Rose Rose Productions did an amazing job of producing this video on why we love helping small business owners and startups. We are very fortunate to spend our days helping entrepreneurs start and grow their businesses.
Rose Rose Productions did an amazing job of producing this video on why we love helping small business owners and startups.
We are very fortunate to spend our days helping entrepreneurs start and grow their businesses.
Read LessShould your company elect to be taxed as an S corporation? In California, certain professions that require a state license are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation. By default, California professional corporations are taxed as C corporations. As a C corporation, your… Read More
Should your company elect to be taxed as an S corporation? In California, certain professions that require a state license are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation. By default, California professional corporations are taxed as C corporations. As a C corporation, your professional corporation would pay federal taxes on its profits, and you would also pay individual taxes if you receive salary, bonuses, or dividends from the corporation.
By electing to be taxed as an S corporation, your 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 shareholder dividends you receive in addition to your reasonable salary.
A drawback of electing to have your professional corporation taxed as an S corporation rather than a C corporation is the cost of the premiums for shareholder benefits. In a C corporation, costs like insurance coverage are deductible as a business expense. Additionally, the shareholders may not be taxed on the value of the benefits.
Another drawback is the restrictions on who can be a shareholder of an S corporation. For example, S corporations may not have shareholders who are non-resident aliens.
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.
You should consult with your CPA or tax professional to make sure being taxed as an S corporation is the best fit for your professional corporation. However, for most California professional corporations, an S corporation election is likely to provide the most tax savings.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.
Read LessIn California, certain professions are prohibited from forming a limited liability company or a traditional corporation and must instead incorporate as a professional corporation. Professions that are required to be professional corporations include many of those that require a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists,… Read More
In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and must instead incorporate as a professional corporation.
Professions that are required to be professional corporations include many of those that require a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists, psychiatrists, and psychologists.
Professional corporations have more restrictions than traditional corporations.
For example, with a few limited exceptions, officers, directors, and shareholders of a professional corporation must be licensed to conduct the professional activity.
In addition, professional corporations are subject to the regulations of the applicable governmental agency overseeing the profession in which the professional corporation is engaged. For example, some agencies have restrictions on what you can name a professional corporation and require specific language to be included in the professional corporation’s bylaws regarding who can own shares or be officers of the professional corporation.
Professional corporations are also subject to specific rules in the California Business and Professions Code. For example, only licensed persons can be shareholders of a professional corporation.
While professional corporations do not provide liability protection for malpractice, you could have limited liability protection for claims not based on malpractice, such as a slip and fall accidents.
In addition, forming a professional corporation may allow you to deduct payments for benefit plans, such as disability or health plans and group term insurance.
Finally, you should speak with your CPA or other tax professional about whether forming a professional corporation and electing to have it taxed as an S corporation may provide tax savings.
Please contact us at (415) 633-6841 or info@bendlawoffice.com to discuss whether your company is required to be a professional corporation and, if so, the steps necessary to set it up right.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.
Read LessWhy are so many companies incorporated in Delaware? This article gives the top 10 reasons why more than half a million businesses, including more than half of all U.S. publicly-traded companies and 68% of Fortune 500 companies, have incorporated in Delaware. It then outlines the biggest drawbacks to incorporating in Delaware and explains why it… Read More
Why are so many companies incorporated in Delaware? This article gives the top 10 reasons why more than half a million businesses, including more than half of all U.S. publicly-traded companies and 68% of Fortune 500 companies, have incorporated in Delaware. It then outlines the biggest drawbacks to incorporating in Delaware and explains why it is not a one-size-fits-all solution.
Delaware has a highly respected court that focuses on corporate issues – the Court of Chancery. Because of this specialization, the Court of Chancery has a great deal of expertise and familiarity in resolving complex corporate disputes.
In addition, cases in Delaware tend to be resolved faster than in other states.
No corporation wants to be involved in litigation, but it is reassuring to know potential disputes will be more quickly resolved by a very knowledgeable judge with extensive expertise in corporate law.
Corporate case law in Delaware is much more extensive than in other states due to the high volume of corporate cases.
More case law means increased predictability of the likely judicial resolution of a business law dispute.
If there have been several cases similar to the one facing your corporation, there is less uncertainty about the legal outcome which can be key when strategically deciding whether to settle a dispute or invest the time and capital to litigate.
The Delaware General Corporation Law (“DGCL”) provides a great deal of flexibility in the organization of a corporation and the rights and duties of board members and shareholders.
For example, Delaware allows one person to be the only director, shareholder, and officer of a Delaware corporation, whereas some other states require at least three people to fill those positions.
The DGCL is also frequently updated to take into account new court and business developments.
Although many Delaware statutes have been mimicked in other states, the extensive case law mentioned above is an enormous asset when determining how a Delaware statute is likely to be interpreted.
Most corporate attorneys are familiar with Delaware business law. This means your attorney can likely provide more efficient and cost effective assistance if your company is incorporated in Delaware as opposed to a less popular state.
Angel investors and venture capitalists usually prefer to invest in companies incorporated as a C Corp in Delaware. If you are serious about receiving investments from these types of investors, you may want to incorporate in Delaware.
Many investment bankers insist on a company being incorporated in Delaware before they take it public. If your goal is eventually having an initial public offering (IPO), you may want to incorporate in Delaware rather than converting to a Delaware corporation later.
If you incorporate in Delaware, you send a message – “This is a national company.” From a marketing perspective, this could be important for your customers and investors. You also send a signal to investors that you understand their preferences and are serious about receiving investments.
Delaware does not require officer or director names to be disclosed on formation documents. This provides a layer of anonymity that is not available in some states.
The Delaware Secretary of State’s Office has made it a priority to provide expedited filings. In fact, you can have your filings guaranteed to be processed in less than an hour.
In contrast, California has a 24 hour processing option, but it is not guaranteed to be completed within 24 hours and the rush processing fee is significantly more expensive than in Delaware. This can be critical if you need to close a deal very quickly.
The annual franchise tax in Delaware can vary depending on a variety of factors, but it can be as low as $125 per year with reporting fees. In contrast, California’s annual franchise tax is $800.
If you incorporate in California and later move the corporation to another state, you still have to pay the $800 annual franchise tax. If you incorporate in Delaware and later move, the annual franchise of your “home state” (where you initially incorporated) could be as low as $125.
If you incorporate in Delaware, you will be required to have a registered agent for service of process. The annual fees for this service vary, but companies such as Biz Filings and Legal Zoom charge $129 to $149 each year.
If you incorporate in Delaware you will not only have to pay the annual franchise tax in the states in which you are “doing business,” but also in Delaware.
For example, if your company is headquartered in California, but you incorporated in Delaware, each year you will not only have to pay the $800 annual franchise tax in California, but also the annual franchise tax in Delaware.
If you incorporate in Delaware, you will have a second layer of reporting requirements. For example, if you incorporate your company in Delaware, but are headquartered in California, you would have to comply with the reporting requirements in both states.
If the benefits of incorporating in Delaware described above are not important to your company, you may want to avoid the extra expense and time of being incorporated in Delaware.
If you incorporated your company in Delaware, what have you found are some of the biggest advantages and disadvantages?
When forming a corporation in Delaware you will need to indicate on the certificate of incorporation the total amount of stock the corporation is authorized to issue. How do you decide how many shares you should authorize? There are two schools of thought on this decision: Only Authorize 5,000 Shares. By March 1st of each… Read More
When forming a corporation in Delaware you will need to indicate on the certificate of incorporation the total amount of stock the corporation is authorized to issue. How do you decide how many shares you should authorize? There are two schools of thought on this decision:
By March 1st of each year you will have to file an annual report and pay a franchise tax in Delaware. The tax is calculated based on the authorized shares for the company by using either the Authorized Shares Method or the Assumed Par Value Capital Method.
The Authorized Shares Method is based on the number of authorized shares and is calculated as follows:
You may, therefore, decide to authorize the company to only issue 5,000 shares so you pay the minimum amount of Delaware franchise tax each year ($175).
The second school of thought is to authorize millions of shares, typically 10,000,000 shares.
The rationale is that individuals who receive 1,000,000 shares feel like they are receiving something of greater value. They may be more motivated than individuals who receive 500 shares, even if the shares represent the same percentage of ownership in the company.
In addition, having more shares provides more flexibility in allocating shares on vesting schedules.
The drawback is that in Delaware having more than 5,000 authorized shares results in a higher annual franchise tax.
If you authorize millions of shares, you will most likely calculate the Delaware annual franchise tax using the Assumed Par Value Capital Method. The calculations under this method can be complicated, but the Delaware Secretary of State’s Office provides a good explanation and examples of how to determine the tax here.
Please contact us at (415) 633-6841 or info@bendlawoffice.com to discuss how many shares you should authorize for your Delaware corporation.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.
Read LessWhy should your company have strategic bylaws? California does not require a company to have written bylaws. However, every business should have a set of strategic, written bylaws to optimize company operations and legal protections. Here are 6 reasons why: 1. They are the Company’s Legal Backbone A company’s bylaws provide the legal framework for… Read More
Why should your company have strategic bylaws? California does not require a company to have written bylaws. However, every business should have a set of strategic, written bylaws to optimize company operations and legal protections. Here are 6 reasons why:
A company’s bylaws provide the legal framework for how it operates. This includes the number of people who serve on the board of directors, how to call a board meeting, and the officer positions for the company.
If your company does not have bylaws in place, the laws of California will control how the company is run. It is much better for the owners to determine how the company should operate than to rely on the state’s default.
This is similar to an individual not having a will or trust. If they die, the state’s statutes determine how the individual’s assets are distributed. Instead, each individual should thoughtfully think through how they would like their assets distributed and to set up the legal mechanism to enforce their plan.
Similarly, it is much better for business owners to think strategically about how they would like their company to operate. Relying on state statutes might not always be the best fit for the company. The bylaws then serve as the legal framework that supports the business strategy.
Every company runs into challenges eventually. It is better to consider some of the potential turning points in your company and provide for them in your bylaws. This preemptive approach allows you to determine how you would like the outcomes of these situations to be determined, rather than waiting to make tough decisions when interested parties and passions may create the perfect storm for litigation.
For example, what will happen if there is a legal dispute between the owners? Do you want the company to be tied up in the expense and distraction of litigation or would you prefer arbitration? What happens if one of the owners dies? What if one of the owners wants out of the company?
The bylaws present an opportunity to calmly and objectively reflect on these issues before they occur. It is wiser to answer these types of questions ahead of time and determine what might be the best solutions for your company than to rely on the default rules in the state’s statutes or to try to resolve them when clear heads are less likely to prevail.
One of the primary reasons to form a corporate entity is to possibly have personal limited liability from the potential business debts and judgments against your company.
If a company does not have bylaws and is sued, a plaintiff could try to “pierce the corporate veil” by claiming the company should not be provided with the shield of limited liability protection because its owners did not follow corporate formalities.
In determining whether to pierce the corporate veil, the court would evaluate a number of factors to determine whether your company is legitimate, including whether you have the proper corporate documents and records. By not having bylaws, a business owner is risking not being provided limited liability protection if sued.
Communication and clear expectations are key to any successful relationship including the relationship between business owners. Bylaws clearly lay out how the company will be run which can be crucial in preventing misunderstandings over how the owners expect the company to be managed.
Finally, if you would like to open a business account or apply for loans most banks will require you to provide a copy of your bylaws. In addition, insurance companies may require you to provide a copy of your company’s bylaws before providing certain types of polices.
As a business owner, it is often tempting to cut corners to lower costs. A strategic, thought out set of bylaws should not be one of these corners. Instead, bylaws should be recognized for what they are – one of the wisest investments a business owner can make to ensure the long-term effectiveness of their company.
If you have any questions regarding bylaws or any other business legal issue, please contact us at (415) 633-6841 or info@bendlawoffice.com.
Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.
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