Corporate and Business Entities in New York
Interested in starting a business company in NYC or the state of New York? In this article, a New York attorney will explains the different types of Business Entities in New York, as well as which entity is congruent with your needs. Our corporate law attorneys are at your service regarding any company law issues.
What is a corporation?
A corporation is a legal entity which is created in accordance with a statute. The corporate entity is separate and distinct from those who manage it.
What are the main features of a corporation?
Limited liability – As a separate legal entity, the debts and obligations of a corporation distinctly accrue to it, meaning its shareholders and managers will generally not be liable for debts it may assume. An exception to this rule can be found in non-publicly traded corporations, in which the 10 largest shareholders will be liable for the wages of its corporate employees.
Powers – As a corporation comprises a separate legal entity, it may enter contracts in its own name, sue or be sued, own or convey property and be held liable for the commission of crimes it carries out.
Management Control – The corporation centralizes its control through shareholder election of its board of directors. For the most part, the management powers of the shareholders are circumscribed to the election and removal of directors. They have only the most limited managerial powers in their own right.
Continued Existence – Existing in perpetuity is the default setting on the longevity of a corporation, although its duration can be limited in its certificate of incorporation. This means that it will last as long as it has not been dissolved, merged or consolidated. Its existence will remain unaffected by the death, withdrawal, bankruptcy or incapacity of any of its shareholders or managers.
Free transferability of interests – The corporate ownership interests of the corporation are divided into shares which may be freely transferred. This means that the shareholder may fully transfer and substitute his interests to the ownership of another.
Statutory Authority – As a corporation exists solely through statute, so too its managers and agents may only act in accordance with statute. To a lesser extent, this holds true of case law or that which is authorized by its certificate of incorporation or bylaws.
Constitutional status – A corporation is partially recognized under the US constitution. It is considered a “person,” entitling it to due process and equal protection under the law pursuant to Fifth and Fourteenth Amendments. However, it is exempt from the Privileges and Immunities Clause of Article IV or the Fourteenth Amendment (which entitles the citizens of each state to all the privileges and immunities of citizens in the several states) as it is not deemed a “citizen.”
What distinguishes a corporation from other business entities?
A corporation may only be formed in compliance with statutory provisions, the main constituents of which are discussed above. This means that a failure to comply will likely result in the creation of an inadvertent partnership amongst its owners. So too, the owners can choose to form a partnership or one of the other entities discussed below.
What is a partnership?
Unlike a corporation, a partnership is not a separate entity which is distinct from its owners, the partners. This means that every partner will be held jointly and severally liable for any debts the partnership may incur. The partners can each assume a managerial role in the management of the partnership, barring unanimous agreement by them to the contrary. Neither the existence of a partnership or its ownership interests may be freely transferred by its partners. Yet, a partnership does share certain characteristics with a corporation in that it may hold property, enter a contract in its own name and sue or be sued.
What is a limited partnership?
Limited and general partnerships, described above, are similar entities, except that the former includes at least one “limited partner.” What distinguishes this from its general analogue is that the liability of a limited partner to the creditors of the partnership is limited to his respective investments in it. The criteria for forming a limited partnership are more rigid than needed for a general one.
How does a joint stock association operate?
A joint stock association and corporation share several common denominators in that they both have perpetual existence, centralized management and entitle one to freely transfer his ownership interests through shares. A glaring difference is that its owners or shareholders do not benefit from the limited liability granted a corporation. Joint stock associations must be formed in accordance with and are regulated by the New York General Associations Law.
What constitutes a business trust?
The business trust, which is also known as the Massachusetts Business Trust, is a recognized form of business in New York. The owners, who are holders of shares of a beneficial interest in the trust, can benefit from limited liability contingent on them being bereft of the power to control the trustees in the management of the trust. A board of trustees should be a self-perpetuating body.
Other entities by default
There are several other entities which may form as a consequence of a failed attempt to create a corporation in compliance with statute. As discussed, one of these would be a partnership. Such failure can also result in: a creditor-debtor relationship between the supplier of the capital and its user; an employer-employee relationship between the owner and the manager, also known as a principal-agent relationship; and, finally, a trustee-beneficiary relationship between the owner and manager.
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