New York law permits certain licensed professionals to form a professional corporation (PC), referred to by New York statute as a professional service corporation, to shield the personal assets of shareholders from liability for debts of the business. ZenBusiness has compiled a step-by-step guide to New York PCs to help business professionals determine whether a PC is the right entity for them.
Is a New York professional corporation the right entity structure for me?
New York professionals have the option of either a PC or a professional limited liability company (PLLC) entity structure for their business. In New York, the liability protection provided by each entity type is the same, but other characteristics can make one more preferable for a business owner.
New York requires all owners of a PC or PLLC to be certified professionals in the industry the business was formed for. PCs offer stocks to shareholders to signify ownership of the PC. PLLCs, on the other hand, call their owners members, who each have ownership interest in the business entity.
PCs are subject to the rigid requirements of the corporate structure. New York law requires PCs to keep meeting minutes, adopt bylaws, appoint a board of directors, and issue shares of stock. PCs, by default, are taxed the same as corporations, at both the corporate level and the individual level. However, in some circumstances, business owners can elect pass-through taxation to mirror that of a PLLC. With a pass-through entity, the profits of the corporation are taxed only on the shareholders’ personal tax returns.
PLLCs, on the other hand, are governed by an operating agreement rather than the formal requirements of corporate law. PLLCs are taxed as pass-through entities automatically.
Choosing a Name for Your New York PC
New York law imposes rules for appropriately naming your New York professional corporation.
New York law requires New York PC names to be “unique and distinguishable” from other business names and contain an appropriate corporate designation. In the case of a professional corporation, you will need to include “professional corporation” or “PC” in the name of your business. Additionally, the name must accurately describe the profession practiced and the services provided by your company.
Additional naming restrictions arise in specific industries. For example, doctors seeking to form a medical practice must obtain approval of their business name from the New York Office of the Professions and are prohibited from using words that suggest superiority, such as “best” or “expert.”
Finally, New York provides a list of words or phrases restricted or prohibited in business names on the Department of State website.
ZenBusiness Naming Services
Finding the appropriate business name for your New York PC is an important step in getting your business up and running. Your business name provides a starting point for your business’s online presence and a way for customers to recognize your company.
If you find the perfect name for your New York PC but aren’t quite ready to form your business, ZenBusiness offers a business name reservation service to prevent your preferred name from being taken while you’re preparing to file your formation paperwork.
Building an online presence for your business is critical to growing your business. However, when your domain name does not match your business name, that can be confusing and frustrating to potential clients. Use ZenBusiness’s domain name registration service to secure and register your business’s domain name.
Select a New York registered agent
Just like other states, New York requires corporations to appoint a registered agent for service of process. However, New York is unique due to the fact that state law requires newly formed entities to designate the Secretary of State as its agent, along with information to forward any legal notices to a designated person at the PC. No other registered agent is needed if this is provided.
However, New York also allows PCs to designate a registered agent who lives within the state and who is authorized to receive correspondence and documents during regular business hours on behalf of your business. They allow individuals and businesses to act as registered agents. The name of your registered agent along with their address is required when filing your Certificate of Incorporation with the state, or must be amended afterwards with the proper information. This gives the business more flexibility and discretion.
If you’re forming a business and need help with the requirement, ZenBusiness’s registered agent services can connect you with an agent that physically resides in the state of New York and can properly receive and process correspondence and documents on behalf of your company.
Complete your New York Certificate of Incorporation
New York requires you to submit several forms when forming a PC in the state. The individual filing the documents necessary to form the PC is referred to as the incorporator.
First, the incorporator has to submit a completed Certificate of Incorporation form. The incorporator must furnish the professional license number for each person that has an ownership interest in the corporation and complete an affidavit as part of the process.
Additionally, to verify the legitimacy of the professional licenses, you must provide official confirmation from the appropriate Appellate Division or a Certificate of Authority under seal from the New York State Department of Education, Division of Professional Licensing Services, Corporations, must be filed with the Certificate of Incorporation.
The incorporator must also complete a Professional Practice Entity Contact Form.
After filing with the New York Department of State, the incorporator is required to submit a Certified Copy of the Certificate of Incorporation to the New York Education Department.
Finally, New York requires domestic professional service corporations to furnish a statement and pay a statement fee to the New York State Education Department listing the name and residence address of each shareholder, director, and officer of the corporation and certifying that they are licensed and registered in the state where the corporation is authorized to practice. The statement must be signed by the president or vice-president of the corporation and attested to by the secretary or an assistant secretary of the corporation. This is referred to as a triennial statement.
Establish a corporate record in New York
New York requires corporations to keep correct and complete books and records of accounts and to keep minutes of the proceedings of its shareholders, board of directors, and executive committee. The corporate record must also contain the names and addresses of all shareholders, the number and class of shares held by each, and the dates when they respectively became owners of the record.
Designate a New York professional corporation board of directors
The initial board of directors for your New York PC are named on the Certificate of Incorporation form. Each director is required to have a professional license to practice the professional services being offered by the PC. The directors hold meetings, provide oversight, and appoint officers to manage your corporation. The directors can be replaced at the annual shareholder meeting.
Create New York corporate bylaws
New York is a state that requires corporations to draft corporate bylaws. After you name your board of directors, the directors draft the corporate bylaws that outline the day-to-day operations of your business. Additionally, the bylaws address voting procedures, share distribution, conflict resolution, and the appointment of officers. Because the bylaws regulate the internal procedures of your business, they don’t have to be filed with the state. However, you will want to keep the bylaws handy and accessible.
Hold your first board meeting
After drafting your bylaws, it’s time for your first board meeting. In the first meeting, the topics typically addressed by the board of directors include:
- Approving the corporate bylaws
- Designating officers and their roles
- Approving issuance of stock certificates
- Determining tax election status
- Choosing a bank for your business
Keep a detailed record of the discussion and decisions made during the board meeting and record the information in your meeting minutes. The meeting minutes need to be sent to each director after the meeting for review and filed in the corporate record.
Handle New York tax obligations
Like individuals, businesses operating in the United States have to stay current on their taxes. A failure to do so can result in your business losing its good standing status, and even the dissolution of your business in extreme circumstances.
By default, corporations are considered C corporations. That means that a corporation’s profits are taxed both at the corporate level and on the personal tax returns of the corporation’s shareholders. This is referred to as “double taxation.”
However, your corporation can elect for S corporation status if it has:
- Less than 100 shareholders
- Only one class of stock
- No business entities as owners of the corporation
- No foreign shareholders
S corporation status makes a professional corporation a “pass-through” entity, which has tax liability similar to an LLC’s.
New York requires businesses operating in the state to file an annual New York State corporation tax return and to pay a franchise tax under the New York State Tax Law. The state provides a tax guide for new businesses on its Department of Taxation and Finance website.
Some local governments require additional tax payments for operating your business within the limits of a certain county or municipality. Check your local government website for any additional tax obligations.
Obtain New York business licenses and permits
New York does not require a general business license to conduct business within the state. However, that does not mean that you don’t need a license or permit to legally operate. New York Business Express can help you identify state permits that you may need. But you will also need to check with your local agencies to determine whether additional permits and licenses are required in the area where you operate. Additionally, your PC’s shareholders and directors must stay licensed in the industry in which your business operates.
ZenBusiness can compile a single report for you listing the licenses and permits you might need for your particular business at the local, county, state, and federal levels. This can save you the time and effort of compiling your own checklist and help you avoid missing important requirements.
Acquire insurance for your New York professional corporation
New York requires employers to provide insurance coverage to their employees, including:
- Disability benefits
- Workers’ compensation coverage
- New York Paid Family Leave
Penalties for noncompliance include fines as high as $2,000 for every 10-day period that you lack required coverage. A qualified insurance agent or attorney can determine what policies are necessary to maintain legal compliance. Additionally, you can purchase general business liability insurance to help you protect yourself and your business in case of a liability claim.
Depending on the professional services your PC provides, you may also need specific additional insurance to protect your PC from legal claims and financial losses. For example, New York attorneys may purchase legal malpractice insurance.
Open a business bank account
Opening a separate bank account for your business may seem unimportant, but it can prevent you from encountering serious issues down the road. Some professions prohibit the commingling of funds, meaning you can’t put funds paid to you by a client with your personal funds. If you do, the personal funds you mixed with the client funds may lose their liability protection. Having a separate business account can help you avoid this issue.
Ready to form a New York professional corporation?
If you’re ready to start your New York PC, ZenBusiness offers a variety of services that can assist you in maximizing your business’s potential, including:
- Reserving a business name
- Filing for an EIN
- Appointing a registered agent
- Securing a domain name for your business
ZenBusiness allows you to focus on running your business while we take care of the formalities.
New York PC FAQs
- What are the filing fees for a New York PC?
Filing fees change frequently. New York’s Department of State website includes the most up-to-date information.
- Do I need a lawyer to form a New York PC?
You don’t need an attorney to form a New York PC. You can complete many business formation tasks yourself, with the help of ZenBusiness.
However, questions about legal obligations or consequences are best answered by a licensed New York attorney. If you have any questions about the legal consequences that can arise in the operation of your business, it’s best to consult a lawyer licensed to practice in New York.
- Does New York have other professional entity types?
In addition to a professional corporation, New York allows professionals seeking to incorporate their business to form a PLLC or a registered limited liability partnership (LLP).
- Can professionals from different fields form a New York PC together?
New York requires PCs to be formed for the purpose of rendering one specific type of professional service. However, professionals in the same industry with different specialties can form a PC together. For example, a PC providing legal services can include a family law attorney and an estate planning attorney as members of the same PC.
- Will I be taxed as an S corporation or a C corporation in New York?
PCs in New York, by default, are taxed as C corporations. S corporation tax status can be obtained by meeting certain requirements and filing an election form.