How to Set Up an S Corp in NY: Step-by-Step Process

Setting up an S Corporation (S Corp) in New York provides tax advantages and liability protection for business owners. However, the process involves several legal and administrative steps that must be carefully followed to ensure compliance with state and federal regulations.

This guide outlines the key steps required to establish an S Corp in New York, from filing necessary documents to meeting tax obligations.

Choosing and Registering a Name

Selecting a name for an S Corporation in New York requires compliance with state regulations and must be distinguishable from existing entities. The New York Department of State maintains a database of registered business names, which should be checked for availability. If a name is already in use or too similar to another, the state will reject the registration. To avoid delays, it’s advisable to have alternative names prepared.

New York law mandates that the name include a corporate designator such as “Incorporated,” “Corporation,” or an abbreviation like “Inc.” or “Corp.” Certain words, such as “Bank” or “Attorney,” require additional approvals from regulatory agencies. Misleading terms that imply government affiliation or professional licensing without authorization are prohibited.

To secure a name before officially forming the corporation, a reservation can be filed with the Department of State for a $20 fee, holding the name for 60 days. If the reservation expires, it can be renewed for another 60 days with a new request and fee. While optional, this step can be useful for businesses finalizing other aspects of their formation.

Filing the Certificate of Incorporation

Submitting the Certificate of Incorporation to the New York Department of State officially establishes the business as a separate legal entity. This document outlines fundamental details about the corporation, including its purpose, structure, and registered agent. The filing fee is $125, and it must be submitted with Form DOS 1239. Processing times vary, but expedited service is available for an additional fee.

One key decision is determining the number of authorized shares. New York does not impose a minimum, but the number and value of shares affect franchise tax obligations. Corporations with fewer than 200 shares typically pay a lower tax. Structuring the share issuance at this stage can help manage future financial obligations.

A registered agent must be designated to receive legal documents on behalf of the corporation. By default, the New York Secretary of State serves this role, forwarding official correspondence to the address provided in the filing. However, businesses may appoint a private registered agent for greater flexibility and privacy, particularly if they do not maintain a physical office in the state.

Drafting Corporate Bylaws

Corporate bylaws serve as the internal rulebook governing an S Corporation’s operations. While New York does not require businesses to file bylaws with the state, having them in place is necessary for clarifying decision-making processes, preventing disputes, and ensuring regulatory compliance. Lenders, investors, and courts may reference these bylaws to determine the legitimacy of corporate actions.

Bylaws should define the roles and responsibilities of directors and officers, specifying how directors are elected, their terms, and procedures for removal or replacement. Officer roles such as President, Treasurer, and Secretary should be clearly outlined, including their authority and reporting structure. Without well-defined responsibilities, internal conflicts can arise, leading to inefficiencies or legal complications.

Meeting procedures must also be detailed, including how often board and shareholder meetings occur, quorum requirements, and voting thresholds for major decisions. Some corporations may require a simple majority vote for routine matters, while significant actions like mergers or amendments to bylaws might necessitate a two-thirds majority. Establishing these rules upfront ensures structured and legally sound corporate governance.

Electing S Corporation Status

After forming the corporation, electing S Corporation status requires filing Form 2553 with the IRS. This designation allows income, deductions, and credits to pass directly to shareholders without corporate-level taxation.

To qualify, the business must have no more than 100 shareholders, all of whom must be U.S. citizens or residents, and only one class of stock. Entities such as partnerships, corporations, and certain trusts are prohibited from holding shares, making ownership structure a critical consideration.

Form 2553 must be filed no later than two months and 15 days after the beginning of the tax year in which S Corp status is to take effect. Late elections may be accepted if reasonable cause is demonstrated, but missing this deadline results in default C Corporation taxation. Each shareholder must sign the form, confirming their consent to the election. Without unanimous approval, the request will be denied.

Federal and State Tax Registration

After electing S Corporation status, compliance with federal and state tax obligations is required. While S Corps avoid federal corporate income tax, they must still adhere to payroll tax requirements, state filing rules, and other regulatory obligations. Proper registration ensures the business remains in good standing and avoids penalties.

Employer Identification Number (EIN)

An S Corporation must obtain an Employer Identification Number (EIN) from the IRS, which serves as the business’s tax ID. This is required for filing taxes, hiring employees, and opening business bank accounts. The EIN application is free and can be completed online through the IRS website. Once issued, the number does not expire and remains tied to the corporation unless the business structure changes. If the corporation later dissolves or undergoes a significant restructuring, a new EIN may be required.

New York State Tax Requirements

In addition to federal registration, S Corporations in New York must comply with state tax laws. While S Corps are generally exempt from New York corporate income tax, they are subject to the fixed-dollar minimum franchise tax, which ranges from $25 to $4,500 depending on gross receipts.

If the corporation has employees, it must register for state payroll taxes, including unemployment insurance and workers’ compensation. Businesses that sell taxable goods or services must obtain a Certificate of Authority to collect and remit sales tax. Failure to register for these taxes can result in fines and interest charges, making early compliance important.