Whether retirement is many years away, just over the horizon, or not in your game plan at all, a Succession Plan is vital to ensuring the continued success of any business.
Succession Planning may be the single-most neglected aspect of business ownership. Don't make the same mistake that so many others have.
Succession Planning is an essential element of any business and is a process that requires a full-on strategic plan to ensure operational continuity.
Simply put, Business Succession Planning is not a one-size-fits-all strategy or a one-time event. Planning for "succession" requires an investment of time and effort. It should be part of your overall Estate Plan.
Whether you are executing a carefully developed "Succession Plan" or reacting to a sudden leadership departure of an owner or partner, you need the full array of legal and strategic services to support your business through the transition.
This is especially true when it comes to family-owned businesses.
As the editors of Inc. Magazine have noted, "Strategic planning—centering around both business and family goals—is vital to successful family businesses. In fact, planning may be more crucial to family businesses than to other types of business entities because, in many cases, families have a majority of their assets tied up in the business. Since much conflict arises due to a disparity between family and business goals, planning is required to align these goals and formulate a strategy for reaching them. The ideal plan will allow the company to balance family and business needs to everyone's advantage."
No Company can survive without an able Owner or CEO at the helm. When a Key Person's sudden death, illness, or retirement occurs, businesses are often left scrambling to find a suitable replacement. Large corporations and small businesses alike can avoid a turbulent transition by establishing a Succession Plan with an experienced and knowledgeable attorney.
If an Owner or Major Shareholder does not have a Succession Plan in place, his or her stake in the Company is either passed on to relatives as part of the Estate Distribution Process, absorbed by other Shareholders, or a combination of the two. In Family-Owned Businesses, this often leads to disputes between siblings and other relatives. Those more active in the day-to-day operations of the Business may feel entitled to larger shares than others who are less involved.
An attorney with expertise and experience in Business and Estate Planning can help Owners and Shareholders create and implement a plan that facilitates a smooth transition. Plans are customarily created after Employees, Co-workers, Shareholders, and Family Members have been consulted, and goals for the future of the Company have been outlined.
There are two primary reasons for incorporating your business. One is to limit your personal liability for obligations and debts of the company, providing that you follow the requirements that will keep your corporate veil intact. To retain this corporate veil, you must run your corporation like a business, not co-mingle your personal and business funds and not engage in criminal or fraudulent acts. By incorporating, you generally can limit your potential loss to whatever you and others have invested in the business and/or the business's assets.
The second primary reason for incorporating your business is that incorporating gives you a more professional image. Investors, lenders, customers, and suppliers often prefer to deal with a Corporation or LLC because it seems better organized and more substantial than an Unincorporated Business.
Other benefits of incorporation can include greater use of legitimate Tax Deductions for Health Insurance and Medical Expenses, lower Social Security and Medicare Taxes payments, and greater opportunity to raise Capital for the Business through the issuance of Stock.
Under the Corporate Laws of some States, corporate existence begins when the Articles of Incorporation are filed with the Secretary of State. Under an older practice still followed by many States, corporate existence begins upon the issuance of a Certificate of Incorporation by the Secretary of State.
Yes. Shareholders are the owners of the Corporation. If no shares of stock are issued, then there are no legal owners of the Corporation. Shares must be issued to those individuals who will be owners of the Corporation. This is the case even if only one individual will own the Corporation.
In some circumstances, a Corporation can sell shares of stock to investors in order to provide the Corporation with its own capital. The sale of securities is heavily regulated by both the State and Federal Governments, and we recommend that you contact an attorney in your State of Incorporation before issuing stock.
No minimum number of shares must be authorized in the Articles of Incorporation, but the Corporation may not sell more shares than it is authorized to issue. The number of authorized shares can be increased or decreased by filing an amendment to the Articles of Incorporation with the Secretary of State.
Most states require that a Corporation have a Registered Agent who maintains a registered office within the State of formation. This address of the Registered Office may be different from the Corporation's Business Address. This individual or service company must be responsible for receiving important legal and tax documents. The Registered Agent must have a valid street address within the State of Incorporation and be available during normal business hours to receive documents.
The services performed by a Registered Agent include, but are not limited to:
An "S" Corporation is merely a Corporation that has elected a special Tax Status. This tax treatment permits the Corporation's income to be treated like the income of a Partnership or Sole Proprietorship in that the income is "passed through" to the shareholders. Thus, shareholders report the income or loss generated by the "S" Corporation on their individual tax returns, avoiding double taxation.
In order to be considered an "S" Corporation, the stockholders of a properly filed Corporation must elect such status within seventy-five (75) days of formation for the current tax year or at any time during the preceding tax year. This election is made by filing Form 2553 with the IRS.
The ownership of an "S" Corporation is subject to certain restrictions. "S" Corporations can have no more than one hundred (100) shareholders, cannot have any non-US resident shareholders, and cannot be owned by C Corporations, other "S" Corporations, many Trusts, LLCs, or Partnerships. In addition, "S" Corporations are not allowed to own eighty (80%) percent, or more, of another Corporation's shares.
To qualify for S Corporation status, a Corporation:
A "C" Corporation is merely a Corporation that pays the tax directly to the IRS. A "C" Corporation can be contrasted with an "S" Corporation, which generally doesn't pay tax.
"C" Corporations offer unlimited growth potential through the sale of stock. In addition, there is no limit to the number of shareholders a "C" Corporation can have.
There are many benefits, but here are just a few.
Having unlimited growth comes with a few minor setbacks.
Both "C" and "S" Corporations offer limited liability protection. Both require Articles of Incorporation to be filed. And both comprise shareholders, directors, and officers. There are numerous similarities, but they differ in the complex realm of taxation and corporate ownership.
As noted, "C" Corporations are subject to double taxation. In contrast, "S" Corporations are pass-through tax entities, allowing them to avoid being taxed at the corporate level and again on shareholders' personal income taxes.
When it comes to corporate ownership, "C" Corporations have no restriction on ownership and, therefore, have unlimited growth potential. But "S" Corporations are restricted to no more than 100 shareholders. Also, "S" Corporations cannot be owned by a "C" Corporation, other "S" Corporations, LLCs, partnerships, or many trusts. However, a "C" Corporation has no limits on who or what can be a shareholder.
A Limited Liability Corporation or LLC is a relatively new type of business; companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship; it is an incorporated entity that provides limited liability to its owners or members, and it has the unique opportunity to elect the tax structure that best fits the LLC's specific needs. The limited liability company is a “hybrid” entity created to provide the liability benefits of a partnership.
A limited liability company is a statutory entity that has articles of organization in order to exist. The owners, called members, enter into an operating agreement. This is the basic governing document, which provides for the regulation of the affairs of the company, the conduct of its business, and relations among the members and managers.
While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of partnerships (and not an LLC).
One of the key features of a limited liability company is that its owners have limited liability. The individual assets of LLC members may not be used to satisfy the LLC's debts and obligations. A member's risk of loss is limited to the amount of capital invested in the business. However, it is possible that a court may “pierce the veil” and hold a member liable for the LLC's acts if the member completely dominated the company, did not treat it as a separate entity, used the LLC form to perpetuate wrong or injustice, or where it otherwise would be considered unfair to treat the member and company separately. Some acts specifically provide that an LLC's corporate veil may be pierced to the same extent any corporation may be pierced. However, even in the absence of such a provision, the courts have held that the concept of veil piercing applies to LLCs.
LLCs may elect not to pay federal taxes. Instead, profits and losses are listed on the personal tax returns of the owner(s). Or, the LLC may choose a different classification, such as a corporation. If fraud is detected or if a company hasn't met legal and reporting requirements, creditors may be able to go after the members.
An LLC may be taxed for federal income tax purposes like a C corporation, an "S" corporation, a partnership, a sole proprietorship, or a division. The tax regulations contain default classifications under which an LLC with two or more members will be taxed as a partnership, and an LLC with one member will be disregarded as an entity. However, an LLC can change its classification to a corporation by filing a form with the IRS called an "Entity Classification Election."
If an LLC is taxed as a partnership or a disregarded entity and the LLC will not have to pay an entity, its tax items will flow through to the member or members, and the entity will not have to pay entity-level tax.
If the LLC elects to be taxed as a "C" corporation, it will be taxed as an entity. The LLC will have to file a federal tax return and pay taxes on income it earned. It will also be subject to double taxation because, in addition to its income being taxed at the entity level, any profit distributed to the members will be taxed again as personal income.
A Federal Tax Identification Number (also known as an Employer Identification Number or "EIN") is used to identify a business entity for taxation purposes. What a Social Security number is to an individual, the Federal Tax I.D. Number is to the Corporation. Generally, any corporation doing business within the U.S. is required to have an EIN. In fact, the EIN is necessary when filing tax returns and establishing bank accounts.
A Corporation can receive an EIN by completing and submitting IRS Form SS-4.
A Corporation is not required to incorporate in the State where it operates; therefore, you can incorporate in any fifty (50) States. There are many considerations involved in deciding where to incorporate, including the cost of incorporation, tax laws, and general laws governing the actions and liabilities of Corporations. You can choose to incorporate in the State that is most advantageous to you.
Certain issues are involved when determining the proper State in which to incorporate your Business. First, you must consider the costs of incorporating in your home State vs. the costs involved in qualifying as a foreign corporation in another State. Second, you must determine the advantages and disadvantages of each State's Corporate Laws and tax structure. And of course, there are many others determined by your particular situation.
Not at all—you may incorporate in any State of your choosing. While an In-state Registered Agent is required, that Registered Agent does not need to be an individual otherwise connected to the company. In fact, it doesn't even have to be an individual. Another incorporated business (other than the one you're in the process of forming) can act as your Business's Registered Agent as long as it has already been incorporated in that State. You can nominate your own, or we can obtain a registered agent in any state you like on your behalf.
While you're not required to be physically present in the State you wish to incorporate, the State requires that someone who is physically located within the State be on file. Why? The Registered Agent is the point person for your company, and the contact information is usually a matter of public record; your Registered Agent will receive correspondence from the State, inquiries from the Public, and Service of Process in the event of a lawsuit.
A Corporation is called a Domestic Corporation with respect to the State where it has been incorporated. Any other corporation not incorporated within that State is called a Foreign Corporation. For example, a Corporation incorporated in Nevada is a Domestic Corporation in Nevada but is considered a Foreign Corporation in all other States. A Corporation will normally have to qualify to do business in a State where it is not incorporated.
Before doing business in another State, a Foreign Corporation generally must register with the Secretary of State of that State, file copies of its Articles of Incorporation, pay certain taxes, and appoint a Resident Agent within that State for Service of Process.
What is meant by the phrases doing or transacting business in another State by a Foreign Corporation?
There are many factors used to determine whether a Foreign Corporation is transacting business in a State and, therefore, must qualify to do business in that State. Some criteria evaluated include:
This is not a complete list, and different States may have different criteria. However, these are some common factors to consider when trying to determine whether it is necessary for a Foreign Corporation to register or qualify to do business in another State. It is necessary to follow the laws of each State if you are doing, or intend to do, business in another State
For example, many entrepreneurs incorporate in Nevada or Delaware due to the tax laws and for other beneficial reasons, but they do not reside and/or transact any business in either of those States. Therefore, those entrepreneurs must register their Corporations wherever their "businesses" are physically located and/or they transact business.
For certain purposes, such as determining the right to bring a lawsuit in Federal Court, a Corporation today is deemed a citizen of any State in which it has been incorporated AND also of the State where it has its principal place of business. Therefore, a Corporation can be a citizen of more than one State.
For example, a Corporation incorporated in Pennsylvania is a Pennsylvania Corporation. A Delaware Corporation having its principal place of business in Pennsylvania is deemed to be a citizen of Pennsylvania, as well as Delaware.
The owners of a Corporation are its shareholders. The shareholders elect a Board of Directors to oversee the major policies and decisions of the Corporation. The Board of Directors also elects the Officers who are responsible for the management of the business of the Corporation. Thus, the dealings of the Corporation are carried out by the Officers and Employees of the Corporation under the authority delegated by the Directors of the Corporation.
Generally, in most States, a Corporation is only required to have One (1) Director, although you can have more. Certain States base the required number of Directors on the number of stockholders.
Each Director must attend meetings of the Board, which must be held no less than once a year. Each Director on the Board is given one vote. Usually, the vote of a majority of the Directors is sufficient to approve a decision of the Board. Directors must make sure that major corporate actions are recorded (e.g., minutes of meetings) and were taken on behalf of the Corporation. Corporate Officers are elected by the Board of Directors and are responsible for conducting the day-to-day operational activities of the Corporation. Terms of Directors are often staggered for more than one (1) year to provide continuity. Shareholders can elect themselves to be on the Board of Directors.
Corporate Officers usually consist of the following: a President, Vice-President, Secretary, and Treasurer, though one person may hold more than one office.
A Corporation is an artificial person that is created by governmental action. The Corporation exists in the eyes of the law as a person, separate and distinct from the persons who own the corporation (stockholders). This means that the property, or assets, of the Corporation are not owned by the stockholders but by the Corporation. Debts of the Corporation are debts of this artificial person and not of the persons running the Corporation or owning shares of stock in it. Thus, the "value" of the Corporation, and its stock, is determined partially by the amount or "value" of the Corporation's assets versus its liabilities or debts.
Shares must be issued to those individuals who will be owners of the Corporation. This is also the case even if only one individual will own the Corporation. Ownership of a Corporation can be transferred by the sale of all or a portion of the stock. Additional owners can be added either by selling stock directly from the Corporation or by having the current owners sell some of their stock. Small businesses that are incorporated are often owned by a small group of shareholders who all work in the business. Often these shareholders formally agree to certain restrictions on the sale of their shares, so they can control who owns the Corporation.
Securities Laws are meant to protect investors from unscrupulous business owners. These Laws require Corporations to follow certain procedures before accepting investments in exchange for shares of stock (the “Securities”). Technically, a Corporation is required to register the sale of shares with the Federal Securities and Exchange Commission (SEC) and its State Securities Agency before granting stock to the initial corporate owners (shareholders). Many small Corporations are exempted from registration under Federal and State Laws. For example, SEC Rules do not require a Corporation to register a “private offering,” which is a non-advertised sale of stock to a limited number of people (generally thirty-five (35) or fewer). The laws in this regard can be complicated, and the sale of stock should be managed by experienced attorneys.
Ordinarily, a Corporation will be regarded and treated as a separate legal person, and the law will not look beyond a Corporation to see who owns it and hold those individuals liable or accountable. However, a Court may disregard the Corporate Entity's status and pierce the corporate veil in exceptional circumstances and hold the individual shareholders liable for the acts of the Corporation. The decision whether to disregard the Corporate Entity and go directly against the shareholders is made on a case-by-case basis, and Courts generally will look to more than one factor. Factors that may lead to piercing the corporate veil are:
A Court will not go behind the Corporate Identity merely because a Corporation has been formed to obtain tax savings or to obtain limited liability for its shareholders. One-person, family, and other closely-held corporations are permissible and fully entitled to all of the advantages of Corporate existence. However, factors that lead to piercing the corporate veil more commonly exist in these kinds of Corporations. It is extremely difficult to pierce a corporate veil in most situations. Some Courts use different terminology when disregarding the Corporate Entity. The Court may state, for example, that the Corporation is merely the alter ego of the shareholders, and the shareholders should therefore be held liable.
Mergers and Acquisitions is a phrase used to describe certain types of financial activities in which Corporations are bought and sold. A merger occurs when two corporations merge into one entity, where one absorbs the other. One Corporation preserves its original charter and identity and continues to exist; the other Corporation disappears, and its Corporate Existence terminates. Generally, the Corporate Entity that continues the business after a merger will succeed to all of the rights and property of the other Corporate Entity and will also be subject to all of its debts and liabilities.
A Corporation may merely purchase or acquire the assets of another Corporation. This would NOT be a merger. In an acquisition, the purchasing Entity buys the assets of the other Corporate Entity but does not become liable for the debts and obligations of the Corporation being acquired.
A Holding Company is a Company/Corporation created to own the stock of other Corporations, often using the stock holdings to control the management and policies of those Corporations.
An Annual Report is a document that must be filed with the Secretary of State each year. This Report generally must indicate:
The Secretary of State's office will determine name availability for Corporate Entities in response to written requests. There is generally a small fee. If you wish to reserve a Corporate Name for a Business Entity, most States will allow you to do so after the completion and filing of the appropriate form(s), generally entitled
If I incorporate, will anyone else be able to use my chosen Corporate Name?
Issuance of a name by the Secretary of State does not necessarily give a person the exclusive right to use that name. Many businesses do not choose to incorporate. A Secretary of State's office generally has no record of these and thus cannot search names of unincorporated businesses.
Most States do not have a minimum age requirement but do require that Members of the Board of Directors must be at least eighteen (18) years of age.Contact Our Law Firm Today
Whether you have some or a lot of assets, a trust may be just the thing you need to manage those assets and decide what's done with them upon your death. At RJ Fichera Law Firm, we will consider what you want the trust to do for you, review the assets you want to transfer to the trust, and guide you through the entire process, providing solid legal advice as you need it or the situation demands it.
To learn more about trusts and how a specific one can benefit you, contact us either online or at 610-768-9255 to schedule a Free Consultation. Please review our under Legal Plans or Click here for information on .
Reach out to the Ronald J. Fichera Law Firm, where trust meets excellence. Fill out the form below to secure your family's legacy and receive expert legal counsel. Your peace of mind is our priority.