Are You Forming a Corporation? We Can Help!
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At Ridley Legal, we understand the process of forming corporations. We can guide you through this process to ensure you select the correct entity for your business, and that you don't miss crucial details that can protect you and your assets. We will also explain all the legalese in the documents to you and help you understand what commitments you are making when you file and what your ongoing obligations will be. Our Ventura County attorney can assess the business law needs for your specific type of company and industry and provide solutions that work for you.
Forming a Corporation or Incorporation
Business owners starting from scratch will need to select a name for the corporation and appoint directors who can make major financial and policy decisions. Often the small business owner is the only director. Some companies may have already made all of these decisions and simply want to incorporate an existing business.
After you have completed these steps, it's time to start the process. Ridley Legal can draft and file your corporate documents and advise you how to structure your company and document corporate actions to provide you the maximum legal protection.
What is a professional corporation?
Some professions in California are prohibited from forming limited traditional corporations. Instead, they are required to incorporate as professional corporations. Professional corporations have more restrictions and are subject to specific rules in the California Business and Professions Code as well as local government agencies.
Some of the professions that must form professional corporations are:
- Certified public accountants
What is an LLC?
Limited liability corporations (LLCs) are corporations that are formed specifically for the protection of the business owners. A company that is formed as an LLC is structured so that creditors cannot generally target the business owner's personal assets should there be financial problems at the company. Unlike a corporation, an LLC is a pass-through tax entity unless special taxation treatment is specifically requested. An LLC can request to be taxed as a C corporation or an S corporation.
What are C corporations and S corporations?
A C corporation is one that is taxed separately from its owners according to the United States federal income tax laws. An S corporation, can provide tax benefits and avoid secondary corporate taxation (the "double tax" of C Corporations), but has stricter limitations on management and equity options than a C corporation.
Should I choose a C corporations or an S corporation?
This depends on the size of your company and your goals for the future. As a C corporation, your corporation would pay federal taxes on its profits. Principals in a professional corporation would also pay individual taxes if they receive salary, bonuses, or dividends from the corporation.
By electing to be taxed as an S corporation, a regular or professional corporation would instead be a pass-through tax entity, like an LLC or a partnership. Electing to be taxed as an S corporation may also allow you to pass losses from the business to your personal income tax return, where you can use the losses to offset income that you may have from other sources. Finally, if the corporation pays you a "reasonable salary," you may not be required to pay self-employment taxes on any additional corporate profits that are paid to you as dividends as a shareholder in addition to your reasonable salary. However, there are guidelines to what a "reasonable salary" is, and the salary provided must conform to those requirements.
One potential disadvantage of choosing to have your corporation taxed as an S corporation rather than a C corporation is that in a C corporation the cost of the premiums for shareholder benefits, such as insurance coverage, are deductible as a business expense. In addition, the shareholders may not be taxed on the value of the benefits. Another potential drawback to electing to have your professional corporation taxed as an S corporation is that there are restrictions on who can be a shareholder of an S corporation. For example, S corporation may not have shareholders who are non-resident aliens. If you have foreign investors or partners, an S corporation election may not be the best choice for you.
Finally, S corporations may only issue one class of stock whereas C corporations can have different classes of stock that have different rights and liquidation priorities. Therefore, if you planned to have common stock and preferred stock, you should elect a C corporation instead of an S election.
Considering a joint venture partnership?
A joint venture partnership occurs when two companies form to gain mutual benefits by sharing the costs, risks, and rewards of their businesses. In most cases, joint ventures can expand a business and help you gain entry into new markets. It is important to establish a joint venture partnership with the help of a trusted attorney, since the legal process involved can be very complicated. It is important to set out who will undertake the risks, costs, and benefits of the joint venture, and who will own any intellectual property discovered or obtained during the joint venture. Taking the time to clarify these issues at the beginning of the relationship can save time, frustration and legal fees down the road.
Do you want to form a corporation?
Call us before starting the process. We can help you at every stage, from choosing a name for your business, filing the corporate entity, issuing stock, and maintaining corporate records. We have extensive experience working with all sizes and sorts of businesses, including small corporations and Fortune 500 companies.
today to get more information!