1. Q: If I'm going to start a new business, should I incorporate?

    A: There are a number of different types of entities to choose from when setting up a business. Corporations are a very popular choice, but not the only one. Limited liability companies, limited partnerships, sole proprietorships are just a few of the other choices. Deciding which is right for your business requires analysis of the liability protections and tax treatment you want, the employee benefits you will offer, the types of owners you'll have, your business practices and a host of other considerations. It's not a simple question and one you'll probably need legal advice to answer properly.

  2. Q: Is it appropriate to structure business transactions using preprinted forms?

    A: It depends on what type of transaction it is. Certainly major contracts like loan agreements, merger agreements, employment agreements for key employees, exclusive distribution or licensing agreements should be tailored by your attorney to fit each individual transaction. Simpler transactions involving purchase orders or invoices can be done with preprinted forms, but you should know what terms are appropriate for your business before selecting a form or agreeing to be bound by a customer's or supplier's form agreement.

  3. Q: What is the difference between a C corporation and an S corporation?

    A: The difference lies primarily in the way they are taxed. Corporations are created under state law. Pennsylvania recognizes many types, but the business corporation is the most common. For state law purposes all business corporations are basically the same. But business corporations can elect to be taxed under two different systems. Essentially C corporations pay income on their net earnings. If they distribute excess profits to shareholders as dividends, those dividends are also taxed to the shareholder. Conversely, S corporations usually do not pay income tax on their earnings. Instead, their shareholders report the earnings as part of their income and pay tax on it themselves. This entitles them to withdraw money from the S corporation on a tax free basis, subject to certain limitations. Not every corporation can qualify to be an S corporation and some that can are better off being C corporations. Careful analysis with your tax attorney and accountant will help you decide which is best for your business.

  4. Q: Do limited liability companies offer the same protections as a corporation?

    A: Generally yes. The Pennsylvania law creating limited liability companies borrowed heavily from Pennsylvania's corporate laws when it came to liability protection. As such, both entities provide the same basic liability protections to their members and shareholders.

  5. Q: Is it possible to merge my business with another business without incurring significant tax?

    A: Much depends on the type of businesses involved in the merger. Where two corporations are involved, for example, it is often possible to structure a tax free merger. The specifics of how this is accomplished vary with each transaction, however. Mergers involving other types of business entities may or may not be taxable, depending on the circumstances.

  6. Q: Should a corporation own real estate?

    A: Normally we discourage clients from having their corporations own real estate, but under certain circumstances it may be advisable. The primary problem with having a corporation own real estate is the high tax cost that is paid if the real estate is sold or distributed to shareholders. Often a limited partnership or limited liability company tax as a partnership is a better choice to own real estate. Real estate can also produce rental income that may threaten an S corporation's state and federal S elections.

  7. Q: How often should a corporation hold meetings and update its minutes?

    A: Any time a corporation undertakes a major change or transaction, it should be reflected in its minutes. In addition, meetings of shareholders and directors should take place at least annually if for no other reason than to elect new officers and directors. Failure to adhere to the formality of regular meetings can jeopardize the corporation's ability to shield its officers, directors and shareholders from personal liability for the corporation's actions.

  8. Q: Is it a good idea to have a Buy Sell Agreement for a corporation?

    A: Any time a corporation has more than one shareholder, a buy sell agreement is strongly recommended. A shareholder's death, divorce, disability or termination of employment can create serious problems for a corporation and its other shareholders. A buy sell agreement can help minimize these problems by describing what will happen in those events. Similar provisions are strongly recommended for partnership agreements and operating agreements for limited liability companies.