Corporate Structuring and Formation
Knowing when to set up a corporation and organizing the entity to most efficiently to carry out operations can be key to a business’s success. Properly drafted corporate documents such as the articles of incorporation and corporate bylaws are paramount in outlining the rights of shareholders, directors, and executives of the company, which can become very important as the company grows and adapts to changes.
It is also very important when forming any corporation to understand the tax impact that results upon contribution of assets or liabilities to an old or newly formed corporation. Unlike some of the other legal business structures, the consequences of contributing assets and liabilities to corporation can be less forgiving.
Corporate Governance
A corporate organization should be designed so that disputes are is minimized. Too often shareholders and other corporate actors disregards important procedures and end up in court to resolve disputes. Proper governance helps to prevent arguments and provides proper documentation for quick resolution in the event of a dispute. Some important documents that Elliot assists corporations with include the appointment of directors and executives, proxy voting statements, corporate minutes, conflict waivers, and financial disclosures.
Corporate Liquidations
Often business circumstances change and the corporate structure is no longer the optimal business form. In some such cases liquidation of the corporation can be the best option. The liquidation of a corporation can be highly complex with both legal and tax consequences. In fact, understanding these consequences will determine whether the liquidation of a corporation makes sense. If a liquidation is the right course of action, it is important that a proper plan is established and followed so there are no unexpected consequences.
Corporate Taxation
A corporation generally has two levels of tax. One level of tax directly on the corporation and another level of tax when earnings and profits are distributed in the form of a dividend. Some corporations can elect small business status, often referred to as an S-corporation, and be treated as a pass-through entity with one level of tax on most income.
Sale of Corporate Business
The sale of a corporation can take the form of an asset sale or a stock sale.
An asset sale is when the corporation sells the operations and assets “inside” the corporation to a buyer, which is frequently followed by a distribution of the proceeds to the shareholders in a liquidation of the corporation. An asset sale is generally preferable to a buyer of a business due to important tax considerations and because it is less likely that unknown liabilities will continue with the business operations.
A stock sale is often more favorable to the seller of a corporation because it allows the seller to receive the preferential capital gain tax treatment. If a seller is in a better negotiating position a stock sale will often result. In addition to tax reasons, a stock sale often occurs when it is difficult or impossible to transfer important assets to a new company. Sometimes agreements have been made with third parties or with government organizations that prevent the assignment of certain rights. Sometimes after looking at all the facts and circumstances a stock purchase may be the best or only option. In these situations it sometimes makes sense to treat an acquisition of a company one way for legal purposes and another way for tax purposes. Elliot assists corporations with making special tax elections so that stock acquisitions will be treated as asset acquisitions for tax purposes under the Internal Revenue Code.
Elliot Smith is a licensed attorney and certified public accountant that can take care of your business needs. Whether you’re opening a new business, incorporating, or looking for tax services, Elliot Smith has the resources to serve you.