New York Startups: Respect My Authority

There are dozens of good blog posts and articles out there about why most tech startups should be formed as Delaware corporations.  Even if the home office is in Manhattan or Palo Alto or Chicago.  No need to rehash the reasons here.  There is one missing ingredient in much of this advice, though, and it’s how to handle state-specific requirements based on where the company is doing business.  For New York-based startups, or startups doing business in New York, the company needs to file an Application for Authority.  It’s basically a form of license for the Delaware corporation to operate in the state.  And sometimes banks will require this before opening an account, or landlords before signing a lease.

What does “doing in business in New York” mean exactly?  While there is some very useful insight out there that your lawyer can use to guide you through the process, there is often a gray area.  Especially for startups based elsewhere that have some sort of New York operations.  I’ve seen the definition of doing business stretched at times so that a client answers that they have not been doing business at time of filing.  This is primarily in the interest of having the filing be approved faster.  

The key in New York is to file right the Application for Authority either right away  upon formation or before substantial New York operations have started.  This is because the application asks whether or not the company has been doing business in New York already.  Answer “No” to that and the application process can get wrapped up anywhere between a day and around a week.  But when the Company says “Yes” and tells the state that they’ve already been doing business in New York, the state needs a tax clearance before moving forward.  And that can take months, and requires… more forms!  So when the filing is made right after the company is formed, or right as the company sets foot in the Big Apple, it’s a real time and work saver.  

One last point to consider when working on a New York Application for Authority: where the mail goes.  After the application is processed, the company’s name is added to an easily-searchable web list and the company address and phone number are publicly listed.  If the company already has an office, this is no big deal, but founders working from home may not want their personal address floating out there.  There’s an easy solution.  The company can use a registered agent and have the registered agent’s address listed; it’s kind of like using a mail forwarding address and avoids having a home address out there for potential trolling.

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