The Startup Law Guide
We get it – extra cash can be hard to come by when you’re trying to get your new business off the ground. It can be tempting to cut corners to save a few dollars, and unfortunately that leads too many entrepreneurs into the trap of relying on automated legal services like LegalZoom. While these services may offer unbeatable prices, we all know the old saying – if something seems too good to be true, it probably is.
What happens all too often is that you end up spending the money you saved, and then some, trying to fix the problems these automated services create, when the mess could have been avoided by simply hiring an experienced attorney in the first place. One of the problems we see most often is when clients rely on LegalZoom to create their New York Limited Liability Company (LLC), only to realize later that they’ve failed to comply with the state’s publication requirement.
New York’s LLC Publication Requirement
A quick Google search on how to form an LLC in New York will tell you that the state has a very straightforward publication requirement. Many entrepreneurs know about it going in because, while it is mandatory, it’s also one of the most widely unpopular New York LLC laws.
The requirement is laid out in section 206 of the NY Limited Liability Company Law, which dictates strict formatting and content guidelines, but essentially the law mandates that any new LLC publish an announcement of its formation in two different newspapers, one daily and one weekly, for six weeks, within 120 days of forming. What isn’t obvious from the face of the law is the cost involved – for LLCs based in New York City, the publication bill can add up to nearly $2,000 in some cases.
Where the problem comes in with automated websites like LegalZoom is that clients often mistakenly believe that the publication costs are included in the quoted LLC formation package, when in reality they’re not. You’re paying them simply for the paperwork that you could file yourself online with the Department of State. When you incorporate through LegalZoom, the publication requirement still falls on you.
The consequence for failing to comply with the publication requirement is the suspension of your company’s permission to “carry on, conduct or transact any business” in the state. Getting a letter from the Secretary of State a year after formation informing you that you’re not authorized to do business comes as a complete shock when you wrongly believed that LegalZoom handled everything for you. In short, your attempt to save money at the outset can lead to costly surprises down the road.
How to Satisfy the Requirement
While New York’s publication requirement may seem tedious and, to some, outdated, there’s a very simple process for meeting it.
First, provide the receipt you received from the Department of State after filing the Articles of Organization for your LLC to the County Clerk of whatever county your LLC’s principal office is in. In return, the County Clerk will tell you the names of exactly which newspapers in which you must publish. It’s important to note that you don’t have a say in the matter. The bad news for NYC-based LLCs is that your newspapers will be really pricey, but that’s how it goes.
Next, submit your notice to the newspapers and fork over their fees. The required parts of the notice are: 1) the LLC’s name; 2) the date of formation; 3) the county and street address of the LLC’s main office; 4) a designation of the Secretary of State as an agent upon whom process can be served on behalf of the LLC, along with a forwarding address for the LLC; 5) the name and address of the LLC’s additional registered agent, if any; 6) a statement of the LLC’s character or purpose (typically, “to engage in any lawful act or activity”); and 7) the end date of the LLC, if there is one.
Again, all this must be done with 120 days after the formation of your LLC.
What to Do if You Didn’t Meet the Requirement
If you already formed your LLC and didn’t comply with the publication requirement, either because you used an online service or for another reason, don’t panic. Failure to meet the requirement isn’t fatal. In order to get back in good standing, you simply have to comply with the publication requirement now and file proof of compliance with the Department of State. The good news is, there are no monetary penalties at stake.
Many people ask, then, why you should bother complying if you won’t be punished. The answer is that a loss of the authority to do business means a possible loss of the liability protection that the LLC provides. Particularly for companies in industries or fields that carry a lot of risk, the loss of liability protection can be a huge blow for the LLC owner, whose personal assets can be at stake if someone is injured by the business.
Being exposed to that kind of liability when you thought you’d paid LegalZoom to handle it for you can be devastating for your business. More often than not, you’d be better off handling matters on your own than paying automated legal websites to handle them for you. But for the things that can make or break your business, there’s no substitute for experienced legal advice. After all, it’s the future of your business that’s on the line.
Legal Guidance In Building Your Business
At The Gouchev Law Firm in New York, we work with businesses of all sizes, including start-ups and franchise businesses. Call us at (212) 537-9209 or schedule a free strategy session today to see what The Gouchev Law Firm can do for your business.
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