Corporate Law

Business organization and planning constitutes a substantial part of my law practice. I have established new ventures and business entities, including investment syndications and private placements to capitalize my clients’ new ventures. I have organized limited liability companies, general partnerships, California and other state corporations, general partnerships, joint ventures, professional corporations and limited liability partnerships. In that connection, I undertake tax and regulatory planning when organizing a new business, including coordination of buy-sell agreements, together with other shareholder and investor agreements.

Launching any business entity requires careful and thorough preparation. I am equipped to handle all aspects of your business entity, including, but not limited to:

Entity formation
The type of entity under which your business will be controlled and owned is crucial. While any fly-by-night Web site can file for a new corporation on your behalf, determining the exact type of business entity that your business needs to survive and prosper requires knowledge and experience. I am highly versed in California corporate law, and can provide you with the answers and analysis needed to determine what type of business entity is best for your company. Here are some factors to take into consideration when it comes to California business entity formation:

Choosing between C corporations, S corporations, LLCs. Choosing the right type of business entity for your business can make all of the difference. To make the right decision, it is important to familiarize yourself with each type of entity, understand the tax implications for each type, and understand the liability protection each provides and how to preserve such protection.

One question many of our business clients ask is, “which type of business entity is the best one?” The answer to that question is that there is no one “best” type of entity for all circumstances and businesses, and that it depends on many factors, including, but not limited to, the size of your business, the type of business, the type of business assets the entity is to own, the state of incorporation and how it is financed.

C corporations: Typically, most big companies are C corporations. C corporations allow for a limitless number of shareholders, the ability to keep more income inside its reserve account, a fiscal year that may not necessarily follow the calendar year and several classes of stock for different types of investors. If a company is formed with the goal of one day going public, a C-corporation may be the best option.

One downside of a C corporation is that it is subject to double taxation, which means that the corporation is taxed on the corporate income, and a distribution from the corporation to the shareholders is taxed as the receiving shareholder’s personal income. However, some smaller C corporations may avoid this double taxation by distributing enough income to shareholders and/or employees so that the C corporation can report that there is no net income for the corporation.

S Corporations: While all corporations are initially incorporated as C corporations, qualifying corporations can elect to be treated as an S corporation. S corporations are typically smaller than C corporations, and enjoy certain tax benefits, but they typically do not have the flexibility of a C corporation.

The most common reason that a corporation elects to be an S corporation is that it enjoys pass-through taxation, rather than the double taxation of a C corporation. Pass-through taxation means that the net income of the corporation is not taxed on the corporation, and is rather passed onto the shareholders as personal income. In this way, an S corporation is taxed more like a partnership or sole proprietorship, rather than a C corporation.

Because of the pass-through taxation, S corporations often find it more beneficial to pay its shareholders through corporate distributions, rather than paying salaries. However, the IRS tax code requires that S corporations pay reasonable salaries to its shareholders who are also employees. Many businesses make the mistake of paying such shareholder-employees no salary, and suffer the negative tax consequences to the IRS, including a potentially higher chance of being audited.

To qualify for an S corporation election in California, a corporation must meet certain requirements, including, but not limited to: (a) not having more than one hundred (100) shareholders; (b) only having one class of stock; (c) only having shareholders that are either U.S. citizens or residents (no non-resident alien shareholders allowed); (d) only having natural persons as shareholders (as opposed to other corporations or LLCs as shareholders); and (e) the corporate profits and losses must be allocated proportionately amongst shareholders, depending on each shareholder’s respective interest in the business.

Unlike C corporations, S corporations almost always have a fiscal year that mirrors the calendar year (with some exceptions).

LLC (Limited Liability Company): While LLCs also enjoy the pass-through tax benefit that S corporations do, LLCs differ from S corporations because: (a) an LLC’s members do not have to be natural persons (for example, they can be corporations or other LLCs); (b) the rules allow LLCs to be more flexible in how profits and losses are allocated amongst its members (whereas S corporations are generally allocated in proportion with ownership interest); and (c) there is no 100 shareholder/member maximum on LLCs (which makes them ideal entities for syndication).

Some potential disadvantages of an LLC include, but are not limited to: (a) distributions of profits and salaries to LLC owners (members) are subject to self-employment taxes; and (b) an additional income tax is imposed on total incomes over $250,000 per year.

Unlike C corporations, but similar to S corporations, LLCs usually use the calendar year as their fiscal year.

Corporate Compliance
Corporations and LLCs have several compliance requirements in their formation and throughout the course of their business. I am here to assist you with all of your state and federal filings, notice requirements, board, shareholder or member meetings, minutes, resolutions and other protocols.

Potential liabilities
All possible liabilities must be given careful consideration when creating a business entity. I plan for most worst-case scenarios, so that you don’t have to. If your business does not have proper liability protection, then your personal and business assets can be in serious danger even before your business is running at full pace.

Corporate Dissolution
In both good and bad economic times, disputes between shareholders are a common occurrence. Typically, business entities form with certain common goals shared between all shareholders- maximize profits, survive and be successful. As companies reach these goals (or realize that they are failing to do so), we often see changes in the shareholders’ personal and company goals, which often leads to disputes. When these disputes reach the point where the shareholders believe that they cannot continue to work with one another, or that the company cannot continue to operate freely, the California Corporations Code allows (and sometimes forces) that corporation to dissolve and liquidate its assets. Using the procedures in the California Corporations Code can include several strategic implications.

Voluntary Dissolution: To make the process of corporate dissolution a relatively easy task, the California Corporations Code allows shareholders to invoke its voluntary dissolution provisions under certain circumstances. To bring a voluntary dissolution, a shareholder (or the dissolving group of shareholders) must meet specific requirements. For starters, the shareholder or shareholders must own at least half (50%) of the corporation’s voting power. Except for some limited circumstances, there is usually nothing the remaining minority shareholders can do to stop the voluntary dissolution process.

Other Services
Some of the other corporate law services, I provide, includes, but is not limited to:

• Liability of Directors and Officers
• Analysis and Strategy of Corporate Law and Compliance Corporate Restructuring and Reorganization
• Shareholder Derivative Lawsuits and Shareholders’ Rights
• Business Succession Planning