C or S-corporation must follow all formalities required to prevent pierce of the corporate veil:
· Certificate of formation, organization meeting, by laws, annual meeting, meeting minutes, issue stocks, keep stock ledger, resolutions.
· Use Corp. name on all business cards, letterheads of all transaction, contracts, loans with banks etc.
· Issue stock certificate
· Enough capital to operate business
· Separate personal finance from business finance
· Report and pay tax according to laws governing corporations
· Keep tax records
To conduct business as a LLC, you need to do the following:
· Use company name for all business licenses
· Use company name for all transactions
· Use IRS check the box form to file tax as partnership or corporation
· Report and pay tax according to laws governing corporations
· Separate personal finance from business finance
· Have enough capital to operate company
· Prepare an operating agreement
· Keep tax records and member information
LLC Advantages:
· Avoid corporate formalities
· No double tax, have a choice of filing as corporation or partnership
· Determine manager-managed LLC or member-managed LLC (part of estate planning)
· State in the LLC operating agreement that limit LLC to be sold only to family members not outsiders when you pass away. IRS allows valuation discounts. LLC can get 20% to 30% valuation discounts. Therefore, you pay less federal estate tax. In case of business-related lawsuits, creditors of LLC cannot reach your personal assets.
· Non-business related law suits e.g. car accidents, creditors can get charging orders meaning they can get the bonuses that you get from the company, if any. Therefore you need to write the operating agreement to show that distribution of bonuses is discretionary.
In WA some professions cannot be an LLC, but PLLC subject to regulations governing corporations.
Family Limited Partnership
Owned by parents and children, therefore can decrease income tax and estate tax. This can be accomplished with a LLC.
| SEVEN THINGS BUSINESS OWNERS MUST DO
1. Obtain an indemnification agreement and/or insurance
2. Act prudently in your role as a director or officer
3. Insulate your personal assets
4. Separate personal accounts with business accounts (NEVER commingle the accounts)
5. Keep accurate records in an organized way
6. Pay taxes according to requirements of the type of business entity
7. Seek professionals help, don’t try to do it all (accountants, attorneys etc.)
ISSUES TO ADDRESS WHEN YOU HAVE A BUSINESS PARTNER
BE SURE TO Establish a Buy Sell Agreement, consider the followings:
•How to get your investment back during early withdrawal, retirement, disability
•Methods to evaluate business worth
•Payment schedule
•Power of attorney
•Circumstances when you can add new partners
•In case of death, what are the survivors’ rights versus the business partner’s rights WHAT TO DO IF THE COMPANY ALREADY EXISTS IN A FORM WHICH DOES NOT MEET YOUR NEEDS (LIMIT YOUR LIABILITY, SAVES YOU THE MOST TAXES)?
· General partnership must convert to S or C-corporation or LLC
· S-Corporation can be converted to LLC without much complication
· C-corporation harder to convert to LLC when too much asset already depreciated, re-capture depreciation
· Dissolve current operation and form a new company
Contact Me Now to arrange for a free initial consultation.
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