Foreign LLC doing business in New York must publish in New York – and other Lessons

Picture this:

Amy formed Ace LLC, a Nevada Limited Liability Company, for her New York business.  She thought that LLCs are cheaper to form in Nevada, would incur fewer taxes and save her from complying with New York’s costly LLC newspaper publication requirement .

Ace LLC was about to enter into an important transaction with Widget Inc.  In the course of due diligence, Widget Inc.’s advisers demanded to see a “certificate of good standing” for Ace LLC.  Amy could not provide such a certificate, because an inquiry with New York’s Department of State showed that Ace LLC did not exist in New York and had filed none of the paperwork necessary for foreign entities.  As a result, Ace LLC was not authorized to do business in New York.

Thankfully, Widget Inc. was of the patient kind and allowed the deal to go forward after Ace LLC cleaned up its act and gained good standing in New York.  Ace LLC applied for authorization to do business in New York and arranged for publication in two newspapers.   Amy was upset to learn that she would have saved money in the long run by forming a New York limited liability company or corporation in the first place.  Since she was doing business in New York, there were no tax savings.  The application for authorization to do business was an additional expense and Ace LLC had the ongoing cost of paying a Nevada registered agent.

Lessons learned:

1. If you do business in New York, form a New York entity (see related post, Should We incorporate our Small Business in Delaware?)

2. If you are a foreign entity and do business in New York,  apply for authorization to do business in New York.  See Section 802 of the New York Limited Liability Company Law.

3. Forming a Nevada, Delaware or any other foreign LLC does not save you the cost for the newspaper publicationSection 802 of the Limited Liability Company Law requires that within 120 days after the filing of the application for authority, a foreign LLC must publish in two newspapers a copy of the application for authority or a notice related to the qualification of the LLC.

About Imke Ratschko

Imke Ratschko is a New York Attorney helping small businesses, business owners and entrepreneurs with all things "Small Business Law," such as litigation, contracts, business owner disputes, shareholder and operating agreements, sale or purchase of a business, investors, and starting a business. You can reach her at 212.253.1027 or by email.