Advice from a Business Formation Lawyer
Guidance In Forming a Business
Advanced planning when you are setting up a business is critical to the success of that business. Decisions made early on will materially affect how easily your organization runs.
Here’s a tip from a Business Formation Lawyer for those choosing to operate under a corporation as a sub-chapter S corp:
An S corporation permits the earnings and expenses of the corporation to pass through the corporation directly to the corporate shareholders. This avoids corporate profits from being taxed at the corporate level, and then later, taxed again as shareholders’ dividends. Typically this permits individuals to use lower personal income tax brackets to calculate their taxes.
The thing you must remember is that there is a very limited time after which you form a corporation when you can elect to be treated as an S corp.
When forming a corporation always consult with your tax professional about the form of corporation you should use and insure that your attorney and tax professional are on the same page.
Another word of warning, in California corporations must conduct at least one meeting of the board of directors per year and one shareholder meeting each year. At the shareholder meeting the board of directors are elected and, thereafter, the board, at its meeting, chooses the corporate officers.
Failure to follow the formal requirements of corporate administration may result in a court finding that the corporation was not, in fact, a corporation. This could leave the shareholders personally liable for corporate debts.
Once you have established your entity, regular maintenance of the corporate books and adherence to the formalities ensures a smoothly running organization.