Do It Yourself vs. Legal Zoom and Friends
I have said before that entrepreneurs who cannot afford an attorney are better off handling their legal needs on their own rather than using an automated website, such as Legal Zoom. I often have clients come to me to clean up a mess created when they used Legal Zoom or a similar automated website to handle some aspect of their business' legal needs. One of those messes is caused when New York businesses use Legal Zoom to create a Limited Liability Company (LLC).
Prior to working with me, two of my clients created Limited Liability Companies using Legal Zoom. And both of my clients received a letter from the New York Secretary of State (SSNY) almost a year after forming their LLCs, informing them that their businesses had lost the authority to conduct business in New York, which means a potential loss of liability protection. The real kicker is that both of these clients are in high risk industries, one is in the food industry and the other is in the automotive industry. Without the liability protection typically afforded to LLC owners, if someone (or something) had been injured by their businesses during that year, their personal assets including real estate, bank accounts and even future wages, could have been totally exposed to liability.
The New York LLC Publication Requirement
Both of these entrepreneurs were under the impression that in exchange for the required fee, Legal Zoom would handle all of the necessary paperwork to create their LLC. They were mistaken.
Legal Zoom does not handle the all important publication requirement for New York LLCs (and LPs and LLPs, who must meet this requirement as well). The publication requirement is laid out in section 206 of the NY Limited Liability Company Law and basically requires that all newly formed LLCs publish some basic information related to the formation of their LLC in two newspapers, one weekly and one daily, within 120 days of formation. Failure to comply with this publication requirement results in suspension of the company's authority to “carry on, conduct or transact any business in” New York.
If my clients would have done their own research on how to form an LLC (which is really just a review of SSNY's website), they would have known about the publication requirement and been sure to comply with it. Their research may have also revealed that the publication requirement can add as much as $1500 to the cost of formation, which would have been nice to know up front.
How to Cure a Failure to Meet the Publication Requirement
Luckily, failure to meet the publication requirement in New York can be cured. The LLC simply has to meet the publication requirements and file proof of meeting such requirements with the SSNY to regain good standing, even if done late. No penalties are charged.
How to Meet the New York Publication Requirement
1. Contact the County Clerk of the county where the LLC maintains its principal office and provide them with the filing receipt you received from the SSNY after filing your Articles of Organization.
2. The County Clerk will provide you with the names of two newspapers in which the LLC must file the notice. Note: you cannot choose which newspapers you want to publish in. If the LLC's principal office is in Manhattan, one of those newspapers will be the New York Law Journal (NYLJ). (Manhattan-based LLCs can expect to pay around $800 to publish the LLC notice in the NYLJ. Sad, but true.).
3. Contact the newspapers to publish the notice and pay their respective fees. The notice must include the following: (a) the name of the LLC; (b) the date the LLC was formed (this will be stamped on the articles of organization); (c) the county where the main office of the LLC is located and the street address of the main office; (d) a statement that the Secretary of State has been designated as agent of the LLC upon whom process against it may be served and the address where the SSNY may forward any process against the LLC; (e) the name and address of the LLC's registered agent, if any, and a statement that the registered agent is to be the agent of the LLC upon whom process against it may be served; (f) the character or purpose of the LLC (usually just the following statement: “the purpose of the LLC is to engage in any lawful act or activity”) and (g) the date the LLC will dissolve, if such date is known.
The New York publication requirement can be a tedious task but it is necessary for all NY Limited Liability Companies. Those who have more money than time can avoid the tedium and be sure its done right by hiring a lawyer to handle their LLC formation. Those who have more time than money, can take the time to learn how to do it right.
Even if you choose to use Legal Zoom or a similar service, be sure that you know what the state requirements are to form your business so that you can avoid potentially costly surprises in the future.
Note: This blog is a resource guide for educational & informational purposes and should not take the place of hiring an attorney.
Picture courtesy of Intrepid Traveler.