My first attempt of running my own company was in 1999. I registered it as a sole proprietorship at the local county clerks office in Brooklyn, New York. My second, and most recent attempt, of running my own business was in 2012. I registered that company as a limited liability corporation (LLC) through the state of which I resided in, New York. At the time, I resisted the temptation to register in Delaware and Nevada, despite both locations being rumored to be more financially attractive and more business friendly. The thought was that creating a business out-of-state would present a significant inconvenience such as having to secure a correspondence address and the possibility of later having to prove the location of where business was being conducted.

The process of registering a sole proprietorship was inexpensive and straight-forward. As previously mentioned, I had to go to the county clerks office to fill out the required form and provide the necessary fee. If memory serves me correct, I paid around one hundred dollars. On the other hand, the process for registering the LLC was a bit more involved. First, I performed a name search to ensure the business name was not in use; that process costs around five dollars. Then, I had to complete articles of incorporation form which cost approximately two hundred fifty dollars. I was also required to file a legal notice of business creation in two local newspapers. The cost for notification was around fifty dollars each.

Additionally a partnership agreement was generated and filed with the state of New York. Overall, the LLC registration process cost just over three hundred dollars. I must admit, the process would have required much more had I opted to use a lawyer.

The legal structures for conducting business in the United States are as follows: Sole Proprietorship, Partnerships, Limited Liability Companies (LLC), Corporation (S Corp & C Corp). According to Peri:

Before LLCs came along, the only way all owners of a business could get limited personal liability was to form a corporation. The problem was many entrepreneurs didn’t want the hassle and expense of incorporating, not to mention the headache of dealing with corporate taxation.

If I were going to start a company, the legal structure that I would choose would be LLC because of the pass-through taxation laws that allow business owners to write off business losses. When profitable, an LLC can elect to be taxed as a corporation because, generally, corporate taxes are much lower than individual taxes. In New York state, the default tax rate for General and small business is 6.5%, in 2018. As for the local, New York City tax, A company would have to pay 8.85% of income. In all, the total New York tax a corporation that operates in the city is responsible for 15.35%. 

On the other hand,  an Individual residing in New York City that makes over $50k in 2018 can expect to pay $1813 plus 3.876% of income. This is the local tax known as The New York City Resident Tax. It is applied to all residents of NYC. If you live in New York City and earn income, you are charged personal income tax. Also, there is the New York State Tax which requires $1042 and 6.33% for an individual making between $21.4k and $80.6k in 2018. The total individual tax for a person making over $50k, for 2018, in New York can be $2,855 plus 10.21%. When a business chooses to taxed as a corporation rather than an individual pass-through, it allows companies to retain more profits, in some states.

In conducting this research, I was most surprised by the amount of tax both individuals and businesses have to pay. Most staggering, is that New York’s low tax percentage is overshadowed by the local tax percentage. In turn, making the overall tax surprisingly high. Disillusioned by the corporate rates in my state, I began to wonder why even conduct business in New York City? According to an article in Fast Company, “New York is a hotbed for entrepreneurial activity since its early days.” Furthermore, there appears to be a “merchant mentality” within a diverse city of approximately 8.6 million people. The thing I like about New York City is how readily available assistance is for anyone striving to succeed.