When Incorporating in the State of Washington, an incorporator will required to register with the state.
An incorporator is the person or entity in charge of setting up the corporation and filing the articles of incorporation with the state of Washington. When an attorney is hired to set up a corporation, they generally take on the role of incorporator. An incorporator may have to do some preliminary things such as gathering the initial investors and investments that are going to be used for setting up the corporation. In addition, the incorporator will definitely have to do things like prepare and file the articles of incorporation and select the initial board of directors.
The incorporator generally has broad powers up until the directors assume management of the corporation. Once the directors take over, the incorporator basically no longer has any power or management ability left.
For more information about Forming a Corporation in Washington State, please see a Washington Business Attorney.
Monday, December 28, 2009
Monday, October 12, 2009
Trademark Infringment Basics
The test for Trademark Infringement is the ‘likelihood of confusion’.
If you believe someone has infringed on your trademark, contact a Trademark or Business Attorney to file an injunction against the use.
There are eight factors the Court considers:
5 most important:
1. the similarity in the overall impression created by the two marks (including the marks' look, phonetic similarities, and underlying meanings);
2. the similarities of the goods and services involved (including an examination of the marketing channels for the goods);
3. the strength of the plaintiff's mark;
4. any evidence of actual confusion by consumers;
5. the intent of the defendant in adopting its mark;
________________
3 other factors considered:
6. the physical proximity of the goods in the retail marketplace;
7. the degree of care likely to be exercised by the consumer; and
8. the likelihood of expansion of the product lines.
* first two are arguably the most important. The similarity of the marks is clearly an important part in establishing likelihood of confusion, but it is far from determinative. It is possible for the same, identical mark to be used in the same geographic area without any trademark infringement occurring, as long as the goods or services of the parties are sufficiently dissimilar.
Legal Intent: The goal is to protect consumers, not to protect trademarks. Therefore, even if the marks in question are quite similar but there is no real likelihood that consumers will be confused → there would be no harm.
For more information on how to obtain a Trademark, consider contacting an experienced Kirkland Small Business Attorney.
If you believe someone has infringed on your trademark, contact a Trademark or Business Attorney to file an injunction against the use.
There are eight factors the Court considers:
5 most important:
1. the similarity in the overall impression created by the two marks (including the marks' look, phonetic similarities, and underlying meanings);
2. the similarities of the goods and services involved (including an examination of the marketing channels for the goods);
3. the strength of the plaintiff's mark;
4. any evidence of actual confusion by consumers;
5. the intent of the defendant in adopting its mark;
________________
3 other factors considered:
6. the physical proximity of the goods in the retail marketplace;
7. the degree of care likely to be exercised by the consumer; and
8. the likelihood of expansion of the product lines.
* first two are arguably the most important. The similarity of the marks is clearly an important part in establishing likelihood of confusion, but it is far from determinative. It is possible for the same, identical mark to be used in the same geographic area without any trademark infringement occurring, as long as the goods or services of the parties are sufficiently dissimilar.
Legal Intent: The goal is to protect consumers, not to protect trademarks. Therefore, even if the marks in question are quite similar but there is no real likelihood that consumers will be confused → there would be no harm.
For more information on how to obtain a Trademark, consider contacting an experienced Kirkland Small Business Attorney.
Tuesday, October 6, 2009
Buy-Sell Agreements: A Primer
Washington Buy – Sell Agreement
For owners of small businesses, the buy-sell agreement is one of the most important pieces of the planning puzzle. The agreement defines the value of the owner’s equity interests in the business.
A Seattle Small Business Law Firm will help owners look at the entire life cycle of the business including the “big D’s”: death, disability, divorce.
A carefully designed Buy-Sell Agreement will accomplish many important objectives of the parties. The following are some of the key considerations:
1. Control
2. Fairness – fairly value and fund the equity interest of a departing owner
a. Valuation Methods:
i. Book value (does not include good will)
ii. P/E Ratio
iii. Appraisal at the time of the trigger event
3. Smooth transition- transitions will be smooth when issues arise
4. Market- insure that all owners have a fair ‘market’ for share at appropriate points of entry
5. Expulsion Rights – insure that owners have the right to expel an owner who is no longer wanted
6. Estate Tax Exposure – To be avoided via effective planning
7. Cash – cash and funding challenges are anticipated and covered
Buy-Sell Life Insurance Planning Options:
1. Redemption Options – Business owns the Policy
a. Down-side: no basis increase for shareholders
b. AMT considerations (Corp making over 5M must consider)
2. Cross Purchase – Owners purchase the policy
a. Shareholders get a basis increase
b. Too difficult if lots of shareholders
c. Not ideal if any of the owners has financial difficulties
d. Tax consequences are not an issue with S-Corps, and other pass-thru entities
3. Wait and See
4. In Trust
For more information on considerations for Buy-Sell Agreements for your business, visit an experienced Kirkland Business Attorney.
For owners of small businesses, the buy-sell agreement is one of the most important pieces of the planning puzzle. The agreement defines the value of the owner’s equity interests in the business.
A Seattle Small Business Law Firm will help owners look at the entire life cycle of the business including the “big D’s”: death, disability, divorce.
A carefully designed Buy-Sell Agreement will accomplish many important objectives of the parties. The following are some of the key considerations:
1. Control
2. Fairness – fairly value and fund the equity interest of a departing owner
a. Valuation Methods:
i. Book value (does not include good will)
ii. P/E Ratio
iii. Appraisal at the time of the trigger event
3. Smooth transition- transitions will be smooth when issues arise
4. Market- insure that all owners have a fair ‘market’ for share at appropriate points of entry
5. Expulsion Rights – insure that owners have the right to expel an owner who is no longer wanted
6. Estate Tax Exposure – To be avoided via effective planning
7. Cash – cash and funding challenges are anticipated and covered
Buy-Sell Life Insurance Planning Options:
1. Redemption Options – Business owns the Policy
a. Down-side: no basis increase for shareholders
b. AMT considerations (Corp making over 5M must consider)
2. Cross Purchase – Owners purchase the policy
a. Shareholders get a basis increase
b. Too difficult if lots of shareholders
c. Not ideal if any of the owners has financial difficulties
d. Tax consequences are not an issue with S-Corps, and other pass-thru entities
3. Wait and See
4. In Trust
For more information on considerations for Buy-Sell Agreements for your business, visit an experienced Kirkland Business Attorney.
Monday, October 5, 2009
Choosing Your Washington Business: S-Corporations
Basic Considerations:
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free. This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. Compare LLCs, or Corporations. This article will focus on S-Corporations.
S-Corporations:
One of the more mis-construed business forms available is the 'S-Corp'. Many people think the 'S' stands for 'Small'. The S actually stands for the subchapter within the Internal Revenue code that governs Corporations which elect to be taxed under the Sub-chapter S regime...thus the real name should be a 'Sub-Chapter S Corporation'.
Basics:
A corporation may be an 'S-Corporation' and not subject to federal corporate tax if shareholders UNANIMOUSLY elect S status for the corporation on a timely basis. A S-Corporation is a tax law label rather than a special type of corporation under state corporate law. Like a partnership, an S-Corporation is simply a conduit for profits and losses to shareholders. Income is passed through to shareholders and is generally taxed only once.
Qualifications:
In order to qualify as an S-Corporation, the corporation must meet certain eligibility requirements including: 1) it must have no more than 75 shareholder, 2) each shareholder must be an individual, certain trust, certain charitable organization, employee stock ownership plan or pension plan, 3) no shareholder may be non-resident alien, 4) it can have only one class of stock, and 5) it must be a U.S. Corporation.
Filing:
To timely file for S-Corporation status, the Corporation must file a Form 2553 form with the IRS by the 15th day of the 3rd month following Incorporation. Should a late filing be needed, one can look to Rev. Proc 2003-43 for guidance in filing a late S-Election.
For more information on forming a S-Corporation, please consider guidance from an experienced Washington Small Business Attorney.
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free. This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. Compare LLCs, or Corporations. This article will focus on S-Corporations.
S-Corporations:
One of the more mis-construed business forms available is the 'S-Corp'. Many people think the 'S' stands for 'Small'. The S actually stands for the subchapter within the Internal Revenue code that governs Corporations which elect to be taxed under the Sub-chapter S regime...thus the real name should be a 'Sub-Chapter S Corporation'.
Basics:
A corporation may be an 'S-Corporation' and not subject to federal corporate tax if shareholders UNANIMOUSLY elect S status for the corporation on a timely basis. A S-Corporation is a tax law label rather than a special type of corporation under state corporate law. Like a partnership, an S-Corporation is simply a conduit for profits and losses to shareholders. Income is passed through to shareholders and is generally taxed only once.
Qualifications:
In order to qualify as an S-Corporation, the corporation must meet certain eligibility requirements including: 1) it must have no more than 75 shareholder, 2) each shareholder must be an individual, certain trust, certain charitable organization, employee stock ownership plan or pension plan, 3) no shareholder may be non-resident alien, 4) it can have only one class of stock, and 5) it must be a U.S. Corporation.
Filing:
To timely file for S-Corporation status, the Corporation must file a Form 2553 form with the IRS by the 15th day of the 3rd month following Incorporation. Should a late filing be needed, one can look to Rev. Proc 2003-43 for guidance in filing a late S-Election.
For more information on forming a S-Corporation, please consider guidance from an experienced Washington Small Business Attorney.
Choosing Your Washington Business: Limited Partnership
Basic Considerations:
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free. This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. This article will focus on Limited Partnerships.
A Limited Partnership ('LP') is a partnership consisting of one or more general partners and one or more limited partners which is established in accordance with Washington Partnership Law. Like a corporation, this entity has no legal existence until paperwork has been filed with the Washigton Secretary of State. The LP is useful when investors contribute money or property to the partnership, but not actively involved in its business. Examples of LPs include hedge funds, private equity firms, and investment groups. So long as the 'limited partner does not actively involve themselves in the management of the business, a limited partner is liable only to the extent of his involvement. General partners, however are personally responsible for partnership obligations and for each other's act on behalf of the partnership.
Tax Considerations:
For tax purposes, both general partners and limited partners are generally treated alike. Income, gain and losses of the partnership 'flow through' to them and affect their individual income taxes. At the end of each tax year, partners will receive K1 forms outlining their individual tax liability or loss.
For more information on a Limited Partnership, please consider seeing an experienced Kirkland Business Formation Attorney.
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free. This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. This article will focus on Limited Partnerships.
A Limited Partnership ('LP') is a partnership consisting of one or more general partners and one or more limited partners which is established in accordance with Washington Partnership Law. Like a corporation, this entity has no legal existence until paperwork has been filed with the Washigton Secretary of State. The LP is useful when investors contribute money or property to the partnership, but not actively involved in its business. Examples of LPs include hedge funds, private equity firms, and investment groups. So long as the 'limited partner does not actively involve themselves in the management of the business, a limited partner is liable only to the extent of his involvement. General partners, however are personally responsible for partnership obligations and for each other's act on behalf of the partnership.
Tax Considerations:
For tax purposes, both general partners and limited partners are generally treated alike. Income, gain and losses of the partnership 'flow through' to them and affect their individual income taxes. At the end of each tax year, partners will receive K1 forms outlining their individual tax liability or loss.
For more information on a Limited Partnership, please consider seeing an experienced Kirkland Business Formation Attorney.
Thursday, October 1, 2009
Choosing Your Washington Business: LLC
Basic Considerations:
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. Compare Corporation features here.
Limited Liability Company (LLC):
An LLC is a form of business organization is available in Washington, as well as many other states. An LLC is essentially a Corporation which is taxed like a Partnership, but without the S-Corporation restrictions.
An LLC has fewer statutory formalities than a Corporation and is often used for a several person consulting firm or other small business.
An LLC does not provide the full range of exit strategists or liquidity options as does a corporation.
It is not possible to grant stock option incentives to LLC employees in the same manner as a Corporation.
Effects of a Sale of an LLC:
When the assets of a business are sold with a pass thru entity like an LLC, the gains realized on the sale of the assets are taxed to the owners in proportion to their interests in the business. When Members sell their interests in an LLC, the proceeds are taxed as Capital Asset gains except for the sale of 'unrealized receivables and inventory' which are taxed as ordinary income.
S-Corp Election:
An LLC may elect an S-Corp Election to lower the Self Employment Tax (currently 15.3 up to 102,000) and 2.9 above the base level. The S-Election allows the the taxpayer to take an income tax deduction of one-half of all self-employment taxes paid.
For more information on LLC, contact a Kirkland Business Formation Attorney.
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. Compare Corporation features here.
Limited Liability Company (LLC):
An LLC is a form of business organization is available in Washington, as well as many other states. An LLC is essentially a Corporation which is taxed like a Partnership, but without the S-Corporation restrictions.
An LLC has fewer statutory formalities than a Corporation and is often used for a several person consulting firm or other small business.
An LLC does not provide the full range of exit strategists or liquidity options as does a corporation.
It is not possible to grant stock option incentives to LLC employees in the same manner as a Corporation.
Effects of a Sale of an LLC:
When the assets of a business are sold with a pass thru entity like an LLC, the gains realized on the sale of the assets are taxed to the owners in proportion to their interests in the business. When Members sell their interests in an LLC, the proceeds are taxed as Capital Asset gains except for the sale of 'unrealized receivables and inventory' which are taxed as ordinary income.
S-Corp Election:
An LLC may elect an S-Corp Election to lower the Self Employment Tax (currently 15.3 up to 102,000) and 2.9 above the base level. The S-Election allows the the taxpayer to take an income tax deduction of one-half of all self-employment taxes paid.
For more information on LLC, contact a Kirkland Business Formation Attorney.
Choosing Your Washington Business: Sole Proprietorship
Basic Considerations:
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vaccum. Consideration as to how this decision may impactfuture alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
A. Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs.
In my last post, Corporations were discussed. This post will focus on the least formal type of Washington Business: A sole Proprietorship.
When an individual operates a business on his own, the individual and business are treated as one. No statutory filings are required. A sole proprietor faces enormous risks in liability of business. Creditors can pursue all of the individuals assets.
Taxation: Income from a Sole Proprietorship is taxed as personal income on a 1040 Tax Form.
Because of its nature, borrowing is typically the only method to raise capital for a Sole Proprietorship, and the costs associated with forming sole proprietorship is minimal.
See a Kirkland Small Business Attorney for more information on the risks/ benefits associated with this type of business entity.
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vaccum. Consideration as to how this decision may impactfuture alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.
A. Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs.
In my last post, Corporations were discussed. This post will focus on the least formal type of Washington Business: A sole Proprietorship.
When an individual operates a business on his own, the individual and business are treated as one. No statutory filings are required. A sole proprietor faces enormous risks in liability of business. Creditors can pursue all of the individuals assets.
Taxation: Income from a Sole Proprietorship is taxed as personal income on a 1040 Tax Form.
Because of its nature, borrowing is typically the only method to raise capital for a Sole Proprietorship, and the costs associated with forming sole proprietorship is minimal.
See a Kirkland Small Business Attorney for more information on the risks/ benefits associated with this type of business entity.
Choosing Your Washington Business: Corporations
Basic Considerations:
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vaccum. Consideration as to how this decision may impactfuture alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a Business Attorney’s analysis and recommendations based on your individual fact situations when establishing your business.
A. Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a corporation are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs.Compare LLCs.
1. Corporation:
A Corporation is created by filing articles of incorporation with the Secretary of State Washington. Corporate status is maintained by compliance with statutory formalities. A corporation is owned by its shareholders, governed by its Board of Directorswho are elected by the shareholders and managed by its officers who are elected by theBoard. A shareholder’s involvement in managing a corporation is usually limited to voting on extraordinary matters. In Washington, a president/CEO, chief financial officer/treasurer and secretary are the officer positions generally filled in a startup. All officer positions may be filled by one person.
Incorporation in Delaware?:
The reasons for using a Delaware corporation at startup are the ease of filings with theDelaware Secretary of State in financings and other transactions, a slight prestige factor in being a Delaware corporation and avoiding substantial reincorporation expenses later, since many corporations which go public reincorporate in Delaware at the time of the IPO. Delaware corporate law benefits are of the most value to public companies.
Taxation of Corporation:
A corporation is a separate entity for tax purposes. Income taxed at the corporate level is taxed again at the shareholder level if any distribution is made in the form of a dividend. The S- Corporation election described below limits taxation to the shareholder level but subjects all earnings to taxation whether or not distributed. The current maximum federal corporate tax rate is 35%. In Washington, there is no Income Tax, however, Corporations are faced with a 'Business and Occupation' (B&O) Tax, and Corporations suffer from the higher than average Sales tax in Washington Tax.
If the corporation is notproperly organized and maintained, a court may “pierce the corporate veil” and impose liability on the shareholders. The company can raise additional capital by the sale and issuance of more shares of stock, typically preferred stock when an angel or venture capitalist is investing. Though rare, the power of a court to look through the corporation for liability underscores the importance of following proper legal procedures in setting up and operating your business.Filing fees, other costs and legal fees through the initial organizational stage usually total about $3,500 to $5,000. These can be performed by an experienced Kirkland Small Business Attorney.
This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vaccum. Consideration as to how this decision may impactfuture alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a Business Attorney’s analysis and recommendations based on your individual fact situations when establishing your business.
A. Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.
The characteristics of a corporation are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs.Compare LLCs.
1. Corporation:
A Corporation is created by filing articles of incorporation with the Secretary of State Washington. Corporate status is maintained by compliance with statutory formalities. A corporation is owned by its shareholders, governed by its Board of Directorswho are elected by the shareholders and managed by its officers who are elected by theBoard. A shareholder’s involvement in managing a corporation is usually limited to voting on extraordinary matters. In Washington, a president/CEO, chief financial officer/treasurer and secretary are the officer positions generally filled in a startup. All officer positions may be filled by one person.
Incorporation in Delaware?:
The reasons for using a Delaware corporation at startup are the ease of filings with theDelaware Secretary of State in financings and other transactions, a slight prestige factor in being a Delaware corporation and avoiding substantial reincorporation expenses later, since many corporations which go public reincorporate in Delaware at the time of the IPO. Delaware corporate law benefits are of the most value to public companies.
Taxation of Corporation:
A corporation is a separate entity for tax purposes. Income taxed at the corporate level is taxed again at the shareholder level if any distribution is made in the form of a dividend. The S- Corporation election described below limits taxation to the shareholder level but subjects all earnings to taxation whether or not distributed. The current maximum federal corporate tax rate is 35%. In Washington, there is no Income Tax, however, Corporations are faced with a 'Business and Occupation' (B&O) Tax, and Corporations suffer from the higher than average Sales tax in Washington Tax.
If the corporation is notproperly organized and maintained, a court may “pierce the corporate veil” and impose liability on the shareholders. The company can raise additional capital by the sale and issuance of more shares of stock, typically preferred stock when an angel or venture capitalist is investing. Though rare, the power of a court to look through the corporation for liability underscores the importance of following proper legal procedures in setting up and operating your business.Filing fees, other costs and legal fees through the initial organizational stage usually total about $3,500 to $5,000. These can be performed by an experienced Kirkland Small Business Attorney.
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