Business Strategy and Development
“With regards to business strategy and development, going into it without an attorney on the team is a business looking for trouble.”
- - Charles E. Harris
C.E. Harris is a highly experienced business attorney concentrating in corporate and transactional matters. He provides strategic business insight, earning him the reputation of trusted adviser and advocate. CEH advises companies of all sizes in a broad range of business transactions, including mergers and acquisitions and secured and unsecured loan transactions. CEH has helped structure and negotiate numerous stock and asset acquisitions and dispositions, cash flow and asset based loan facilities, and strategic investments. He has also represented many clients in connection with joint venture arrangements. In addition to his transactional practice, CEH advises start-up and emerging companies on a variety of matters, including choice of entity and organizational issues relating to management and investor rights. He also provides assistance on general corporate matters, including the negotiation and drafting of various commercial contracts, including license, distribution, consulting and manufacturing agreements and the negotiation of franchise agreements.
C.E. Harris represents several wineries, vineyard owners, and vineyard management companies.
Clients range from individuals and companies to small family wineries with their business needs including licensing, entity formations, drafting of contracts, land and commercial leases, joint ventures and purchase agreements.
By hiring an attorney, such as Chuck Haris, you have the legal expertise to make sure you avoid the pitfalls and mistakes thousands of small business owners make.
Business Entities specific to the State of California
One of the most common options small business owners face regarding forming a corporation is whether to form an S corporation (S corp) or C corporation (C corp). The choice largely depends on your business' goals.
Both S corps and C corps some similarities. C corps are the standard corporation you usually hear about, however the S corp has elected a special tax status with the IRS. This occurs usually when forming a corporation, and filing Form 2553 with the IRS. It important if electing to form an S corp that all guidelines set forth by the IRS are met. But C corporations and S corporations share many attributes:
- Limited Liability Protection. Both offer limited liability protection, so shareholders (or owners) are typically not personally responsible for business debts and liabilities.
- Separate Legal Entities. Both the S corp and C corp are separate legal entities created by a state filing.
- Document Filing. Formation documents must be filed with the state. These documents, typically called the Articles of Incorporation or Certificate of Incorporation, depending on the State where the corporation is being formed, are the same for both C and S corps.
- Structure and Management. Both have shareholders, directors and officers. Shareholders are the owners of the company and elect a board of directors, who are responsible for overseeing direct corporation affairs and decision-making but are not responsible for day-to-day operations of the entity. The directors elect the officers to manage daily business affairs.
- Corporate Responisibilities. Both corp types are required to follow the same internal and external corporate rules and obligations, such as adopting bylaws, issuing stock, holding shareholder and director meetings, filing annual reports, and paying the required annual fees.
Despite the many similarities between S corps and C corps, they also have distinct differences.
- Taxation Strategy. Taxation is often considered the most significant difference for small business owners when evaluating the two types of entities.
- C Corps. These are separately taxable entities. They file a corporate tax return and pay taxes at the corporate level. They also face the issue of double taxation if corporate income is distributed to business owners as dividends, which are considered personal income for tax purposes. Tax on corporate income is paid first at the corporate level and again at the individual level on dividends.
- S Corps. S corps are a pass-through type of tax entities. They file an informational federal return, but pay no income tax at the corporate level. The profits/losses of the business are instead “passed-through” the business entity and reported on the owners’ personal tax returns as personal income. Any tax due is paid by the owners.
- Personal Income Taxes. With both types, personal income tax is due on any salary drawn from the corporation and from any dividends distributed by and received from the corporation.
- Corporate Ownership. C corps have no restrictions on ownership, but S corps have some restrictions as to who can be an owner in the corporation. S corps are limited to only 100 shareholders, and those shareholders must be US citizens or residents. S corps may not be owned by C corps, other S corps, LLCs, partnerships or many types of trusts. Also, S corps may only have a single class of stock offering, whereas C corps may have multiple classes of stock with various voting rights. C corps provide more flexibility when starting a business if you plan to grow, expand the ownership or sell your corporation.
S Corp Election
To become an S corp, Form 2553 must be file with the IRS. The IRS instructions require that an election is considered effective in the current tax year only if the Form 2553 is completed and filed:
- For calendar year tax payers, by March 15th of the current taxable year.
- Any time during the preceding tax year. One exception to this rule, an election made no later than 2 months,15 days after the beginning of a tax year that is less than 2½ months long is treated as timely for that year.
Generally, an election made after these dates is effective for the next tax year.
Some states may also require you to file a state-level S corp election form after incorporating your business.
Limited Liability Company (LLC)
An LLC generally offers liability protection similar to that of a corporation but is taxed differently. LLCs may be managed by one or more managers or one or more members. In addition to filing the applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the LLC and the conduct of its business is required. The LLC does not file the operating agreement with the Secretary of State but maintains it at the office where the LLC’s records are kept.
Limited Partnership (LP)
LP’s provide limited liability for some partners. There must be at least one general partner that acts as the controlling partner and one limited partner whose liability is normally limited to the amount of control or participation of the limited partner. General partners of an LP have unlimited personal liability for the LP’s debts and obligation.
General Partnership (GP)
GP’s must have two or more persons engaged in a business for profit. Except as otherwise provided by law, all partners are liable jointly and severally for all obligations of the partnership unless agreed by the claimant. Profits are taxed as personal income for the partners.
Limited Liability Partnership (LLP)
An LLP is a partnership that engages in the practice of public accountancy, the practice of law, the practice of architecture, the practice of engineering or the practice of land surveying, or provides services or facilities to registered LLP that practices public accountancy or law, or to a foreign LLP. An LLP is required to maintain certain levels of insurance as required by law and may vary from state to state.
A sole proprietorship allows an individual to own and operate a business. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business. If a sole proprietorship is formed with a name other than the individual’s name (example: John Smiths Wine Shop), a Fictitious Business Name Statement must be filed with the county where the principal place of business is located.
In some states such as California, no formation documents are filed with the state’s Secretary of State’s office. Other state filings may be required depending on the type of business.
For more information, contact Chuck Harris at (707) 938-3654 or email@example.com