The Anastasi Law Firm provides proactive legal services designed for asset protection of business owners and their company.
A business may incorporate without an attorney or use an internet company like LegalZoom, but based on experience, in-person legal counsel is highly recommended because there is a lot more to starting a new business than just incorporating. The Anastasi Law Firm has been hired to clean up many improperly or poorly formed corporations and LLCs.
Control of the corporation depends on stock ownership; those with the largest percentage of stock ownership control the corporation. Control is exercised through regular board of directors’ meetings and annual stockholders’ meetings. Records must be kept to “document” decisions made by the board of directors with “minutes”; this helps maintain the corporate shield. Liability of a shareholder is generally limited to stock ownership and their investment. However, the shield of limited liability can be lost if the corporation does not act and perform properly. The Anastasi Law Firm spends considerable time with our clients to make sure they understand the proper conduct and formalities of operating the corporate entity.
A corporation is taxed (unless an IRS Sub S election is made), it can be sued, and it can enter into contractual agreements. The corporation has a life of its own and does not dissolve when ownership changes or upon the death of shareholders.
Protection of Personal Assets
The major reason why business owners choose to incorporate their business is to protect their personal assets, such as a home, car or financial accounts. In the event of a lawsuit against the company or business failure, the personal assets of the business owner generally cannot be used to satisfy the corporate debt. In a sole proprietorship or partnership, the individual or partners are personally liable for all business obligations and debts incurred.
Corporations can take advantage of tax savings options that are not available to sole proprietorships or partnerships. Corporations can establish pension, profit-sharing and stock ownership and option plans, which can lower the corporation’s taxable income.
Protecting Business Name
When the corporation with the company name is registered with the State of California, no other corporation is allowed to register another corporation with the same name.
Ease of Asset Transfers
Corporations and LLCs are the most enduring form of business structure; they are perpetual. If a corporation shareholder dies, their portion of the business can be transferred quickly without interruption of the corporation’s operations.
Establishing the Credibility of the Business
Corporations often experience a greater acceptance, credibility and ease in doing business. There is something about an “Inc.” behind a company’s name that instantly adds value to the enterprise.
Advantages of a Corporation
- Shareholders have limited liability for the corporation’s debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in stock of the company.
- Corporations can raise additional funds through the sale of stock.
- A corporation may deduct the cost of benefits it provides to officers and employees.
- The shareholders can elect Sub S corporation status with the IRS and avoid double taxation. Income and expenses are passed through directly to the shareholders.
Disadvantages of a Corporation
- The process of incorporation requires a little more time and money than other forms of organization.
- Incorporating a C-Corp may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice. This can be avoided by making the IRS Sub-S election.
A Sub-S Corporation avoids double taxation. The Sub-Chapter S is a tax election only; this election enables the shareholder to treat the earnings and profits as distributions and have them pass through directly to their personal tax return. The catch here is that the shareholder, if working for the company, and if there is a profit, must pay him/herself wages, and must meet the IRS “reasonable compensation” test. The basic rule is to pay yourself what you would have to pay someone to do your job, as long as there is enough profit. The balance of the profit can be taken as a “distribution” that is taxed at a lower rate.
About 95% of clients of the Anastasi Law Firm make the IRS sub-chapter S election. The decision involves analysis of the financial projections and owner’s personal financial status by their CPA.
The attorney fee for a California Corporate formation is usually $2,000. State filing fees and third party charges are usually under $300. Multiple shareholder organizations are strongly encouraged to enter into a buy-sell agreement, which contemplates and resolves by agreement in advance future potential events involving changes between the shareholders.
Personal Attention • Prompt Service • Affordable Fees • Experienced
Contact us today to set up a Free Consultation (20 minutes) either in our office or over the phone. In the San Jose metro area, call us at 408.292.2606. In the Santa Cruz area, call us at 831.475.0771.