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In 2006, New York altered its publication requirements for partnerships including limited liability companies. Client alerts with titles such as "Publish or Perish!" had everyone asking questions; law firms reported that expenses associated with the new publication requirements could be significant. Three years out, this article seeks to provide practical advice regarding the formation of LLCs in New York and Delaware with a focus on how the new publication requirements might influence the choice of a jurisdiction of formation.

I am often asked, "What is the difference between forming an LLC in New York and Delaware?" Because of Delaware's business-friendly courts, I often advise my clients to form in Delaware, determine next where they will be "doing business" and proceed to qualify the entity in those jurisdictions. For those LLCs "doing business" in New York, an analysis of the publication requirements is necessary and should be done carefully to avoid unnecessary costs. Procedures in the two states are similar, but only New York has a publication requirement, which adds significant costs. Nevertheless, LLCs intending to operate in New York may wish to form there because foreign LLCs (those organized out-of-state) doing business in New York State cannot avoid publication.

BASICS

1. NEW YORK

In New York, the organizer of an LLC must choose a location for its office and file articles of organization. This location is not a street address, but merely the name of the county where the office is located. The LLC must then publish notice of formation in that county and file a certificate of publication.

A foreign LLC "doing business" in New York must file an application for authority with parallel informational and publication requirements. An LLC conducting "regular and continuous" transactions within New York, which are not incidental to interstate sales, is "doing business." Most Internet commerce should not constitute "doing business" because of its interstate nature.

A. Publication Requirements -- Why?

New York's publication requirement is designed to protect the public by informing them of an LLC's membership, and thus to what extent the LLC could be held liable. The requirements have eroded, however, and a recent measure which would have forced LLCs to disclose their ten largest members in connection with the publication process was rejected by the state legislature. As it stands, information provided by the publication requirement is of little use; no details of membership are included and the address given is a mere formality. Some have suggested that lobbying from the newspaper industry is the true cause for the requirement's survival, as newspapers receive steady income from these mandatory notices.

B. Publication Mechanics and Practical Advice

Within 120 days of formation of a New York LLC or application of authority for a foreign LLC to do business, the LLC must file a certificate of publication with New York's Department of State. [FOOTNOTE 1] If the LLC fails to file, its authority to "carry on, conduct or transact any business" within New York is suspended.

An LLC must publish information similar to that contained in its articles of organization or application for authority. This publication must run each week for six weeks in two newspapers designated by the county clerk (one weekly newspaper and one daily) in the county where the LLC's office is located. After publication, the newspapers will provide the LLC with affidavits, which the LLC must submit with its certificate of publication.