Executive Summary
> Bottom Line Comparison
LLC Benefits:
- Greater flexibility
- Simpler compliance
- Unlimited ownership types
S-Corp Benefits:
- Self-employment tax savings
- Salary + distribution structure
- Institutional credibility
> NY Formation Costs:
- LLC: $550-$1,750+ (includes publication)
- S-Corp: $125 (plus reasonable salary requirements)
Bottom Line: LLCs offer greater flexibility and simpler compliance requirements, while S Corporations provide potential self-employment tax savings through salary-distribution structures. New York LLCs require $200 filing fees plus $300-$1,500 publication costs, while S Corporations need $125 incorporation fees plus separate S election filing.
Entity Definitions and Core Distinctions
New York Limited Liability Company (LLC)
A New York LLC is a versatile business structure that combines liability protection of a corporation with tax benefits and operational flexibility of a partnership. New York treats LLCs as unincorporated organizations with one or more members, each having limited liability for contractual obligations.
> LLC Key Features:
- Structure Type: Hybrid entity
- Liability Protection: Yes
- Tax Flexibility: Yes
- Operational Flexibility: Maximum
- Legal Status: Unincorporated organization
New York S Corporation
An S Corporation is a regular business corporation that elected special tax treatment with federal and New York State tax authorities. New York requires separate state election filing even if federal S Corporation status exists.
> S-Corp Key Features:
- Structure Type: Tax election
- Base Entity: Corporation
- Tax Status: Pass-through
- Employment Tax Savings: Yes
- NY Election Required: Yes
Formation Requirements and Costs
New York LLC Formation Process
| Requirement | Cost | Timeline |
|---|---|---|
| Articles of Organization | $200 (includes $5 copy fee) | 24 hours (immediate online) |
| Publication Requirement | $300-$1,500 (varies by county) | 6 weeks in two newspapers |
| Certificate of Publication | $50 | After 6-week publication |
| Total Formation Cost | $550-$1,750+ | ~7 weeks complete |
New York Unique Requirements:
- Publication must occur within 120 days of Articles filing
- Publication costs range from $80 in Albany County to $2,000+ in NYC boroughs
- Biennial Statement required every 2 years ($9 fee)
New York S Corporation Formation Process
| Requirement | Cost | Timeline |
|---|---|---|
| Certificate of Incorporation | $125 | 24 hours (immediate online) |
| Federal S Election (Form 2553) | $0 | Within 75 days |
| NY S Election (Form CT-6) | $0 | Within 75 days of tax year beginning |
| Total Formation Cost | $125 | ~30 days complete |
Ownership and Management Structure
LLC Ownership Flexibility
Problem: Traditional corporations restrict ownership types → Solution: LLCs allow unlimited members including individuals, companies, or foreign entities → Result: Maximum ownership flexibility.
- Members can customize profit distribution regardless of ownership percentage
- Management by members or appointed managers allowed
- No citizenship restrictions for members
S Corporation Ownership Restrictions
Problem: Need tax benefits with ownership limitations → Solution: S Corporations restrict ownership to 100 shareholders maximum, U.S. citizens/residents only → Result: Limited but tax-efficient ownership structure.
- Only one class of stock permitted
- Cannot be owned by corporations, partnerships, or non-resident aliens
- Shareholders must receive distributions proportional to ownership stake
Tax Treatment and Implications
LLC Tax Structures in New York
Default Tax Treatment:
- Pass-through taxation - profits/losses flow to members' personal returns
- Single-member LLCs taxed as sole proprietorships
- Multi-member LLCs taxed as partnerships
Self-Employment Tax Impact:
> Tax Burden Breakdown:
- Self-Employment Tax: 15.3%
- Applies To: Business revenue
- Tax Saving Option: Elect S-Corp taxation
- Potential Savings: Significant on distributions
LLC owners pay approximately 15% self-employment tax on business revenue. LLC can elect S Corporation taxation to reduce 15.3% self-employment tax burden.
S Corporation Tax Benefits
Employment Tax Savings:
- Members receive salary (subject to payroll taxes) plus distributions (not subject to employment taxes)
- Distributions not subject to Medicare and Social Security taxes
- IRS requires "reasonable compensation" for owner-employees
New York Specific Tax Rules:
⚠️ NYC Warning: New York City does not recognize S Corporation status - entities face double taxation from NYC corporate tax
- Must file Form CT-6 within 75 days even with federal S election
- Failure to file NY election results in C Corporation taxation
Annual Filing Requirements and Costs
LLC Annual Obligations
| Filing | Frequency | Cost | Based On |
|---|---|---|---|
| Biennial Statement | Every 2 years | $9 | Compliance requirement |
| Annual Filing Fee (Form IT-204-LL) | Annual | $25-$4,500 | New York gross income |
Annual Filing Fee Structure:
- $25 for disregarded entities with NY income
- Fee ranges up to $4,500 based on New York-source gross income
- Filed by March 15th (15th day of 3rd month after tax year)
S Corporation Annual Obligations
| Filing | Frequency | Cost | Requirements |
|---|---|---|---|
| Form CT-3-S (Franchise Tax Return) | Annual | $25-$4,500 minimum tax | Most corporations mandated to e-file |
| Form CT-34-SH (Shareholder Schedule) | Annual | Included | Required attachment to CT-3-S |
| Biennial Report | Every 2 years | $9 | Corporation compliance |
S Corporation Minimum Tax: Fixed dollar minimum tax applies regardless of income, ranging $25-$4,500 based on gross receipts
Strategic Decision Framework
Choose LLC When:
> LLC Decision Factors:
- Flexibility Priority: High importance
- Simple Administration: Preferred
- Diverse Ownership: Required
- Loss Pass-Through: Beneficial
- Flexibility Priority: Want maximum operational and ownership flexibility
- Simple Administration: Prefer minimal reporting and filing requirements
- Diverse Ownership: Need non-citizen members or corporate owners
- Loss Pass-Through: Want to deduct business losses against personal income
Choose S Corporation When:
> S-Corp Decision Factors:
- Tax Savings: Profit > reasonable salary
- Employment Benefits: Important
- Future Growth: Planned
- Institutional Credibility: Valued
- Tax Savings: Annual profit exceeds reasonable salary requirements
- Employment Benefits: Want to be company employee with W-2 wages
- Future Growth: Plan to attract investors preferring corporate structure
- Institutional Credibility: Need formal structure for banking/investor relationships
Hybrid Approach Available
Best of Both Worlds: LLCs can elect S Corporation tax treatment, combining operational flexibility with employment tax savings
2025 New York Considerations
Recent Regulatory Updates
- Updated regulations effective for tax years beginning 2025
- Enhanced e-filing requirements for both structures
- Continued NYC non-recognition of S Corporation status
Geographic Cost Variations
Publication Cost Strategy: Form LLC in lower-cost counties (Albany: $80) versus expensive NYC areas ($2,000+) using registered agent services
Ready to Form Your New York Business?
Get professional assistance with your LLC or S Corporation formation. ZenBusiness provides expert guidance through New York's unique requirements including publication and state election filing.