Corporation Formation

Corporations are an excellent way to organize and run a small business. Additionally and more importantly, they provide legal liability protection, so that you, the owner of your business, is shielded from the debts, obligations, and lawsuits of your business.

Forming a corporation can give you the peace of mind you need to keep going with your business in these turbulent economic times.

Which Entity is Right for You?

The structure that a taxpayer chooses for his or her business has a far-reaching impact, and yet, most of our new corporate clients don’t know why they incorporated, nor why they chose that specific entity. Our team of experts will prepare a Comparative Table and discuss the legal, procedural and tax rules as they pertain to each entity. Careful consideration of the client , the business, and the applicable legal and tax implications will be taken in order to choose the entity that provides the most benefits to you.

Corporate Taxation

Who pays tax?

While LLCs are created and recognized under state law for tax purposes, they may be taxed in a number of ways. A single-member LLC is disregarded for tax purposes unless the LLC elects to be taxed as a corporation. So, how do you choose between a C corporation or an S corporation?

Federal Basis

  • S corporations and LLCs income flows to shareholders.
  • C corporations pay taxes at graduated rates, but the income can be shifted to the shareholders through reasonable wages and employee-benefit plans.

California Basis

  • S corporations, greater of $800 minimum tax or 1.5% of net income.
  • LLCs, $800 annual tax plus annual fee from $0 to $11790.
  • C corporations, greater of $800 or 8.84% of net income, but as in the federal basis income can be shifted to shareholders.

Basis and at Risk issues

  • S corporation shareholders’ guaranteed loans do not increase basis.
  • Deductibility of shareholders of S corporations business loses are limited to basis

Tax-deductible fringe benefits

  • Deducted from C Corporation income and not taxable to the owner (not included in the owner’s W2 form).

Legal and Procedural

Steps Process of Incorporation

  • Preliminary corporation name clearance.
  • Filing of Articles
  • Prepare Corporate Bylaws (includes provisions protecting directors and officers from liabilities)
  • Prepare Minutes of the First Meeting of the Board of Directors
  • Medical and Dental Reimbursement Plan
  • Who are the owners?
  • Issue Stocks Certificates.
  • Prepare and file Notice of Stock Transaction Form.
  • Prepare Shareholder Representation Letters.

After you Incorporate

  • Capitalization
  • Opening Bank Accounts
  • File Annual Statement of Information
  • Adopt a Shareholder’s Buy-Sell Agreement

Incorporating and existing business

  • Transfer of assets and liabilities in return for shares of stock. (This transfer is regularly considered a sale, therefore, a taxable transaction)
  • Tax-Free transaction under section 351. (File final papers on prior business)