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Corporate entities
- 1. Corporate Entities When, Why and How to Incorporate Copyright Jennifer Lunsford, Esq. 2011
- 2. DISCLAIMER This presentation is offered for general educational purposes only. This is not legal advice. Your business needs are unique and you should seek individualized answers to your legal questions from a qualified attorney during a private consultation. No attorney-client relationship is formed or intended by participation in this presentation. Copyright Jennifer Lunsford, Esq. 2011
- 3. What is “Incorporating” Creating a legal identity for your company that is separate from yourself. Copyright Jennifer Lunsford, Esq. 2011
- 4. Why Should I Incorporate? Taxes and Liability Copyright Jennifer Lunsford, Esq. 2011
- 5. Tax Considerations • Corporate Tax – Two-tier or “double taxation” – Benefit of income-splitting- Lower Corporate Rate (When keeping money in the business) • “Pass-Through” Taxes – All corporate taxes paid through personal income tax return Copyright Jennifer Lunsford, Esq. 2011
- 6. Income Splitting In a Nutshell: • Corporations that keep some profits in the business from one year to the next can take advantage of a lower tax bracket. • Corporations can write off employee salaries and benefits (not owner salaries). • Strategically set salaries to leverage this advantage • Not a viable option for most small corporations Copyright Jennifer Lunsford, Esq. 2011
- 7. Liability Considerations • Liability is anything for which you are legally responsible or obligated (things you can be sued for): – Harm to others: • Tort (Physical) and Economic (Money/Opportunity) – Contractual Obligations (Clients, Vendors, Shareholders) – Debt • “Limited Liability” – Corporate entities protect your personal assets • Creditors can’t get your house or car – “Piercing the Corporate Veil” Copyright Jennifer Lunsford, Esq. 2011
- 8. When Should I Incorporate? • Your company is larger than one person (or will be soon) – Partnerships – Shareholders/Investors – Employees • The nature of you business may subject you to legal liability – Tort – Contractual – Intellectual Property Copyright Jennifer Lunsford, Esq. 2011
- 9. How Should I Incorporate? • Sole Proprietor • General Partnership • Limited Liability Company • C Corporation • S Corporation • Limited Partnership and Limited Liability Partnership • Professional Corporation (PC) or PLLC • 501(c)3 Copyright Jennifer Lunsford, Esq. 2011
- 10. Sole Proprietor Tax: Pass-Through Liability: No Protection Whatsoever Other Considerations: • Easy and Cheap! • No State Paperwork. • No Separate Tax Filing. • You and your spouse can, together, be a sole proprietor. • DBA to Protect Your Name • Still Responsible for Licenses and Government Regulations Copyright Jennifer Lunsford, Esq. 2011
- 11. General Partnership Tax: Pass-Through Liability: No Protection Whatsoever, For Any of You! Other Considerations: • Easy and Cheap! • No State Paperwork or Separate Tax Filing. • DBA to Protect Your Name • Your Partner Can Bind Both You and The Business • Taxes Assessed in Proportion to Ownership • Licenses and Local Regs Still Apply • Partnership Agreements!!!!! Copyright Jennifer Lunsford, Esq. 2011
- 12. Limited Liability Company Tax: Your Choice of Pass-Through or Corporate Tax Structure Liability: Limited Liability for All Members Other Considerations: • Don’t need to hold annual meetings or record minutes • Can be owned by individuals or other companies • Unlimited owners • May have certain tax deductions not otherwise available • Cannot Issue Stock Copyright Jennifer Lunsford, Esq. 2011
- 13. C Corporation Tax: Corporate Tax Structure with Splitting Liability: Limited Liability for All Members Other Considerations: • Separates your personal assets from your business debts • Can issue stock (more than one type) • No limit to the number of shareholders • Perpetual Existence without you • Must hold annual meetings and record minutes • If all profits paid as employee salary/benefits-limits tax! • Must comply with Securities Law! Copyright Jennifer Lunsford, Esq. 2011
- 14. S Corporation Tax: Pass-Through (taxed like a partnership) Liability: Limited Liability for All Members Other Considerations: • Why S Corp When You Can LLC? – To Pass Through Taxes and Issue Stock • You are an employee of an S Corp • Lots of Limitations: – Must Be Owned by Humans, No more than 100 Shareholders, Limited to One Class of Stock, Must be a Domestic Corporation Copyright Jennifer Lunsford, Esq. 2011
- 15. Cost of Forming a C Corp New York: – Filing Fee: $125 – Expedited Filing Fees: $25 – Tax on Shares: $10 (minimum 200 shares) – Certified Copy: $10 per copy (recommended 5) – Attorney’s Fee: Varies • Incorporation documents and filing • Corporate By-laws • EIN • Stock Certificate Copyright Jennifer Lunsford, Esq. 2011
- 16. Cost of Forming a C Corp New York: – Filing Fee: $125 – Expedited Filing Fees: $25 – Tax on Shares: $10 (minimum 200 shares) – Certified Copy: $10 per copy (recommended 5) – Attorney’s Fee: Varies • Incorporation documents and filing • Corporate By-laws • EIN • Stock Certificate Copyright Jennifer Lunsford, Esq. 2011
- 17. Delaware? – Allegedly venture capitalists prefer Delaware Corps • If you’re gonna get sued, you want to get sued here – Delaware is “cheaper” to file in • $89 filing fee (vs. NY’s $125) • Foreign Corporation Fees in NY • Registered business agent in state • Mailbox address – You have to worry about two states worth of taxes and laws Copyright Jennifer Lunsford, Esq. 2011
- 18. Questions? Remember, this presentation was for general educational purposes only. Your business is unique and there may be information relevant to you that was not covered in this presentation. For individualized legal advice you should contact a lawyer directly. jen@jenniferlunsford.com (585) 420-8536 Copyright Jennifer Lunsford, Esq. 2011