In New York State (NYS) every new limited liability company (LLC) must announce its formation by placing notices in two publications for a period of six weeks, at a cost of up to $2,000. This revenue generating mechanism applies to domestic LLCs as well as foreign LLCs seeking to qualify to do business in NYS. Although investors and attorneys have argued that such a “tax” drives new business away from NYS, the legislature has consistently affirmed this mandatory requirement.
Prior to June 1, 2006, attorneys often tacitly approved of clients who simply ignored this requirement. At that time, the only penalty was the LLC’s inability to bring a lawsuit in NYS until it complied. A noncompliant LLC that wanted to file a lawsuit would simply publish, wait for six weeks, and then once the requirement had been met, file its lawsuit. Many businesses believed it was a better business decision to wait to publish until it was actually necessary to do so.
Many attorneys assumed that NYS would eventually do away with the publication requirement, but in 2006, instead of removing this barrier to entry, the legislature amended the penalty to suspend noncompliant LLCs from carrying on and conducting business in NYS. Initially there was some confusion as to the practical implication of this amendment, but failure to comply does not invalidate the existence of the LLC or revoke its right to enter into contracts. Nevertheless, risk-averse attorneys began advising their clients that they should take this requirement more seriously.
But what if New York is the only place in which you are doing business?
I’m here to tell you, there is a way to save your New York County-based clients some money. I’ve been recommending this cost-saving solution to my clients for several years. Recently, a former colleague suggested it would add value to share this idea through my blog.
NYS requires these notices to be published in local newspapers in the county in which the LLC is formed. In New York County, the limited number of approved newspapers allows such publications to charge a premium for publishing. As such, I recommend that my New York County-based clients appoint a service company with offices in Albany County to serve as the LLC’s registered agent. This allows the LLC to claim its formation in Albany. In my experience, this can save the LLC up to $1,500, since Albany publication costs are significantly less expensive.