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When starting a new business, one of the most fundamental decisions owners face is where to legally form and register their company.
Businesses can be established at either the state or federal level by filing articles of organization or incorporation, which establishes the entity as a legal “person” in the eyes of the law. Two popular options for formation are New York City (NYC) and Delaware—but which is better for a small business?
This article will examine the step-by-step process of structuring a startup in both NYC and Delaware, along with the unique pros, cons, tax implications, and legal considerations of each location. With key insights on factors like regulations, court systems, filing fees, and more, business owners will be equipped to make an informed decision on the best state for their needs.
Understanding Business Formation
Forming a business involves legally structuring and registering the company so it exists in the eyes of the law. This generally requires filing Articles of Organization if starting a limited liability company (LLC) or Articles of Incorporation if forming a corporation.
These documents establish key facts about the business, including its name, address, ownership structure, leadership team, and activities. They must be filed with and approved by the state to formally create the entity.
The state plays a central role, as owners must file with the state where they want to establish the business. Each state has its own laws, regulations, filing requirements and fees to follow.
Here are specific steps for structuring a small business entity in New York and Delaware.
Forming a Business in New York City
To establish a legal entity in NYC, start by choosing either an LLC or corporation structure. Then, file Articles of Organization or Incorporation with the NY Secretary of State and pay fees.
LLCs in NYC have an extra requirement to publish a notice in two local newspapers within 120 days.
Benefits of NYC include access to local startup programs and resources. The downsides are more regulations and higher taxes than in some other areas.
Forming a Business in Delaware
Delaware offers straightforward filings through its Division of Corporations to form LLCs, C-corps and S-corps. It touts flexible corporate laws and specialized business courts as advantages.
Delaware appeals to startups and entrepreneurs with business-friendly policies like no corporate income tax. Over one million entities have been incorporated in the state.
Comparing New York City and Delaware
When forming a small business, Delaware offers simpler processes, while New York provides more startup resources. Delaware expedites filings and imposes fewer regulations.
However, New York City provides closer access to funding, mentorship and talent to support startups. Additionally, businesses may face more local compliance requirements in New York City.
Taxes significantly favor Delaware, with no corporate income tax and other advantages, while New York levies notable income, payroll, and gross receipts taxes.
There is no universally “best” option – assess whether priorities like taxes, legal needs, funding access or simplicity are most important when choosing between locations. Business owners are encouraged to consult legal and tax professionals to ensure they make the most informed choice possible based on their specific business situation and priorities.
New York vs. Delaware, in Conclusion
New York City and Delaware each offer distinct pros and cons for forming a startup. Key differences exist around taxes, regulations, resources and legal considerations.
Business owners should assess their specific priorities and needs. If they want Delaware’s tax perks but require NYC funding programs, could they temporarily base in Delaware and then relocate once established?
Every business situation is unique. Consult legal and tax experts to make the most informed choice, weighing all operational, tax, liability, and growth implications. This thoughtful approach will set business owners’ new ventures up for success.
Published by: Nelly Chavez
