Business Formation

The biggest mistake I see in business formation isn’t picking the wrong entity. It’s picking an entity for reasons that won’t matter in three years and getting locked into a structure that’s expensive to change. The LLC versus S-corp versus C-corp question gets the most attention because it’s the most googled, but the better questions are usually about who’s going to own the business, how they’re going to be paid, what happens if one of them leaves, and what the business is actually trying to become. The answers to those questions tell you the entity, not the other way around.

I’m Lawrence Israeloff. I’m a business attorney and a CPA, and for over two decades I’ve been helping clients form, restructure, and operate closely-held businesses across Long Island and the New York City metro. The dual credential matters here in a way it doesn’t in most areas of practice – entity selection is genuinely a tax decision dressed up as a legal one, and getting it right requires looking at both at the same time.

How the entity decision actually plays out

A few realities that get lost in the generic LLC-vs-S-corp comparison charts:

  • Single-member businesses. For a solo operator with no employees and modest revenue, a single-member LLC with default tax treatment (disregarded entity, taxed as a sole proprietorship) is usually the right starting point. It provides liability protection at a fraction of the complexity of a corporation. The S-corp election starts to make sense once net earnings are high enough that the self-employment tax savings on distributions exceed the additional cost of payroll, separate tax filings, and reasonable-compensation analysis – typically somewhere in the $40,000-$60,000-of-net-income range, though the exact crossover depends on the specific facts. Below that, the savings don’t justify the friction.
  • Multi-owner businesses. Two or more owners introduces a different set of issues. LLCs taxed as partnerships are flexible – they allow special allocations, different classes of membership interest, and sweat-equity arrangements that S-corps can’t accommodate. S-corps are simpler administratively but rigid: one class of stock, no special allocations, distributions strictly proportional to ownership, no more than 100 shareholders, no non-resident aliens or non-individual shareholders (with limited exceptions). For partners with materially different contributions or expected roles, the LLC’s flexibility usually wins; for clean equal-ownership operating businesses with employee owners, the S-corp’s simplicity often does.
  • Professional practices. Medical, dental, legal, accounting, and other licensed professionals in New York have additional constraints – most must form as a Professional Service Corporation (PC) or Professional Service Limited Liability Company (PLLC), not a regular LLC or corporation, and the rules around ownership are stricter (generally only licensed members of the same profession can own equity). The tax planning still applies, but the entity choice is partially constrained by licensing law.
  • Real estate. Holding investment real estate in an LLC is almost always the right move; holding it in an S-corp or C-corp generally isn’t, because corporate tax treatment of appreciated real estate creates problems on disposition that LLCs avoid. Multi-property investors often want separate LLCs per property for liability segregation, sometimes structured under a parent holding company. The tradeoff is administrative cost versus risk insulation.
  • Anticipating outside investment. Businesses that expect to raise institutional capital (venture, private equity, certain types of strategic investment) often need to be (or convert to) Delaware C-corporations regardless of the tax inefficiency. Investors have strong preferences that are essentially non-negotiable, and converting later is more expensive than starting in the right place. Most closely-held businesses don’t need this, but the ones that do should know it early.

What actually gets done at formation

The mechanical work is straightforward and I handle it the same way every time: state filing (Articles of Organization for an LLC, Certificate of Incorporation for a corporation), EIN application with the IRS, S-corp election filing if applicable (Form 2553, with attention to the deadlines that trip people up), and registration with NY State Department of Taxation and Finance. New York has its own additional requirement for LLCs (the publication requirement under §206 of the LLC Law) that adds cost and a six-week window most filing services don’t explain clearly upfront.

The substantive work is in the foundational governance documents. An operating agreement (for an LLC) or bylaws and shareholder agreement (for a corporation) is where the real decisions get made: how profits and losses are allocated, how decisions get made and who has authority over what, how new owners are admitted and existing owners exit, what happens on death, disability, divorce, or bankruptcy of an owner, how the business gets valued for buyout purposes, and what restrictions exist on transferring ownership. Most small businesses either skip this entirely or use a template that doesn’t reflect what the owners actually agreed to. Both approaches create problems that surface years later when something changes.

The Corporate Transparency Act

A note on a recent regulatory change: the Corporate Transparency Act took effect January 1, 2024 and requires most newly formed entities (with some exceptions) to file Beneficial Ownership Information reports with FinCEN. The rules have been through significant litigation and rule changes since enactment, with current enforcement focused on foreign-owned entities, but the landscape continues to evolve. Any business formed today needs to evaluate its filing obligations as part of the formation process. I keep clients current on what’s required.

Who I work with most often

The recurring patterns: solo professionals (consultants, freelancers, advisors) at the point where they’re outgrowing sole-proprietorship operation; multi-partner operating businesses where the owners need to formalize their relationship before something goes wrong; medical, dental, and legal practices working within the licensing constraints noted above; real estate investors building multi-property portfolios; family businesses being formalized for succession or generational transfer; and operating businesses converting from one entity type to another (S-corp election, LLC-to-corp conversion, entity restructuring before a sale).

If you’re forming a business that’s going to do less than $50,000 in revenue, has no employees, and has a low-risk activity profile, you may not need a lawyer to form it, and I’ll tell you that. The work I do has the most value where the stakes, the structure, or the long-term planning justifies the cost.

Long Island, NYC, and the surrounding metro

I work out of Melville, NY and represent clients across Long Island, the five boroughs, Westchester, and the broader New York metro. New York’s business law and tax framework is genuinely more complex than most other states, particularly around LLC publication requirements, professional entity rules, and the state’s franchise and corporate tax structure. Useful starting points if you want to read on your own: the New York Department of State Division of Corporations, the IRS small business resources, and the Small Business Administration. None of those replace advice tied to your specific situation.

Let's talk

If you’re getting ready to start a business, restructuring an existing one, or trying to figure out whether the entity you’re operating is still the right one, that’s the conversation. Schedule a consultation and we’ll work through where you are and what makes sense from here.