Posted by judy/orlando on 7/12/07 10:00pm
Msg #199660

S Corporation

My attorney wants to file an S-Corp. for me, at the cost of $300.00. Do we really need to become a corporation? And if I do, which is better, the S-Corp or LLC? I've read about each through the IRS website, and they're both confusing me. Isn't it just as easy to use TurboTax each year as a loan closer, as I have been doing with a DBA?

Reply by JanetLA on 7/12/07 10:13pm
Msg #199665

In Louisiana we do not need an attorney to form the corporation of any kind. The forms to start both types of corporations are available (here) at the SOS office. Two of them need to be notarized but it is much less expensive than $300. You should check with your tax advisor before making any decisions, but I think that the corporation might help. In fact some notaries specialize in forming corporations here. We have strange rules so we might be an exception to the rule. We usually are, but let me know what other states rules are.

Reply by John_NorCal on 7/12/07 10:59pm
Msg #199675

If you really want to form either an S Corp or an LLC, you can do it on your own. You don't need an attorney except to tell you what you will be protecting yourself from, if anything. As far as I know, your official notarial acts will not be protected, that's what your E&O insurance is for. Tax wise, you should be talking to your accountant, there may be some benefits but not many. As a sole proprietor operating a personal service business, in my own opinion I believe, that you are better off being a schedule C filer as you have probably been doing in the past.

Reply by ZeeCA on 7/12/07 11:15pm
Msg #199676

I agree completely with John. If you have a partner(s) than S corp would be good to protect any personal assets...........
Def have a conversation with your accountant........

Reply by Charles_Ca on 7/12/07 11:59pm
Msg #199683

Re: S Corporation~Nolo press has a great book of forms

and instructions for setting up all types of legal entities as well as a discussion of the differences. I would recommend you read it before you decide. You be much more knowledgeable and then you can make up you mind which way is best for you. The book is writen by attorneys.

www.nolo.com

Reply by ZeeCA on 7/13/07 12:44am
Msg #199686

Re: S Corporation~Nolo press EXC suggest Charles n/m

Reply by Kevin/Ct on 7/13/07 7:08am
Msg #199692

Generally for purposes of shielding your personal assets (home, bank account, stocks, etc.) it is a good idea to set up a corporation or LLC to accomplish this objective. If you are sued for something that you did with respect to a closing...most people think in terms of suing for negligence. The corporate/LLC shield will not protect you in this case in many states because tortious conduct (negligence is a tort) are not deemed to be within the function performed by a corporate officer/director or LLC manager. Therefore the liability insurance becomes necessary to protect you from tort liability. However, for business torts there is generally a contract law theory of recovery as a corrolary, and suits for contract breach generally have a longer statute of limitations than tort suits. In most instances the liability insurance only protects you against errors and omissions (negligence) but not contract breach. The corporate/LLC shield protects you against liability from contract breach suits. So you really need to have both the liability insurance in place as well as a corporation/LLC set up to fully protect yourself. Nothing will protect you against intentional torts perpetrated either in your personal capacity or in your representative capacity while acting in the name of the corporation or LLC.

With corporations there is generally a double taxation consideration. Corporate revenue is taxed and the funds paid to corporate officers/directors/employees are also taxed. That is why small businesses usually elect to set up a Subchapter S corporation as opposed to a C corporation. The Subchapter S corporation is taxed as a patnership rather than in the manner of the C corporation. LLC's are a relatively new wrinkle in the law. They have only been active in Connecticut since 1993. However, the most recent case law seems to suggest that they do provide excellent protection for their members/managers. The last time I checked the LLC was taxed as a partnership/sole proprietorship unless it requested to be taxed as a corporation. However, run that question past your accountant to see if the law has changed since then. Taxation is usually a field in which the accountants are the experts.

Reply by BrendaTx on 7/13/07 7:42am
Msg #199694

**at the cost of $300.00.**

The costs involving setting up any type of entity is pretty much around this amount. Notice I said "cost." State fees, corporate books, etc.

Reply by JanetLA on 7/13/07 8:50am
Msg #199705

Not nearly that much to set up here in Louisiana n/m

Reply by Kevin/Ct on 7/13/07 8:57am
Msg #199706

Re: Not nearly that much to set up here in Louisiana

Why people cogitate over cutting expenses for an issue of this imporatance has always escaped me. If you want to be best protected...you do not seek bargain basement rates. you get what you pay for. The attorney's fees and state set up fees are separate and apart from each other.

If you are running a business do it the right way...and do not run it like some mom and pop grocery store. The costs of the set up and attorney's fees are tax deductible business expenses.

Reply by JanetLA on 7/13/07 9:31am
Msg #199716

Not Being Cheap

FYI- In Louisiana it does not require an attorney. Notary Publics are able to form corporations, prepare all documents, keep the records and file annual reports, etc for any and all corporations, partnerships, and other business entities. Additionally, notaries here may prepare trusts, wills, and mortgages without an attorney. We are tested very thoroughly on ALL of these subjects (in a five hour very comprehensive notary public exam) so it is not as expensive here simply because there is competition for the business that attorneys are required to perform in other areas. Soooooo....You get what you pay for, but in this case, you still get the same product for a much cheaper rate....

Reply by Kevin/Ct on 7/13/07 9:41am
Msg #199718

Re: Not Being Cheap

If you think that cheap is best...you are sadly mistaken. There is more to filing with the state for a corporation or LLC. There is also the matter of creating corporate resolutions and meeting minutes for the organizational meeting , shareholders meeting and drafting the operating agreement that protects the LLC members in the event of internal dissention.

I really am not sure how you operate in LA but in Connecticut the statute that creates an LLC is sadly deficient in protecting the members when there is an internal problem. Fortunately the statute defers to the operating agreement when the members have the good sense to have one drafted./ In my case it is normally an 18 page document. Without it the minority partners are at the mercy of the majority partners when there is disagreement among them. While you may be schooled in drafting and filing the forms with the state...I doubt seriously that you are in a position to protect the members from such problems. There is much more to creating a corporation and/or LLC than the forms that you are "schooled" to fill out and file with the state..

Reply by JanetLA on 7/13/07 9:50am
Msg #199720

You are right

You are right. You do not know how we operate here. I am fully aware of how corporations are formed and what is required. I daresay that I am very qualified to set up a corporation. Check on notary exams here before you assume.

Reply by Kevin/Ct on 7/13/07 10:01am
Msg #199724

Re: You are right

Then perhaps you would be good enough as to enlighten the rst of us as to the contents of the operating agreement that you draft to protect clients from internal dissentuion in the case of an LLC or the contents of the corporates resolutions, organizational meeting minutes, shareholder minutes and borad of directors minutes that you draft for your clients. Without them incorporating is a waste of time, and opens them to personal liability personal liability for failure to maintain required corporate records.

Reply by Janet Sobers on 7/13/07 9:53am
Msg #199723

Do you think law school helped me at all? n/m

Reply by John_NorCal on 7/13/07 12:04pm
Msg #199755

Re: S Corporation & LLC's For all this talk and the ensuing

arguments, I still believe that a sole proprietor signing agent with adequate e&o coverage will do just as well to remain a sole proprietor as opposed to forming an LLC or a S corp. Why deal with all the corporate filings, keeping of minutes, corporate fees, etc. just to have Inc or LLC after your name? Now if you want to become a signing service, have employees, then you probably want to look into an LLC or S corp.

Reply by Charles_Ca on 7/13/07 12:25pm
Msg #199760

I agree with John, piercing the corporate veil is a piece of

cake, if you do not maintain the requisite documentation and have everything documented. I used to own an engineering company and we designed aerospace eauipment, there wasn't enough E&O and product liability from anyone to cover our exposure so a corporation was the way to go and I opted for a subchapter "S" corp. You have to ahve the minutes, the metings and the documented decisions of all your actions or else you might just as well be a sole proprietor and now in CA the minimum annual cost is $800 just to maintain your status.

Reply by JanetLA on 7/13/07 12:43pm
Msg #199764

S-Corp

Yes, my point was not that a corporation did not need to be formed, but rather in Louisiana it is less expensive than in other areas of the country. (I think it is relative to our cost of living, etc.) I personally have an S Corp and I understand the benefits of the same. However, I think each person's situation is different. I also think that each state has its own requirements. My corporation is managed by my CPA and still less expensive than the cost in California. I was not intending to lessen the value of a properly formed corporation, but rather just say what goes on here in Louisiana. That being said, I do not ever intend to speak for any other state. I do however, have enough information to be 100% behind my qualifications and my experience with corporations here (and only here). Have a great weekend to all

Reply by Kevin/Ct on 7/13/07 1:05pm
Msg #199769

Re: I agree with John, piercing the corporate veil is a piece of

Actually...it is not all that complicated. In the case of a corporation you are normally required to have a shareholder's meeting and meeting of the board of directors once per year. Your attorney holds your corporate minute book for you, and draftss the. Decisions iof the board of directors require a corporate resolution which is also drafted by your attorney.

LLC's are much less complicated. They are handled externally as a corporation, and internally as a partnership. They do not reqquire the annual meeting minutes and corporate resolutions,. That is primarily the reason that they have gained in popularity in recent years.

If you are operating a business without both the proper insurance coverage and the corporate/LLC shield you are insane.

Reply by Kevin/Ct on 7/13/07 1:23pm
Msg #199771

Re: I agree with John, piercing the corporate veil is a piece of

By the way piercing the corporate veil is extremely difficult...even for mom and pop operations.
The law was designed for the limitation of liability, and it works very well for that purpose.

The main reason for piercing the corporate veil is comingling of corporate and personal funds or the failure to observe corporate formalities such as corporate resolutions and maintaining minutes from shareholders and board of directors meetings.