Forming an LLC in New York – Part 2

Beware The Vultures!

Ok, perhaps I’m being a bit dramatic with the term “vultures” or maybe I’m not.

In case you were unaware, New York is one of only three states that still require newly formed Limited Liability Companies (LLCs) to publish a notice related to the formation of the LLC in newspapers.

The specific requirement falls under Section 206 of the New York State Limited Liability Company Law.

“Section 206 of the New York State Limited Liability Company Law requires that within 120 days after the effectiveness of the initial articles of organization, a limited liability company (LLC) must publish in two newspapers a copy of the articles of organization or a notice related to the formation of the LLC. The newspapers must be designated by the county clerk of the county in which the office of the LLC is located, as stated in the articles of organization. After publication, the printer or publisher of each newspaper will provide you with an affidavit of publication. A Certificate of Publication, with the affidavits of publication of the newspapers attached, must be submitted to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231. The fee for filing the Certificate of Publication is $50.”

When you use certain third-party companies to help you file the paperwork to form your new LLC, those companies, for a fee, will prepare and file the necessary paperwork including the Articles of Organization with the state, prepare and provide a boiler plate Operating Agreement, file IRS Form SS-4 to apply for an EIN or Tax ID for the LLC (if necessary) and so forth.

However, many of those third-party companies do not handle the LLC Publication Requirement for you so it’s important to read the details and fine print. If they don’t handle it, it’s up to you to do it yourself or pay a third-party to handle it for you. The costs of publishing in the newspapers vary based on the county where the LLC is located. Costs can range from a few hundred dollars to over a thousand dollars not including the $50 Certification of Publication fee paid to NYS (plus any expedited service fees if necessary).

This is where the first “vultures” warning comes in. Some third-party companies that may offer services for the LLC Publication Requirement monitor the formation of new LLCs with the state and within days of filing your Articles of Organization, will send solicitations for their services. If you have a named Registered Agent, they may receive the mail first and forward it to you but if not, the address you listed for your Service of Process will most likely receive the mail.

While it may seem trivial, new, uninformed, and inexperienced business owners may panic and decide to go with one of those companies without exercising proper due diligence and due care. It’s important to first understand that these are private companies soliciting for business. You need to research each company to determine if they are reputable, review the exact details of the services being provided for the cost being offered, read all the fine print and shop around. Some of the companies may be legitimate and reputable; others may not. You don’t want to overpay or pay for services that aren’t rendered and then must find a way to recover those funds.

You also don’t want to pay for unnecessary services. Some solicitations suggest listing those third-party companies as your Registered Agent to cut down on the publication costs since their business address is in a county where the cost to publish in newspapers is significantly cheaper. I won’t get into the potential implications or red flags this raises, but when you see it, you’ll understand.

Back to the point I’m driving at … what you may neglect to realize with using their Registered Agent service is it comes with an eventual fee (may be free for up to one year) and auto-renewal (you may need to jump through hoops to cancel the service). While states typically require you to have a Registered Agent, in New York, the NY Secretary of State is defaultly designated as the Registered Agent upon formation of your LLC. You do not need to have a separate Registered Agent nor pay for a Registered Agent service (especially if you are a startup or small business owner with limited funds). However, you do need to provide a valid mailing address where the NY Secretary of State can forward any process that is served. Just to note, if your LLC was setup by your attorney, your attorney may be designated the Registered Agent and/or listed for Service of Process and may do this at no additional cost.

That’s not to say Registered Agent services aren’t helpful from a privacy standpoint especially if you don’t want to use a home mailing address but you can also do this yourself by listing any valid mailing address for Service of Process where you can receive mail. It does not need to be your home address. Just be sure to check your mail often.

Another “vultures” warning is to be on the look out for official looking documents related to your LLC or formation of your LLC, but which are not coming from New York State or any government agency. For instance, New York State can provide a state business entity with a Certificate of Status (aka Certificate of Good Standing or Certificate of Existence) which evidences the existence of a corporation or business entity registered in NYS. The certificate may be obtained by submitting a written request to the NYS Department of State along with a $25 fee. Only specific businesses under specific conditions may need a Certificate of Status.

There are some companies who may send out official looking documents with language implying that new LLCs need a Certificate of Status and the third-party companies will help those LLCs obtain the certificate for a service fee, but the fee is significantly more expensive than the $25 fee charged by the state and you may not get what you are paying for. For first-time and unsuspecting business owners, they may quickly write the check or pay the fee and end up with nothing.

One final example involves federal, state, and local labor law posters that are generally required to be posted conspicuously in your place of business if you have employees. You may receive solicitations advising you about the applicable posting requirements and offering options to purchase the applicable posters. While businesses with employees do need to comply with the law, often these posters may already be available and provided by their payroll companies or if those businesses outsource to a Professional Employer Organization (PEO), by the PEO. If you don’t receive these posters through your payroll company or PEO, you can download posters from the respective federal, state, and local agencies or you may choose to purchase posters from a reputable third-party.

Just be certain to exercise due diligence and due care! Do your research first! Consult with your legal counsel, if necessary! Don’t simply write a check or pay fees for something without knowing what you are paying for and whether you need it!

Starting a new business can open the doors to new opportunities but it can also open the doors to scams and unsolicited services and costs. While there are many legitimate and reputable companies out there to help, there are just as many, if not more, looking to take advantage of unsuspecting new business owners. Don’t fall for it! Stay vigilant and be on the lookout for the vultures!