalt212
All that's probably true, but the effort to change a largely inconsequential
(my view) law would not be worth the cost (time and effort) that could be more
effectively spent elsewhere.

And the fair dealer in me doesn't feel too bad about giving some free revenues
to an industry largely gutted by start ups.

------
pgrote
I was curious as to what the notice looked like and found the following:

[http://classifieds.nydailynews.com/new-york-
city/legalpublic...](http://classifieds.nydailynews.com/new-york-
city/legalpublic-notices/search)

Example text:

"GREEK ISLANDS TAXI LLC ARTS OF... Greek Islands Taxi LLC Arts of Org. filed
NY Secy of State (SSNY) 12/3/13\. Office: Queens Co. SSNY design. agent of LLC
upon whom process may be served and shall mail copy to 3321 21st St. Astoria,
NY 11106. Purpose: any lawful activity."

------
joshuaheard
The state of California has a $850 (or so) minimum annual franchise tax. Let's
lower that to $150. Or $15.

~~~
esbranson
That's exactly right. There are a few exceptions for new non-profits and such,
but I doubt the exceptions would apply to real corporations.

------
rdlowrey
Just one? I feel like the victim of a cheesy "one weird trick" advert re: the
link title.

------
bradleyjg
In order to minimize the cost people generally initially file with an agent
somewhere upstate with cheap publication costs and then if desired move the
LLC once it's formed.

I agree that it's a rather silly rule as no one ever reads those notices. On
the other hand if there were to be a major reform I'd just as soon see them
abolish the LLC and instead make the ordinary corporate form a little more
flexible and streamlined.

~~~
rayiner
I think it makes sense to have two different structures. One with more
formality, procedure, and capitalization requirements, and one with less but
also a thinner shell of limited liability. It shouldn't be easy to set up an
entity that insulates you from liability without following procedures to
ensure that it is actually independent and capable of paying its own
judgments, etc.

~~~
bradleyjg
In practice is veil piercing any more common against LLCs than ordinary
corporations?

~~~
rayiner
I don't think so. I'm saying that given the dearth of formalities and
capitalization requirements, it should be easier to pierce the veil with LLCs.

------
geetee
_He offers the example of New York Law Journal, one of the publications New
York county approves. An ad in the journal costs a minimum of $723. In the
past year, it has run more than 20,000 in the past year, meaning it raked in
at least $15 million from these notices alone. Madhani doesn’t see that money
helping small business._

Pretty nice deal for New York Law Journal.

------
jeffasinger
This varies by extreme amounts depending on county. I started an LLC in NY,
including publishing for about $700.

------
jaboutboul
It's an annoying law and should be repealed but why is this site asking for
access to so much data in order to become a supporter? They want to be able to
read your tweets and see who you follow and/or see 1st and 2nd degree
connections on linkedin.

------
cgtyoder
Does the author of the article really not understand that LLCs are not
corporations? LLCs can't be "incorporated." Very sloppy reporting.

------
erbo
If there was ever proof of Karl Denninger's statement[0] that "one man's
waste, fraud, abuse, scam, and theft is another man's paycheck," this is it.
The law will _never_ be changed, thanks to the influence of the newspapers
that benefit...who, _because_ they benefit, have the cash to influence the
legislators.

[0] See e.g. [http://www.market-ticker.org/akcs-
www?singlepost=3149840](http://www.market-ticker.org/akcs-
www?singlepost=3149840)

