What are the dangers of having a partnership or sole proprietorship?
November 19, 2008
The primary worry of most business owners is that if the owner is sued he could face personal liability and place his own assets at risk. Riskier alternatives to creating a form of business that provides protection include buying insurance, hiring independent contractors (so that they may distance the owner from liability), or to invest silently and have little involvement in day-to-day operations. While these actions may limit liability to a certain extent, they are considered far weaker protection to an investor than utilizing a protective business form, such as a corporation.
What is a “sole proprietorship”?
November 19, 2008
A sole proprietorship is a business owned by a single individual. A sole proprietorship will not protect the owner from liabilities. Therefore, the owner is personally liable on all business obligations. In addition, a sole proprietorship is taxed directly through the personal income taxes of the owner. This is the simplest form that a business can take.
What does it mean for shares to be “publicly held”?
November 19, 2008
When shares of a company are “publicly held” this means the shares are traded on the public securities markets subject to federal regulation.
What if I attempted to incorporate and failed to do so properly? Am I now personally liable for all of my company’s debts?
November 19, 2008
The situation that you have been placed in is a dangerous one, but not all hope is gone yet. It really will depend on the types of liabilities that you may have incurred and what your state’s laws are. Some states will recognize an attempt to incorporate, if you had carried on as if there was a corporation and the failure to incorporate was not in bad faith. If you are in this situation, seeking the help of an attorney immediately is imperative since there can be a lot of gray area which only a professional can help you sort out.
Once a corporation is formed, what can the corporation do?
November 19, 2008
Once a business is incorporated, all business is conducted in the corporation’s name. The corporation itself borrows money, contracts with other entities and individuals, sues, and can be sued. It acts like a person. The same applies for Limited Liability Companies (LLCs).
Can a Foreigner be a Shareholder of a S-Corporation?
November 6, 2008
The tax code provides that a S-Corporation must not have a nonresident alien as a shareholder (see, IRC Section 1361(b)(1)(C)). Treasury Regulation Section 1.1361-1 states that “a corporation having a shareholder who is a ‘nonresident alien’ as defined in Section 7701(b)(1)(B) does not qualify as a small business corporation.” Section 7701(b)(1)(B) provides — in typical IRC legalese — that a person is a nonresident alien if he isn’t a resident alien. Having a particular visa has no impact on whether a non-resident alien can be a S-corporation shareholder. Only a green card or meeting the IRS’ “substantial presence test” enables an alien to be eligible to be an S Corporation shareholder.
Section 7701(b) and the implementing Treasury Regulations (i.e., Section 301.7701(b)-1) provides that to be a resident alien (and thus an eligible S corporation shareholder) one either has to have a green card or meet the substantial presence test by being in the US for at least 183 days during a three year period that includes the current year. This is the only area where having a certain visa may be relevant. Section 7701(b)(3)(D)(i) provides that an individual shall not be treated as being present in the US on any day if such individual is an exempt individual. Section 7701(b)(5) defines exempt individuals as those who are a foreign government-related individuals (including those temporarily present in the US on a visa which the IRS determines represents full-time diplomatic or consular status), teachers, trainees, students or professional athletes temporarily in the US to compete in a charitable sports event. Thus, the visa classification of these types of individuals could, actually, hinder them meeting the substantial presence test.
What is an incorporator?
October 20, 2008
The Articles of Incorporation are signed by the “incorporator”. Any natural person may serve as incorporator. As a matter of convenience, our firm generally serves as the initial incorporator.
What is a Statement of Information?
October 20, 2008
A new corporation is required by California law to file a Statement of Information with the Secretary of State within 90 days after incorporation. A renewal form Statement of Information must be filed biennially thereafter.
What is “par value” stock?
October 20, 2008
California no longer recognizes the concept of “par value”, so there is no longer any distinction in California between par and no-par value stock. Cal. Corp Code Sec. 205
What is the benefit of electing to be treated as a “S” corporation?
October 20, 2008
The simple explanation is that a “S” election is made to avoid double taxation. Because a corporation is viewed as a separate taxpayer, a “C” corporation files its own tax return and is obligated to pay tax on its income. When the income is later distributed to the shareholders, the same income is taxed to the shareholder – a second time. To avoid this result, the shareholders may make an election to be taxed under Subchapter “S” of the Internal Revenue Code, such that the income of the corporation is taxed only once.
At the initial stage of the business, “S”-type tax treatment will enable start-up losses to be passed through to the shareholders, so that they may be used to offset other income (subject to certain limitations).
