i have an s corporation- why do i need a lawyer?

S-corporation and corporation owners stand to benefit the most from hiring a lawyer as these complex entities usually require filing legal papers. Critical legal documents include filing articles of organization, establishing corporate bylaws, appointing corporate directors and issuing stock to shareholders.

Full Answer

Do you need a business lawyer to form a corporation?

For step seven, you need to have a business lawyer draft the Bylaws of your corporation. These are the standards, procedures, and policies of your business. A lot of times, business owners get their business lawyer to help with this document as well. If necessary, step eight is to create an agreement for your shareholders.

Is it a good idea to be an S corporation?

It’s a good idea to be an S Corporation if your business qualifies because it offers the protection of an LLC with the tax advantages of a corporation. It’s the best of both worlds. Let’s look into the s corporation’s advantages and disadvantages more in-depth in the following sections…

Can you have an LLC and an S corporation?

For example, you might need to operate as an LLC, LP, or LLP and then simply have your S-Corporation be the partner or member in that entity. Forming an S Corporation is a great move for most businesses, but there is a lot of information you should be aware of first.

Do you have to pay taxes if you are an S Corp?

Self-employment taxes: An s corporation is required to pay owners a reasonable salary on which they will pay taxes on. This means you get to avoid self-employment taxes altogether because technically, you aren’t self-employed. You’re employed by the S Corp.

Can I be sued personally if I am an S corporation?

While this is a common corporate form for small and medium-sized businesses, the limited liability offered by corporate status is not absolute. You can still be sued personally, even if you operate as an S corporation.

What happens if an S corp gets sued?

In most states, S corporations indemnify officers who get sued, paying for legal defenses and damages. Many corporations also pay for D&O -- directors and officers -- insurance. This reimburses you for the costs of legal expenses and damages.

Does an S corp need a CPA?

As compared to a sole proprietorship, S corporations need more accounting and bookkeeping, which can require the help of a qualified accountant, adding to the costs. In addition, there might be more banking and legal advice needed for business loans, taxation, and other issues.

Does S corp protect from personal liability?

An S corporation protects the personal assets of its shareholders. Absent an express personal guarantee, a shareholder does not have personal liability for the business debts and liabilities of the corporation.

Who is liable for debt of S corporation?

Generally, shareholders are not personally liable for the debts of the corporation. Creditors can only collect on their debts by going after the assets of the corporation. Shareholders will usually only be on the hook if they cosigned or personally guaranteed the corporation's debts.

Who has liability in an S corp?

LLCs and S corps have much in common: Limited liability protection. The owners of LLCs and corporations are not personally responsible for business debts and liabilities. Instead, the LLC or the S corp, as the owner of the business, is responsible for its debts and liabilities.

How can I lower my S corp taxes?

S-Corp Tax Deductions#1 Reduce Owner's Wages. ... #2 Cover Owner's Health Insurance Premiums. ... #3 Employ Your Child. ... #4 Sell Your Home to Your S-Corp. ... #5 Home-Office Expense Deduction. ... #6 Rent Your Home to Your S-corp. ... #7 Use of an Accountable Plan to Reimburse Travel Expenses.More items...•

How do you take money out of an S corp?

If you want to take money out of your S Corp, you have three options:Take a distribution.Pay yourself a salary.Give yourself a loan.

How do I pay $800 minimum franchise tax for an S corp?

Every LLC and limited partnership that is doing business in California must pay a minimum annual franchise tax of $800. The $800 LLC franchise tax can be paid via mail, online from a bank account or by credit card (see instructions below).

Who pays more taxes LLC or S corp?

Who pays more taxes, an LLC or S Corp? Typically, an LLC taxed as a sole proprietorship pays more taxes and S Corp tax status means paying less in taxes. By default, an LLC pays taxes as a sole proprietorship, which includes self-employment tax on your total profits.

Can my S corp pay my mortgage?

A corporation cannot pay an employee's mortgage as a fringe benefit because it is not a typical business deduction the employee would incur on his own, according to the IRS.

What happens to S corp when owner dies?

However, in an S Corporation when the owner dies, the shareholder heirs only receive a step-up of basis in the corporate stock equal to the fair market value of the company at the date of death.

What happens if you don't have an S corp?

The second benefit – and perhaps the most important one – is tax savings. If you aren’t an S Corporation, you will have to deal with double taxation. This means you are going to get taxed as an individual and as a business owner.

What is the difference between an S corp and an LLC?

An LLC can have owners manage the business or managers manage the business. While an S Corp has to have directors and officers, not owners, manage the business . The main difference in taxes with an S Corp vs LLC is that S corporations avoid self-employment taxes altogether.

How long does it take to file a C corp tax return?

You must file Form 2553 within the first two months and fifteen days of the beginning of the tax year in which the election is to take effect.

What are the advantages of an S corp?

The advantages of an S Corporation include liability protection, avoiding self-employment taxes, credibility, and ownership transfer. Liability protection: An s corp protects the owners from the debts and liabilities of the business in most cases.

Why do we have S corp election?

The main reason for making the S corp election is so that the part of the economic gain of the entity can be treated as the profit of the enterprise rather than wages. Unlike wages, S corp profits are not subject to self-employment taxes.

Why do businesses convert to S corporations?

The main two are limited liability and tax savings. The first benefit is asset protection. Even though you are embarking on a journey to become a business owner, you are still your person.

What is an S corporation?

An S Corporation is a special type of corporation created through the IRS. By electing to be treated as an S Corporation, the corporation can avoid double taxation. What makes the S Corporation different from a traditional C Corporation is that profits and losses can pass through to your tax return.

How to qualify for S corp?

In order to qualify as an S-Corp under IRS regulations, your small business must meet the following requirements: 1 It is a domestic corporation; 2 There are no more than 100 shareholders; 3 There is only one class of stock; and 4 Only eligible shareholders are invested, including individuals, certain trusts, and estates.

What is an S corp?

An S-Corp (or S Corporation) is defined as a special form of corporation with limited liability and defined corporate structure that meets the IRS requirements to be taxed under Subchapter S of the Internal Revenue Code.

How many shareholders are there in an S corp?

In order to qualify as an S-Corp under IRS regulations, your small business must meet the following requirements: It is a domestic corporation; There are no more than 100 shareholders; There is only one class of stock; and. Only eligible shareholders are invested, including individuals, certain trusts, and estates.

Is an S-Corp a high risk business?

While the S-Corp is not an inherently high-risk choice for most companies , you should discuss the specific risks you face with a CPA and a corporate lawyer.

Do S-Corps pay taxes?

Both S-Corps and C-Corps operate in similar manners and have similar corporate structures, but they are taxed differently. S-Corps pay not taxes directly, while C-Corps are separate taxable entities that file corporate taxes.

Is income passed directly to shareholders?

Tax Savings. Income is passed directly to shareholders, so they avoid double taxation. In addition, those employees who are also shareholders can receive only a defined salary at market value taxed at the higher income tax rate. All other income is taxed as a distribution at a generally much lower rate.

Is an S corp a partnership?

Under this code, an S-Corp is taxed as a partnership, while reaping the legal protections and benefits of incorporation. Essentially, an S-Corp is a pass-through tax entity. S corporations pay no federal income taxes. Instead, the S corporation's income or losses are divided among the shareholders and reported on individual income tax returns.

What is a business lawyer?

A business lawyer can quickly help you realize when you need additional help – especially with complicated tax matters, or any other specialized assistance. A well-connected business lawyer will be able to quickly refer you to other professionals that can provide the assistance and the guidance that your business needs.

Why is it important to have a lawyer on your team?

Having a lawyer on your team can tilt the field to your advantage in the event of a lawsuit. If you are threatened with legal action, having a lawyer already on your team means that he already knows your business, which allows him to hit the ground running. Even more importantly, a savvy business lawyer will have constructed your business ...

What to do if a client owes you money?

If a client, vendor, partner, or other associate owes you money and is dragging his feet on the matter, by simply asking your lawyer to send a request on your behalf, you can motiva te immediate action. In the event that this alone is not enough to convince the individual to pay, your lawyer will know what your next steps should be in order to collect the money you are owed.

Is it good to have a lawyer for a business?

This proves true for both experienced entrepreneurs and young business owners who are just getting started. A good business lawyer, with specific knowledge of your business, will help you avoid problems that you did not know existed, which can save you huge amounts of money and stress.

What are the laws that fill in the gaps for business entities?

Most states have adopted "Uniform Laws" that fill in the gaps for business entities where their charters, by-laws, and other organizing documents are silent. You may be subject to a whole set of laws and regulations that you don't even know exist. 2. Tax.

What are the options within a business entity?

3. Autonomy. With many business entities, the things you don't decide are decided for you.

Do I need a lawyer for my startup?

In most cases, you're going to need the services of a lawyer for your startup, perhaps for tax services or employment law compliance. Whatever the reason, make sure you contact the right attorney for your needs.

Can I start a business by myself?

Some people opt to start the business by themselves or with family members, while others have partners or other investors who will not be involved with the day-to-day affairs of the business. The laws that apply to start-up businesses differ based on the specifics of the situation, and even business people who decide to go it alone have options ...

Can I do business in another state?

The preconditions to forming and conducting a business entity in one state may not be accepted in another state. If you are not careful, the protections you have in your home state of operations may be lost if you do business in another state. See the State Business Laws section for more details. 6. Strict Conformity.

Do I need a lawyer to incorporate?

One of the most frequent questions we are asked is, “Why do I need a lawyer to incorporate ?”

Why Incorporating Online is Deficient

In most cases, online incorporation services fail to tell you that they have only completed Step 1 of a 2-part process.

The Disadvantages of Not Incorporating Properly

Without Step 2 and the passing of resolutions organizing the corporation, your corporation

Rectification of a Corporation

Much of the work we do at Kalfa Law, unfortunately, is rectifying and reconstituting corporations, which were incorporated online without a lawyer. This usually occurs a few years after incorporation when the business begins to pick up and generate income.

Annual Resolutions

Finally, in 95% of the cases, corporations which were not completed properly at the outset, are also not carried forward in accordance with the law as well.

Why You Should Incorporate Using a Lawyer

However, many with limited time and resources choose to have a professional undertake to do this work for them. Using a lawyer gives you the peace of mind and assurance that the corporation was incorporated properly, and it won’t be forcibly dissolved by the government for deficiency later down the road.

Thinking of Starting a Business?

If you have a new business venture and are considering incorporation, speak to a lawyer. We offer no-charge 25 minute consultations. We can discuss the reasons for incorporating and whether incorporation is the best business structure for you.

Can I start an S corporation without an accountant?

But summing things up, absolutely, you can setup an S corporation without the help of an attorney or accountant. You need to be careful, of course. And I think a do-it-yourself guide helps. But you can do the work yourself.

Does Tennessee allow S corporation?

For example, the state of Tennessee does not allow a limited liability company or corporation to use the S corporation tax accounting rules. And the state of Massachusetts does not allow the S corporation tax accounting rules to be used once the corporation grows to a certain size.

What happens if an S corporation is not set up properly?

If an S corporation is not set up properly, its owners can be sued. S corporations must obey all corporation laws in the state in which it is formed to retain its limited liability protection. You can hire an attorney to avoid this.

What are the advantages of an S corporation?

Many business owners choose to form an S corporation for the advantages it offers, such as: S corporations protect the shareholders' personal assets; shareholders are not responsible for the corporation's legal liabilities and business debts. Creditors cannot seize their personal assets to satisfy company debts.

Why are S corporations so popular?

S corporation liability protection is one of the reasons S corporations are popular among business owners. It also has significant tax advantages. To be considered an S corporation, an election is made with the IRS, and the S corporation is then treated as a pass-through entity for federal taxation purposes. Pass-through taxation eliminates the ...

How many shareholders can an S corporation have?

S corporations can't have more than 100 shareholders. Shareholders in an S corporation cannot be foreign investors, certain kinds of trusts, or other corporations. The IRS often watches S corporations closely because of their profit distribution methods.

Can S corporations pay employees?

S corporations can consider shareholders employees and pay them salaries. Shareholders also receive distributions in the form of dividends, which are taxed at a lower rate. As long as this is done reasonably in accordance with IRS rules, it can significantly reduce the amount of taxes shareholders owe.

Do sole proprietorships pay franchise taxes?

These fees might include annual report fees or franchise taxes, but are not typically large amounts of money. Sole proprietorships and partnerships do not pay these fees. If an S corporation makes mistakes regarding stock ownership, filing requirements, consent, or notification, it might be terminated.

Can a S corporation use cash method?

S corporations can use the cash method unless they have inventory to report. Potential business partners, employees, vendors, customers, and financial organizations might view S corporations as more credible than other partnerships. This is because the owners have formally committed to their business.

What are the benefits of a corporation?

There are multiple benefits to organizing your company as a corporation: A corporation limits your personal liability and may make tax breaks available to you. Your corporation can take tax deductions for the cost of health insurance and life insurance.

How to organize a corporation?

There are multiple benefits to organizing your company as a corporation: 1 A corporation limits your personal liability and may make tax breaks available to you. 2 Your corporation can take tax deductions for the cost of health insurance and life insurance. 3 Incorporating also means people will take your company seriously and you can set the stage for future expansion of your business. 4 You can raise capital for the business through the sale of stock. 5 Ownership in a corporation can be transferred easily should you decide to sell.

What does incorporation mean?

Incorporating also means people will take your company seriously and you can set the stage for future expansion of your business. You can raise capital for the business through the sale of stock. Ownership in a corporation can be transferred easily should you decide to sell.

Can I start a corporation without an attorney?

If you are wondering, can you start a corporation without an attorney, the answer is yes. There are two different methods you can use: You can follow the steps required for incorporation yourself, filling out documents and filing them yourself with your state, and. Incorporate Online.

Can I incorporate without a business attorney?

And, yes, it is possible to incorporate without using a business attorney.

Why do you need an S corp election?

Regardless of your business structure, the S corp election can be a good option to lower your tax liability and save money. It is not for everyone, but if you’ve been in business for a while and have built a firm that is bringing in a substantial profit, this election may save you money.

How many shareholders can a S corp have?

There are a few rules about who can take the S corp election, including: You must be a domestic corporation and file Form 2553. You must have no more than 100 shareholders. Spouses and their estates can count as only one.

How to compensate shareholders?

To avoid that unfortunate situation, there are two ways to compensate shareholders: • Pay yourself a reasonable salary. This is the amount you would pay another person to do your job or the job of each shareholder (owner). This is taxed at the same rate as an LLC.

Can you have a non-resident alien shareholder?

Your shareholders must be only individuals, estates, exempt organizations or certain trusts. You may not have non-resident alien shareholders. You can only have one class of stock if you have issued stock. You must be willing to have a 52- to 53-week tax year that ends on December 31.

Does S corp change the structure of a company?

First, taking the S corp election does not change the structure of your company; it changes the way you file the taxes. Instead of filing Schedule C on your personal return (single-member LLC) or Form 1065 (LLPs and multimember LLCs), you will file a separate S corporation return (Form 1120-S). So if you are incorporated as an LLC, you will stay an ...

What Is An S Corp?

Requirements to Qualify as An S-Corp

Advantages of S-Corps

• There are many advantages to incorporating as an S-Corp. The following are the three most important to most small business owners: 1. Tax Savings. Income is passed directly to shareholders, so they avoid double taxation. In addition, those employees who are also shareholders can receive only a defined salary at market value taxed at the higher inco...

See more on priorilegal.com

Pricing

FAQ