If you’re a new business considering incorporating in New York State, chances are you’ve heard of the state’s infamous publication requirement, which mandates that new corporations to place fairly costly ads in traditional newspapers informing the public of their incorporation. Viewed by many people as an anachronistic requirement, it’s probably the least appealing aspect of New York incorporation for most companies.
So, what exactly is the requirement and why does it exist? And, perhaps more importantly, should you let it dissuade you from incorporating in New York?
The Publication Requirement
Under the New York Limited Liability Company Law, every company registering as a new LLC must publicly announce its formation by placing notices in two different publications for six weeks. The statute sets forth strict formatting guidelines and dictates what information must be provided in the notice, including the LLC’s name and contact information.
The notice must be published within 120 days of the LLC’s formation, and it must run in two general-circulation newspapers (one weekly and one daily) in the county where the LLC is created. Not surprisingly, the costs of publication can vary widely from county to county. While companies in certain counties may come away only having paid about $300, it’s not uncommon for LLCs in the New York City counties to pay up to $2,000 to comply with the publication requirement.
Backlash Against the Requirement
Businesses have long complained about New York’s publication requirement and fought to abolish it. Many view it as outdated and unnecessary, given that the information contained in the published notice is readily available on the New York Department of State website. Those who have pushed to make New York more attractive to new startups argue that the requirement has the effect of discouraging new businesses from incorporating in New York. The legislature, however, has not wavered in its commitment to keeping the requirement alive.
Why Does the Requirement Exist?
Many people assumed that New York would eventually do away with the publication requirement, since it no longer seems to serve a rational purpose.
The legislature’s original purpose in instituting the publication rule was to protect consumers by informing them about the existences of entities that shield their owners from personal liability. While the underlying concern for consumer welfare is a legitimate one, many argue that costly publication in newspapers is no longer necessary to meet that concern, given that the required information is readily available for free on the state’s website.
Because the original purpose no longer seems to justify the requirement, the most common view of the law’s current purpose is a cynical one – that it’s meant to financially benefit the short list of general-circulation newspapers in which LLCs are forced to publish. Given that New York is one of only very few states that still have such a publication requirement, this argument seems to have some credence.
The practical effect of the requirement is that some companies consider incorporating in other states or choosing an alternate corporate structure. Even though the requirement can certainly be a burden, if a New York LLC is the right structure for your business, you shouldn’t let the antiquated law dissuade you. A trusted advisor can help you determine what the right answer is for your specific business.
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.