The entity decision in New York is harder than in almost any other state because of how many overlapping tax regimes hit the same business. A consulting firm doing $400,000 in profit in Manhattan pays meaningfully different total tax depending on whether it operates as an LLC, an S-Corp, or a C-Corp, and the gap between options can run into five figures annually. Founders in Brooklyn, Queens, the Bronx, and Staten Island face the same calculus. The right answer depends on where the business operates, where the founder lives, what kind of revenue the business generates, and whether outside investment is part of the plan. Talking to a New York business law attorney before filing the formation paperwork tends to be the cheapest part of the entire entity decision.
Here is what actually separates the three options in New York, with the numbers that drive the decision.
The LLC: Flexible Federally, Expensive in NYC
Limited liability companies formed in New York are governed by the New York Limited Liability Company Law. Formation requires filing Articles of Organization with the Department of State for $200, completing the publication requirement under Section 206 within 120 days, and filing the Certificate of Publication with a $50 fee. A biennial statement filing of $9 every two years keeps the entity current.
The federal tax treatment is where LLCs earn their reputation for flexibility. A single-member LLC is disregarded for federal tax purposes by default, and a multi-member LLC files as a partnership. New York follows the federal classification. State-level taxation comes through an annual filing fee on Form IT-204-LL, which scales with the LLC’s New York-source gross income from $25 at the bottom to $4,500 for high-revenue entities.
The NYC layer is what catches founders. The Unincorporated Business Tax under the New York City Administrative Code imposes a 4 percent tax on the net business income of partnerships, sole proprietorships, and LLCs taxed as partnerships or disregarded entities, allocated to NYC. The small business tax credit eliminates the UBT for businesses with NYC taxable income below $95,000, and a partial credit phases out up to $135,000. NYC resident owners can claim a partial credit against their NYC personal income tax for UBT paid, which softens the blow but does not eliminate it.
For a Manhattan consulting firm earning $400,000 in net business income, the UBT alone produces roughly $16,000 in additional tax that an S-Corp or C-Corp would not pay.
The S-Corp: A Tax Election With New York Wrinkles
An S-Corp is a federal tax election available to corporations and certain LLCs that meet the IRS requirements. The federal benefit is well known: owner-employees pay themselves a reasonable salary subject to FICA, and additional profits flow through as distributions that escape self-employment tax.
New York adds complications federal-level guides rarely flag.
The New York S-election is separate from the federal election. Filing federal Form 2553 does not give the entity New York S-Corp status. The shareholders must file Form CT-6 with the New York Department of Taxation and Finance and receive approval. Without the New York election, the corporation pays New York franchise tax under Article 9-A as if it were a C-Corp.
The New York fixed dollar minimum tax applies regardless of profitability, ranging from $25 to $5,000 based on New York receipts. Even an unprofitable S-Corp owes this minimum.
NYC does not recognize the S-Corp election at all. A federal S-Corp doing business in New York City pays the NYC General Corporation Tax at 8.85 percent on income allocated to NYC. The S-Corp’s owners then pay personal income tax on the same income, producing an effective double layer that does not exist for non-NYC S-Corps.
The math gets specific. A Brooklyn S-Corp earning $400,000 in net income pays roughly $35,400 in NYC General Corporation Tax. The owner pays NY state and city personal income tax on the same income through the S-Corp’s pass-through. Compared to an LLC earning the same income and paying $16,000 in UBT, the S-Corp can produce a higher total tax bill in NYC even after FICA savings.
The federal self-employment tax savings still matter. For an NYC S-Corp, those savings have to be measured against the NYC General Corporation Tax that the LLC structure avoids.
The C-Corp: Built for Capital, Taxed Three Times
C-Corporations pay federal corporate tax at 21 percent, New York franchise tax under Article 9-A at 6.5 percent (or 7.25 percent for corporations with New York business income above $5 million), and NYC Business Corporation Tax at 8.85 percent if doing business in the city. Shareholders then pay personal income tax on dividends.
The triple-layered tax structure rules C-Corps out for most small businesses. Three reasons keep them on the table for specific founders.
Outside investment. Venture capital funds and most institutional investors require a C-Corp, almost always Delaware-domiciled with New York operations. Convertible notes, SAFEs, and preferred stock structures do not work cleanly with LLCs.
Qualified Small Business Stock. Section 1202 of the Internal Revenue Code allows founders and early investors in a C-Corp to exclude up to $10 million in capital gains on a sale, subject to holding period and other requirements. New York generally conforms to the federal treatment, which compounds the benefit.
Employee equity. Granting incentive stock options and building a meaningful employee equity program is materially cleaner in a C-Corp than in an LLC.
A Practical Framework for New York Founders
The decision usually turns on a few specific questions about the next five years.
Will the business operate primarily in NYC? If yes, the UBT versus NYC GCT analysis dominates the decision and the right answer often differs from what a generic LLC-versus-S-Corp comparison would produce.
Is outside investment in the plan? Venture and institutional investment generally requires a Delaware C-Corp. LLC conversion to a C-Corp later is possible but produces tax friction.
Does the business generate consistent profits well above what the owner would pay as a salary? S-Corp federal benefits remain meaningful even after the NYC complications, but the math needs to be run on the specific numbers.
Will the entity hold appreciating assets, like real estate or significant intellectual property? Asset characteristics affect the analysis in ways that go beyond entity type.
The Pass-Through Entity Tax under New York Tax Law Article 24-A, an optional election for partnerships and S-Corps to pay state tax at the entity level, is a separate consideration that often shifts the comparison further. Owners receive a credit on their personal returns and the entity’s payment is deductible federally, working around the SALT cap.
When to Bring in a New York Business Law Attorney
Entity selection in New York is a tax question, a regulatory question, and a fundraising question, and the NYC layer changes the answer in ways generic guides almost always miss. A New York business law attorney working alongside a CPA can run the actual numbers for the specific business and structure the formation, the New York S-election, the operating agreement or bylaws, and any related tax elections in a coordinated way.
The Mundaca Law Firm advises New York founders on entity selection, formation documents, and the operating agreements and shareholder arrangements that fit each structure. If you are forming a new business, restructuring an existing one, or wondering whether your current entity still fits where the company is going, a conversation before the next filing deadline is the right time to have it.