Your client wants you to form a company in New York. You’re a junior lawyer and just started your first assignment. You want to go a good job. Don’t worry! Forming a corporation in New York is straightforward, as long as you keep certain steps in mind. This article highlights some finer points for avoiding potential issues.
1. First Things First: Select a Name Before Filing
Before filing the certificate of incorporation, your client will need to select a name for the corporation. To make sure the name is available before you file, you can do a free name search online or write to the New York Department of State and pay a fee for each name searched. You can also file an application by mail with the New York Department of State Division of Corporations and reserve the name for 60 days for a $20 fee.
Finer Point #1: The corporation’s name must be recognizably different from other entities that are on file with the New York Secretary of State and should include the word “incorporation,” “incorporated,” or “Limited” or an abbreviation. In addition, the Division of Corporations will reject any corporate name that is not “distinguishable” from existing names that are on file. The chosen name should not contain any prohibited words under Section 301(a)(1) of the Business Corporation Law of New York State.
2. Understand the Core Components of the Certificate of Incorporation
The Certificate of Incorporation should include the following:
- Name of the corporation
- Corporate purpose
- County in which the corporation’s offices will be located
- Stock structure (authorized stock and classes of stock)
- Appointment of Secretary of State for Service of Process
- Names and addresses of incorporators
Finer Point #2: The template Certificate of Incorporation developed by the Department of State provides a generic statement of corporate purpose that may suffice in most instances.
Finer Point #3: For the County name, enter only the name of the county in New York where the office will be located. Do not enter street address.
Finer Point #4: In terms of authorized stock, you can authorize different class of stock, with or without par value (unlike Delaware, which requires par value be stated). Keep in mind that your number of authorized shares should be sufficient to allow you to issue shares to founders and any initial investors. Authorizing too many shares on the other hand can create excessive dilution and other issues.The standard form of Certificate of Incorporation contains a standard authorized stock structure of 200 shares with no par value and most companies follow that. You can choose to have a different structure.
Remember that shares without par value can be issued or sold at any price but those shares that have par value cannot be sold or issued at a price lesser than the par value.
Finer Point #5: Every corporation forming in New York must name the Secretary of State for service of process. You need to make sure that you provide an address to which the Secretary of State can forward notices and make sure that the address stays current at all times.
Finer Point #6: Provide all incorporators’ names and address whether or not they serve as officers of the corporation. You will also need to provide the name and address of the filer of the Certificate of Incorporation.
3. Filing the Certificate of Incorporation
Once your certificate of incorporation is complete, it needs to be filed with the NY Department of State. You can do the filing by mail or in-person to the Department of State, Division of Corporations. You can also file by fax or online. The fee for filing is $125 and you can pay by cash, check, money order, MasterCard, Visa or American Express.
Finer point #7: All corporate filings have to accompanied by a cover or a “backer” which must include the document’s name, the statute under which it is being submitted for filing and the filer’s name and address. You can choose to expedite the filing process by paying an additional fee. The payment can be done through a check, money order or through the “Credit Card/Debit Card Authorization Form.”
4. Filing the Biennial Statement
Each corporation incorporated in New York is required to file a Biennial Statement every other year during the calendar month in which the original Certificate of Incorporation was filed. The form is generally mailed to the address on file with the Secretary of State in advance of the due date. The statement will need to include a current address and update any other information.
Finer point #8: If the company’s address changes at any time; do not wait until the next Biennial Statement filing to update. Instead, you should file a Certificate of Amendment.
Finer Point #9: It can be a good idea to set a calendar reminder for your client (or engage the services of a registered agent to handle these periodic filings).
5. Appointment of the board
In addition to filing the Certificate of Incorporation, the incorporator should appoint the initial board of directors. These directors will serve on the board until the first annual shareholder meeting. The incorporator should prepare and sign an “Incorporator’s Statement” that lists the names and addresses of the initial directors and place a copy in the corporate records book.
6. Prepare Bylaws
Bylaws are not filed with the state but are important to prepare, as they establish the procedures for meeting and voting, rights of shareholders, the nature and roles of the board of directors and officers, and other organizational and corporate governance matters.
7. Conduct the first board meeting
At the first board meeting, the company should appoint corporate officers, adopt bylaws, authorize issuance of shares of stock, set the corporation's fiscal year, adopt an official stock certificate form and corporate seal, and select a corporate bank
Finer point #10: As long as you provide for it in the by-laws, you can also use written consent in lieu of a board meeting (it is very typical to use a written consent for the initial “meeting”).
8. Corporate Governance and Other Miscellaneous Requirements
You’re almost there. But don’t forget the last leg! Here are some additional things to remember so that the corporation is properly formed and ready for business:
- Obtain an EIN: file form IRS Form SS-4, “Application for Employer Identification Number.” You can apply for the EIN by phone, fax or mail.
- Schedule the annual meeting: the corporation should hold an annual meeting of shareholders at a time specified and set by the Bylaws to elect directors and conduct other necessary operations of the company.
- Maintain accurate and complete records of all board and shareholder actions: this is critical for avoiding potential piercing of the corporate veil and to facilitate future financing.