A Sole Proprietorship (SP) is an individual owning and operating a business in his or her own name without partner(s). In a SP:

• All liabilities and debts of the business are the personal debts and liabilities of the owner.
• Business income is reported and taxed through the owner’s personal tax return.
• All assets of the business are assets of the owner, subject to all debts of the owner.
• The business exists only as long as the owner is alive and active in the business. However, the business’s assets may be sold or transferred by gift or will to another individual or legal entity, which would then operate the business under their own ownership.
• If you operate as a SP under your own legal name, no filing is required. However, if you do business under a different name, you must file a Business Certificate (also called a “Assumed Name Certificate” or “DBA”) with the county clerk where your business is located.

Example:

Maria starts selling handmade candles at local markets under her own name. Since she hasn’t formed an LLC or corporation, she is automatically a sole proprietor and reports business income on her personal tax return. If she wants to sell under a different or “assumed” name instead of her legal name, she can register a DBA with the county and still remain a sole proprietor.

A General Partnership (GP) is two or more individuals owning and operating a business together. In a GP:

• All liabilities and debts of the business are the joint and individual personal debts and liabilities of the owners (called “general partners”).
• Business income is reported and taxed through the owners’ personal tax returns.
• All assets of the business are assets of the general partners, subject to other debts of the general partners.
• If there is no partnership agreement providing otherwise, the business exists only so long as one of the partners does not die or retire, or an event of dissolution does not occur.
• If the partners will operate the business under a name different than their legal names, they can register a DBA with the county clerk where the business is located.

Example:

Two neighbors, Rosa and Malik, run a weekend food stand at a local market. They share the costs of ingredients and split the profits. Because they didn’t form an LLC or corporation, they are considered a general partnership. They are both personally responsible for any business debts, like unpaid supplier bills. Each partner would report income and losses from the business in their personal tax return.

A Corporation is a legal entity owned by one or more persons (individuals or another legal entity) called “shareholders”. The corporation:

• Is formed by filing a Certificate of Incorporation (signed by an individual) with the New York State Department of State.
• Issues stock certificates to shareholders.
• Operates and makes decisions through its board of directors and officers according to its bylaws and other governing documents.
• Has an unlimited life, or a life limited to the time period set out in its Certificate of Incorporation.
• Must do business in the legal name of the corporation as set forth in its Certificate of Incorporation. However, if the corporation operates the business under another name, it must file a Certificate of Assumed Name (“d/b/a”, or doing business as) with the Clerk of the county(ies) in which the business operates.
• Is generally responsible for its own liabilities and debts, and its assets do not belong to the shareholders personally.
• Pays state franchise taxes and federal and state income taxes; shareholders are taxed only on monies actually received from the corporation.

Example:

Malik designs a mobile app to connect local delivery drivers with small grocery stores. Since he’ll need outside investors to fund development and marketing, he forms a corporation. He files a Certificate of Incorporation with New York State, adopts bylaws, and issues shares to himself and two early investors. The corporation structure makes it easier for Malik to raise money and keep his personal assets separate from the business.

A Limited Liability Company (“LLC”) is an unincorporated business organization that may be formed and/or owned by one or more individuals or legal entity(ies). Individuals and legal entities who are owners of an LLC are called “members”. An LLC:

• Is created by filing Articles of Organization with the NYS Department of State. Within 120 days, the LLC must publish notices of its formation in two newspapers designated by the county clerk where the LLC’s office is located. After publication, a Certificate of Publication with affidavits from the newspapers must be filed with the Department of State.
• An LLC continues until dissolved by the members or by law, unless a limited duration is specified in its Articles of Organization.
• Operates according to the Articles of Organization, the Operating Agreement (which New York law requires to be adopted, even if not filed).
• Must do business under the legal name set forth in its Articles of Organization. To operate under another name, the LLC must file a Certificate of Assumed Name with the Department of State.
• The LLC itself is responsible for its debts and obligations; members are generally not personally liable.
• By default, an LLC is taxed as a disregarded entity (if one member) or a partnership (if two or more members). It can elect to be taxed as a corporation (including an S corporation if eligible).

Example:

Anjan and Priya start a cleaning service for small offices. They form an LLC to protect their personal savings in case a client sues or they can’t pay a business bill. The LLC owns the equipment, and income is passed through to their personal taxes.

The information in this document has been prepared by The Legal Aid Society for informational purposes only and is not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not act upon any information without retaining professional legal counsel.