Tag Archives: corporation

S is for S-Corporation

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For this week’s post we will get to know one the incorporation options a bit better and learn what it has to offer a new entrepreneur: the S-Corporation!

First off, what is an S-Corporation?

Well, an S-Corporation (also known as the S-Corp) is a special type of corporation that draws its designation from subsection S of the tax code. To start an S-Corp, a small business owner starts a C-Corporation in the state where it is headquartered, then files for S-corporation status with the IRS. While an-S Corporation is similar to a C-Corporation, it has different income and self-employment tax regulations. 

One of the biggest and best differences between an S-Corporation and a C-Corporation is the pass through taxation. Like an LLC, an S-Corporation does not pay taxes at the corporate level. Any income or losses are reported only on the personal income taxes of the business owner’s. As a result, this avoids the issue of double taxation that affects C-Corporations. Since net losses are also passed through, the individual shareholder may be able to reduce his or her tax liability by offsetting other income with any S-Corporation losses.

Though, there is an important caveat to keep in mind: any shareholder who works for the company must pay him or herself reasonable compensation. Basically, the shareholder must be paid fair market value, or the IRS might reclassify any additional corporate earnings as “wages.”

If pass through taxation sounds good to you, consider the S-Corporation for your new business. And no pressure, if you end up deciding you’d like to stick with a regular C-Corporation after declaring your business as an S-Corporation, you can easily drop the S-Corporation status with the IRS.

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Business Basics: Professional Corporations

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Welcome to our weekly business basics post! This week we decided to explore a specialized legal entity called a professional corporation (PC). Now most of those who know a little bit about corporate law probably know that there are two, main types of corporations – S-Corps, and C-Corps. But in addition to these, there are a few other specialized structures that are important to keep under the belt of a small business, like the professional corporation.

So what is a professional corporation?

Like with a regular corporation, converting a sole proprietorship or a partnership into a professional corporation turns the business into its own, separate legal entity. However, unlike a regular corporation, the owner of a business being turned into a professional corporation must be licensed to offer a specialized professional service. In other words, the owner of the would-be PC has to be a doctor, or lawyer, or accountant, or architect; some sort of licensed profession.

Why would someone choose to form a professional corp?

Like a standard corporation, a professional corporation provides a certain amount of protection for the business owner, or owners, as a PC can carry its own debt and liabilities. It is important to note that a PC does not protect an owner from being sued as a result of their own negligence – a doctor that turns his or her practice into a PC, for example, can still be sued for malpractice. But if two doctors act as partners within a practice, forming a professional corporation can help protect one doctor from being liable for any judgement received from a lawsuit against the other doctor. So without that protection, one of the partners could be held accountable for the mistakes of the other one. Professional corporations, then, are very useful for any licensed professional running a practice with another licensed professional.

What do I have to do to form a professional corp?

First, you must be licensed to provide whatever service your practice offers in the state you do business in. Most states will want to see proof of relevant licensure at the time of incorporation, and the state licensing board will likely have to approve your articles of incorporation before you can move forward. Usually the licensing board will ask that the articles of incorporation bear special language and, depending on the state, PCs occasionally have to contend with certain laws after they are formed – for example many states ask that a professional corporation designate itself as such by including ‘PC’ or ‘Professional Corporation’ in the name of the practice.

Professional corporations take a bit more effort to form, but are extremely useful for practices run by two or more licensed professionals. After all, the last thing you want is to have to pay lawsuit that resulted from the negligence of your partner. And, like other corporations, a PC offers some protection from debtors looking to collect on a business’s liabilities. It is important, however, to check with your secretary of state and your state’s licensing board to clarify what, exactly, you must do to form a professional corporation and what special provisions you will have to contend with as a licensed PC.

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Business Basics: Registered Agent Services

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Welcome to our weekly Business Basics post! This week we decided to explore a service that nearly every Corporation and LLC uses – registered agents. If you are thinking about forming an LLC or incorporating your business, you will need to find a registered agent. But what exactly do they do again?

What is a registered agent?

A registered agent is the person, or in some cases the company, that a business designates to receive service of process if there is a summons or a lawsuit. Since incorporating or forming an LLC helps to separate your personal and professional lives, and provides fiscal and legal liability protections, the state cannot simply serve you with legal paperwork. LLCs and corporations are, after all, their own, separate legal entity. So a registered agent acts as the impartial receiver of those legal notices. States will also sometimes send renewal reminders and notices to your registered agent, helping you to stay on top of what you need to file to stay compliant with state regulations.

Do I need one?

Nearly every, single state requires that LLCs and corporations doing business within its borders designate a registered agent, so yes it is very likely that, legally, you must have a registered agent. But, beyond the legal considerations, having a registered agent also helps you to maintain a bit of privacy. Having legal paperwork delivered directly to your place of business can wind up raising some eyebrows. There are considerations to be made for office-morale as well – after all, if you are working for a corporation that keeps getting notices and letters from attorneys, you might not have much confidence in the company. A registered agent helps create a sphere of privacy, so that you and your attorney can handle any pressing legal matters without causing a panic.

Can I act as my own?

It all depends on where you do business. As we mentioned above, having a registered agent that is separate from your business will provide a bit more privacy. However, some states do allow members of LLCs, or directors of corporations, to act as the business’s registered agent. Minnesota, as an example, does not require any business formed in the state to name a registered agent, though the company does have to list an address where a person who represents the company can be found. However, all fifty states have registered agents offering their services so, if you do want to name one, you are always able to.

Where can I find one?

Most states actively maintain a list of registered agents who are allowed to provide such a service within their borders. Just look up your state’s secretary of state or department of corporations – chances are that there is a list of active registered agents somewhere on the site. MyCorp is also happy to provide you with our own registered agent services, and we are able to do so in all fifty states!

Having a registered agent is extremely useful, and even if the state you do business in does not require you to have one, it is still a good idea to contract somebody as your registered agent, just to help maintain a bit of privacy. Just make sure that whoever you do hire stays in contact with you, as any and all important paperwork from the state will likely come to them first. The last thing you want is to miss a deadline because your registered agent never got around to calling you!

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Q is for Foreign Qualifications

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We’re onto one of the trickier letters of the alphabet today in our ABC’s of small business segment, but it couldn’t be paired better than with the foreign qualification which answers the question of what a small business should do if they want to legally operate their business in a state that may not be the same one they created the formation in.

Foreign qualifications break down a little like this. If a business wants to operate outside of the state that they formed a formation with, they need to register their business as a foreign corporation in order to obtain that kind of authority. And in many cases, this is a requirement, especially if your company expects to transact business outside of the state lines that they were formed in.

By registering their business, and working alongside a company that can help them file, all foreign qualifications documents are prepped for your review and submission to the appropriate state agency in any state so that your corporation or LLC may operate as a foreign entity within that state.

Still have further questions (that’s our second “Q” reference, turns out it’s not a tricky ABC of small business after all!) about filing a foreign qualification? Give us a call at 1 (877) 692-6772 and we can help you get started!

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Business Basics: Initial and Annual Reports/Statements of Information

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Welcome to our weekly Business Basics post! In case you missed last week’s entry to the series, we are dedicating every Tuesday to helping explain the facets and aspects of starting and running a business that typically get overlooked.

Initial and annual reports (also known in some states as Statements of Information), while not particularly glamorous, keep your business in good standing. Plus if you misfile them, or file them late, your corporation or LLC could be slammed with fees, or even dissolution. Two things that you clearly want to avoid. But what are these reports, and what are they supposed to say?

Initial Reports

Initial reports are exactly what they sound like – reports filed at the beginning of the formation of a Corporation or LLC, or shortly thereafter. Different states have different requirements, but the basic information is typically the same. The initial report usually needs to name a registered agent and give that agent’s primary address, along with the business’s address. It will usually also need to list the names, and in some cases addresses, of any officer’s, directors, and/or members of the new entity. Finally, it needs to disclose what the business actually does. As of this posting, only ten states require new Corporations and LLCs to file an initial report: Alabama, Alaska, California, Connecticut, Georgia, Missouri, Nevada, New Mexico, Oklahoma, and Washington.

Annual Reports

Filing requirements for annual reports vary from state to state. Ohio, for example, does not require any business entity to file an annual report, and LLCs are excused from filing in Delaware. Annual report can sometimes be a bit of a misnomer as well, as some states, like New York and Indiana, only want biennial reports. Each state has its own requirements and deadlines, which makes summarizing annual report requirements a bit difficult, so when you do file, make sure you check with your state’s Secretary of State or Division of Corporations so you know, exactly, what is expected. Typically, annual reports are just used to keep the information that the state has on your company current, and so the state will likely ask for the same things that initial reports do – names and addresses for your registered agent and the members/directors/executives of the LLC or Corporation, along with your primary place of business and a description of what your company does. But, again, every state is different, so be sure to check your state’s website - MyCorp is also happy to help you if you need us too!

Obviously, initial and annual reports, or statements of information, are not particularly difficult to fill out. The confusion stems from the fact that each state has its own requirements. Luckily most states have a standardized form that they like businesses to use, which makes the process much easier. Just be sure to know when you need to file by in order to avoid late fees and, before sending it in, double check the form to make sure all of the information is correct.

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P is for Protecting Your Personal Assets with a Professional Corporation

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The name of the game this week is “Professional Corporation,” which happens to help protect your personal assets. That’s right, we have a triple “P” ABCs of MyCorp post, so buckle up for some serious alliteration.

A Professional Corporation is one of the more common types of entities for business owners to choose. The paperwork is a bit on the extensive side (especially compared to an entity like a Sole Proprietorship) but all that paperwork is well worth it because, as our title suggests, a Professional Corporation protects your personal assets.

A Professional Corporation does this by separating you (and your personal assets) from your business. This means that if your business were ever in deep trouble and owed some big time money, you wouldn’t be obligated to hand over your house or other assets.

This can make accounting trickier than if you opted for a simpler entity but, like I said, the protection makes it well worth it. You’ll also be paying taxes based on what you choose to pay yourself from your business. This means more money towards growing your business, and what business owner doesn’t want that?

So if you’re doing some entity shopping, be sure to keep the Professional Corporation as an option, especially if you’re looking for something protective.

 

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Business Basics: Benefit Corporations

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One of the main reasons we chose to start this blog was to help explain the facets and aspects of business that typically get overlooked. To help us do this, we decided that, every Tuesday, we are going to post a new “Business Basics” piece to discuss subjects that readers, despite being aware of, may not know much about. With that in mind, one of the first subjects we are going to look at is the Benefit Corporation.

What is a Benefit Corporation?

Benefit corporations are a fairly recent, though the practice of chartering a particular mission for a corporation has existed for centuries. Early American corporations were occasionally given a particular public service to fulfill – things like building bridges or maintaining roads. However, the modern benefit corporation is a bit different – instead of merely fulfilling a public service, it has to produce a distinguishable social good for society.

Let’s say that you create a company with a particular social mission in mind – donating ten percent of profits to wetlands preservation, for example. If you wanted to incorporate your business and raise money through selling shares, you would have to give up some control of your company to the shareholders. That could mean that, instead of continuing its social mission, the company merely focuses on producing the maximum amount of profit. Creating a benefit corporation, however, will help ensure your company can continue its social mission, even if that mission cuts into profits. Unfortunately, benefit corporations are not universally recognized, though 12 states have, as of this posting, enacted legislation recognizing Benefit Corporations.

How do you create one?

Requirements vary from state to state, but typically creating a benefit corporation is very similar to the regular process for incorporation. However, along with filling out a standard Articles of Incorporation, you typically have to include some sort of statement attesting that your corporation is a benefit corporation, along with the specific public benefit, or benefits, your corporation will pursue. You can also elect to become a benefit corporation, though doing so usually requires that you amend your governing documents and get approval from the shareholders.

Are there any special regulations or rules for Benefit Corporation?

Benefit corporations are legally required to create a positive impact on society and the environment, and most states require that benefit corporations find a third-party standard to measure that impact. Happily there are many groups that provide a free assessment service, and there isn’t any particular standard that benefit corporations must adhere to. After receiving the assessment, the benefit corporation’s directors create an annual benefit report that they make public and send to the shareholders. Some states also require an independent ‘benefit director’ to sit on the board and prepare a statement on how well the corporation is adhering to its social and environmental mission.

Any benefits?

Except for protecting a corporation pursuing a social mission instead of maximizing profits, there aren’t really any legal or tax benefits to creating a benefit corporation. However, creating a benefit corporation can help you attract socially minded investors. In 2011, the Institutional Shareholder Service compiled a report that states investors are increasingly “incorporating social and environmental considerations into” their decisions. Having a recognized benefit corporation can give you an edge with these types of investors. Just make sure you are committed to your ideals before choosing to form a benefit corporation – in most states that recognize the structure, anyone with more than a 5% share in the company can enact benefit enforcement proceedings if they feel the company is not adhering to its social mission.

Though they can be a bit confusing, the recognition of benefit corporations is a great development in the business world. If anyone reading has further questions, just ask them in the comment box below and we will try our best to answer them!

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Last Minute Tax Organization Tips!

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With only 11 days left until April 15th arrives, small business owners and entrepreneurs everywhere are scrambling to get their federal and state taxes filed and sent along to the IRS with California doing the most scrambling of all. CohnReznick recently reported in one of their company newsletters that for LLCs and Corporations in California that fail to file their tax returns on time, they may wind up paying a $2,000 penalty as issued by the California Franchise Tax Board.

Don’t endanger your overall tax position – take our CEO Deborah’s tips into consideration when it comes to getting your taxes prepped and sent on their way. Best of all, these tips can be applied to the years to come beyond the 2013 tax year and once they’re in place will make filing taxes in the future much easier and more organized.

1) Make sure you have your documents prepared.

It’s never a good idea to walk into your tax preparer’s office with piles of paperwork scattered all over the place or worse, with nothing ready at all. Prep your documents several months in advance so they’re ready for April 15th.

2) Stay organized over the course of the year rather than waiting until last minute.

Tax season is the last place you want to fashionably late to – by keeping all of your documents and paperwork organized with a bookkeeper or safe within a cloud storage system, you can ensure that you won’t be going on a frenzied hunt for receipts.

3) Respond quickly to a notice and demand to file.

You only have 60 days which can go by pretty quick! Set up a reminder service (like MyCorp’s IncGuard) to keep you on track – this system sends monthly reminders about annual reports, quarterly tax returns, year-end notices, and much more!

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N is for Non Profit

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For our ABC’s of MyCorp this week, we’re focusing on N for Non Profit which is also referred to as an NPO for non profit organizations. As stated on businessdictionary,com, non profits are generally charities, associations, and other organizations formed to further cultural, educational, religious, professional or public service objectives.

Before forming and looking into funding a non profit organization of your own, certain considerations need to be put into place to ensure that the formation is detailed and clear in the societal issue it is working on addressing. You can find out more information about the following eight points at our MyCorp “Forming an NPO” learning center!

1. Figuring out a fundraising plan and annual budget.

2. Incorporating your NPO.

3. Choosing a business name and checking its availability.

4. Preparing and filing the articles of incorporation.

5. Creating bylaws.

6. Holding an organizational meeting.

7. Getting an EIN (Employer Identification Number)

8. Applying for tax exemptions.

But don’t let the length of this list scare you off from taking the time to additionally form a corporation for your non profit! By forming a corporation for your non profit, not only do you will your business be protected and formalized, your personal assets will also be protected with liability protection and you will have established a structure where investors can invest in the business. Best of all, you’ll be providing a public service and meeting a need to benefit others and make a great change in their lives!

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