You do not form an "S Corp" with your state government. It is an election you make through the federal government that allows your corporation to pass corporate income, losses, deductions and credit to its shareholders. This avoids double taxation on corporate income.
The decision to elect S Corp status is often best decided by your accountant, but the attorney who helped you form the organization will need to apprise you of the requirements so you are eligible for an S Corp election. An S Corp must have fewer than 100 shareholders who are individuals, estates, exempt organizations or certain trusts. Among other requirements, it must also have only one class of stock, no nonresident alien shareholders, a tax year meeting certain requirements, and each shareholder must consent to the S Corp election.
Showing posts with label corporations. Show all posts
Showing posts with label corporations. Show all posts
Tuesday, November 12, 2013
Friday, April 19, 2013
With business entities, what does the "P" mean in PLLC and P.C.?
I regularly get asked what the "P" means in business names (i.e., PLLC, P.C.), and why some businesses have it while others do not. In short, it means "professional." If you are in a profession that requires a license to practice, you can generally form a professional company. In Iowa, which adopted the Uniform Limited Liability Company Act, practitioners in the following professions can form a PLLC or P.C.:
A licensed marital and family therapist can form a PLLC, but not a P.C.
Unlike an LLC or regular corporation, a professional company cannot engage in business activities outside the specific profession in which it is licensed. For instance, a law practice formed as a PLLC or P.C. cannot do anything but practice law. An LLC or corporation, on the other hand, can be formed for any lawful purpose.
PLLCs and professional corporations must be completely managed by individuals licensed to practice in the profession the company practices. The same is not true for LLCs and regular corporations. Otherwise, LLCs and corporations are very similar to PLLCs and professional corporations.
- certified public accountancy
- architecture
- chiropractic
- dentistry
- physical therapy
- physician assistant
- psychology
- professional engineering
- land surveying
- landscape architecture
- law
- medicine and surgery
- optometry
- osteopathic medicine and surgery
- accounting
- podiatry
- real estate brokerage
- speech pathology
- audiology
- veterinary medicine
- pharmacy
- nursing
A licensed marital and family therapist can form a PLLC, but not a P.C.
Unlike an LLC or regular corporation, a professional company cannot engage in business activities outside the specific profession in which it is licensed. For instance, a law practice formed as a PLLC or P.C. cannot do anything but practice law. An LLC or corporation, on the other hand, can be formed for any lawful purpose.
PLLCs and professional corporations must be completely managed by individuals licensed to practice in the profession the company practices. The same is not true for LLCs and regular corporations. Otherwise, LLCs and corporations are very similar to PLLCs and professional corporations.
Friday, February 15, 2013
The importance of forming a business entity separate from your personal affairs.
Regardless of the field of industry in which you conduct your business, there are clear benefits to forming a business entity. There are a few different options from which one can choose, and they each have their own advantages. Some advantages are tax-related. Some advantages are related to liability. The primary reason one should form a business entity separate from their personal affairs is liability. Every business is vulnerable to legal claims. No matter how you careful you are in conducting business, you can find yourself in trouble because of another person's actions. So it is important to be protected.
If you run your own business, but do not have it set up as a separate business entity, then any legal claims against you can be asserted for the full amount. If you have $100K in household assets, and a $75K judgment is entered against you, the judgment debtor (the person who sued you) can obtain $75K from you personally. Now, consider a situation in which you formed a business entity and kept those assets and liabilities separate from your personal assets and liabilities. If you have $25K in business assets and do not commingle your business and personal finances, then the same judgment debtor who has a $75K claim would only be able to recover $25K from you (provided you formed a business entity with limited liability).
If you have a spouse, and have joint bank accounts, the first scenario penalizes them, because a $75K judgment was entered against you personally and you share a bank account with them. In the second scenario, the judgment is entered against your business, and only up to the value of the business's total assets.
If you step back and look at the big picture -- the effect of business entity formation -- think of it as a form of insurance, but paid with a very small premium. Essentially, you pay a small biennial fee (low three digits), and your liability is limited the value of the business's assets.
If you do not pay the small biennial fee, your business entity is dissolved, and you are personally liable again. To maintain limited liability, you have to select an entity with limited liability. Also, you must keep your personal and business finances separate from each other. I cannot stress that enough.
If you run your own business, but do not have it set up as a separate business entity, then any legal claims against you can be asserted for the full amount. If you have $100K in household assets, and a $75K judgment is entered against you, the judgment debtor (the person who sued you) can obtain $75K from you personally. Now, consider a situation in which you formed a business entity and kept those assets and liabilities separate from your personal assets and liabilities. If you have $25K in business assets and do not commingle your business and personal finances, then the same judgment debtor who has a $75K claim would only be able to recover $25K from you (provided you formed a business entity with limited liability).
If you have a spouse, and have joint bank accounts, the first scenario penalizes them, because a $75K judgment was entered against you personally and you share a bank account with them. In the second scenario, the judgment is entered against your business, and only up to the value of the business's total assets.
If you step back and look at the big picture -- the effect of business entity formation -- think of it as a form of insurance, but paid with a very small premium. Essentially, you pay a small biennial fee (low three digits), and your liability is limited the value of the business's assets.
If you do not pay the small biennial fee, your business entity is dissolved, and you are personally liable again. To maintain limited liability, you have to select an entity with limited liability. Also, you must keep your personal and business finances separate from each other. I cannot stress that enough.
Thursday, February 14, 2013
Are you a non-voting shareholder of a small company?
If you are a non-voting shareholder of a company, your rights are limited if the Board of Directors ("Board") subsequently takes action that you do not like. Ultimately, their conduct may be so egregious that you have rights to take action, but generally they are entitled to run the company in ways they see fit. As long as they are not violating the fiduciary duties of loyalty and care that directors owe a company, your hands may be tied.
If the Board is small, and the misbehavior involves only one or two directors, it is more likely that the duties of loyalty and care are being violated. This is simple human nature. If you have 10 people in a room, the likelihood that they are all taking advantage of their position at the expense of shareholders is fairly low. If you have two people in a room, the likelihood that they are both taking advantage of their position at the expense of shareholders is much higher, relatively speaking.
If you have the opportunity to become a shareholder of a small company, it is best to make sure that you are a voting shareholder. This might involve negotiation if the bylaws have not been written. Or it might involve purchasing a different class of stock. If you are becoming a shareholder of a larger company, it may not be in your best interest to have a vote, because there will be an ample number of voting shareholders overseeing the Board.
If you are already a non-voting shareholder of a small company, you are likely entitled to inspect the books and records of the company, depending on the state in which you are located. You generally have to provide notice of a certain duration as defined by state law, so your inspection does not unduly interfere with the company's business affairs.
When a small number of people enter into business relationships, they have competing considerations and different ideas about how a company should be run. In most cases, these disputes are resolved without resorting to the legal process. But even when people are conducting their business in good faith, they might run afoul of the expectations of their colleagues in the company. This could involve compensation or any number of things. In such cases, it is prudent to have a vote on the matter.
If the Board is small, and the misbehavior involves only one or two directors, it is more likely that the duties of loyalty and care are being violated. This is simple human nature. If you have 10 people in a room, the likelihood that they are all taking advantage of their position at the expense of shareholders is fairly low. If you have two people in a room, the likelihood that they are both taking advantage of their position at the expense of shareholders is much higher, relatively speaking.
If you have the opportunity to become a shareholder of a small company, it is best to make sure that you are a voting shareholder. This might involve negotiation if the bylaws have not been written. Or it might involve purchasing a different class of stock. If you are becoming a shareholder of a larger company, it may not be in your best interest to have a vote, because there will be an ample number of voting shareholders overseeing the Board.
If you are already a non-voting shareholder of a small company, you are likely entitled to inspect the books and records of the company, depending on the state in which you are located. You generally have to provide notice of a certain duration as defined by state law, so your inspection does not unduly interfere with the company's business affairs.
When a small number of people enter into business relationships, they have competing considerations and different ideas about how a company should be run. In most cases, these disputes are resolved without resorting to the legal process. But even when people are conducting their business in good faith, they might run afoul of the expectations of their colleagues in the company. This could involve compensation or any number of things. In such cases, it is prudent to have a vote on the matter.
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