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Jasmin E., Denver, CO

John has provided outstanding legal counsel and guidance in helping me

work through a number of IRS tax issues and implications. Over the past 5

years, John has provided sound advice, guidance and tangible business

options that helped my company dig through the paperwork, and language

which helped me to create a viable and reasonable path towards resolution.

He was also instrumental during a tax audit laying out a tested blueprint for

the approach and never failed to accompany me during the audit meetings.

John is trustworthy, dependable and knowledgeable about all tax matters, but

adds value in his ability to understand and appreciate the small business

owner and the challenges we face in running a business. Through our entire

business relationship, John has been responsive and detail oriented, allowing

me to stay focused on my business and not getting distracted with legal

details.

 

“Thank you for your professional services!

Corporate Characteristics Overview by Denver Business Attorney

In a previous article we discussed the characteristics (issues to consider) of a business in general.  The article below has been drafted by a Denver business attorney at The McGuire Law Firm as an overview to the characteristics of a corporation that were mentioned in a previous article.

Corporate Formation: a corporation can only be formed by satisfying and complying with certain state statutes.  The statutes will require the filing of a document with the appropriate state agency, generally the secretary of state, which is the case in Colorado, appointing the registered agent and paying a filing fee.  Additionally, to maintain the corporate form, annual reports will need to be filed, again usually with the secretary of state.

Entity: A corporation is an entity that is separate and apart from the persons who have formed the corporation.

Liability: The corporation is liable for its contracts and actions, but the managers and shareholders of the corporation are not liable.  The limited liability of a corporation is an advantage of the corporate structure.

Ownership:  The corporation is owned by the shareholders.  A share of stock can be considered a unit of ownership in the corporation.  Corporate shares are issued by the corporation.  The shareholders who own the corporation have different rights such as voting rights to elect the directors who will manage the corporation.  Thus, shareholders do not necessarily manage the corporation, but they vote on and elect the individual that will manage the corporation.  In many respects, share ownership in a corporation measure power.  For example, if John owns 400 shares in Corporation ABC and Jeff owns 40 shares, John has ten times the votes as does Jeff and for every dollar Jeff receives in a corporate dividend distributions, John will receive ten.  This applies of course unless another corporate document reads otherwise.

Management: A corporation is managed by the board of directors.  It is possible that a shareholder and a director are the same person, but this also allows for a separation in ownership and management.

Transferability:  A shareholder can transfer stock relatively freely.  With a publicly held corporation just get online and sell your stock.  Stock held within a closely held corporation may not be as easily transferred, but can still be sold, exchanged or transferred.

Taxation: A C corporation will pay tax on corporate income whereas an S corporation will pass income through to the shareholders.  The shareholders of a C corporation will also have to pay individual income tax on the dividends they receive.

Raising Capital & Capital Needs:  All businesses, including corporations need money. A corporation can raise capital by obtaining loans and/or through selling ownership interests in the corporation.  There are advantages and disadvantages to both obtaining lending and allowing other third parties to obtain an ownership interest in the corporation.

If you have questions related to the formation, structure or taxation of a corporation please contact The McGuire Law Firm to speak with a Denver business attorney.  Whether you are long time business owner or just starting a small business, a business attorney can help you make important legal decisions that your business can benefit from as it operates and grows.

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LLC Formation and General Issues by Denver Business Attorney

Limited liability companies (LLC) have been very popular entity choices in recent times.  An LLC can be very flexible in terms of denver business lawyer Denver Business Attorneyprofit, loss and other item allocation, and other membership issues.  However, as a business attorney, I am often asked, how do I form an LLC?  Thus, I have drafted the article below to provide some general information regarding the formation of an LLC, articles of organization and general tax matters to consider.

To form an LLC in Colorado, you can go to the Colorado Secretary of State website to complete and file your articles of organization.  First, you will check on the name for your LLC to see if it is available.  Once availability has been checked, you can complete the articles of organization.  The articles of organization will state: the name of the LLC; the address of the LLC; the registered agent of the LLC; the members of the LLC and their addresses; who is filing the articles; whether the LLC is member managed or manager managed and other information.  Once you have completed the articles, you pay a filing fee, which is currently $50 and the articles are filed with the secretary of state.  Typically, you will also pay a yearly renewal fee to the secretary of state.

After completing the articles, you may wish to obtain an EIN depending upon your circumstances.  You can obtain an EIN on the IRS’ website.  Most banks will now allow you to open a business bank account with your articles of incorporation and EIN.

In most circumstances, if you have a multi-member LLC, it is recommend that you have an operating agreement, which is a partnership agreement and controls certain actions and issues within the LLC and between the LLC members and potentially the LLC manager.

For tax purposes, a multi-member LLC will file a 1065 U.S. Partnership Income Tax Return and the pass through items will be reported to the members on a K-1.  A single member LLC is considered a disregarded entity for tax purposes and thus is treated like a sole proprietorship and the individual will file a Schedule C with their 1040 Individual Income Tax Return.  It is recommended that you speak with a tax attorney or tax professional regarding the individual tax implications of an LLC, as well as to the tax issues surrounding the formation of the LLC.  The formation of an LLC by itself may not create any taxable event, but the contribution of property and/or money to an LLC is likely to have tax consequences in the future that should be understood from the beginning if possible.  If you have questions regarding the formation of an LLC, you can contact The McGuire Law Firm to discuss such issues with a business attorney or tax attorney.

Contact The McGuire Law Firm to schedule your free consultation with a business attorney or discuss your individual or business tax questions with a tax attorney.  The McGuire Law Firm has law offices in Denver and Golden Colorado.

Video on Forming a Business by Denver Business Lawyer

A Denver business lawyer at The McGuire Law Firm can assist you with the formation and structure of your business.  Additionally, we can draft and review contracts, counsel the business during operations, analyze transactions & tax implications and assist with the sale, transfer or disposition of business assets or interests.

Contact The McGuire Law Firm to schedule your free consultation with a Denver business lawyer!

Denver Business Lawyer

Contact The McGuire Law Firm to speak with a Denver business lawyer regarding your business or business questions.  We assist clients with the formation and structure of their business, contract and document drafting as the business operates, tax planning and analysis of specific transactions and the eventual sale, transfer or disposition of the business interests or assets.

You can schedule a free consultation with a business attorney by contacting The McGuire Law Firm!

Entity Options Video by Denver Business Attorney

At The McGuire Law Firm a Denver business attorney can discuss what entities are available for your business to operate and the implications of such entities.  The video below has been prepared by a business attorney to discuss your general options such as a sole proprietorship, a partnership or a corporation.  Please feel free to contact The McGuire Law Firm to speak with a business attorney regarding any questions or issues your business may have.

Contact The McGuire Law Firm to schedule your free consultation with a Denver business attorney!  720-833-7705

 

Denver Business Attorney

Contact The McGuire Law Firm to speak with a Denver business attorney.  A business attorney can assist you with the formation and structure of your business, business contracts and documents and the sale, transfer or disposition of your business interests or assets.  Moreover, a business attorney can assist you with the tax implications of specific business transactions.

Schedule your free consultation with a business attorney by contacting The McGuire Law Firm!

 

Offices in Denver and Golden Colorado.  Schedule your free consultation today!

S Corporation As Choice of Entity by Denver Business Attorney

Should I be an S corporation?  What is an S corporation?  Business owners may ask their business attorney these questions as they are forming theirDenver Business Lawyer Denver Business Attorney business or when considering their entity structure and the taxation of their business.  The article below, drafted by a Denver business attorney discusses an S corporation as an entity choice for operating a business.

A corporation that meets the requirements of Internal Revenue Code section 1361 may make the election to be taxed as an S corporation.  The requirements are: the corporation must have no more than 100 shareholders; all shareholders must be individuals (other than nonresident aliens), estates, qualified trusts, electing small business trusts or certain tax exempt organizations; the corporation may only have one class of stock; the corporation may not be a financial institution, insurance company, possessions corporation or DISC.

An S corporation may also own 80% or more of the stock in a C corporation, and the liquidation of a C corporation  into an S corporation is governed by the rules of Subchapter C, specifically Internal Revenue Code Sections, 332 and 337.

An S corporation that has a wholly owned subsidiary can make an election to treat the subsidiary as a qualified subchapter S subsidiary.  Under such circumstances the subsidiaries assets, liabilities and items of income, deduction and credit are treated as those of the parent S corporation.  Thus, the separate existence and status of the subsidiary is ignored for tax purposes.  When such election is made, the subsidiary is deemed to have liquidated in a tax free liquidation under Internal Revenue Code sections 332 and 337 immediately before the election was effective.  The built in gains rule under Internal Revenue Code 1374 will apply

Certain types of trusts can also own stock in an S corporation.  To qualify, the trust is treated as owned by an individual who is a citizen of the United States; the trust is a trust with respect to stock transferred pursuant to a will; the trust was created primarily to exercise the voting power of stock transferred to it; or an electing small business trust.  An electing small business trust is a trust that has no beneficiary other than an individual, an estate,  or certain charitable organizations.

The make the S corporation election, the corporation will likely file Form 2553.  All shareholders must consent to the S election and the election is filed with the Internal Revenue Service on or before the 15th day of the third month of the Corporation’s taxable year.  Taxpayer’s may be allowed relief for certain late filings of the election under certain revenue procedures.

A new corporation that makes the S election is not subject to tax at the entity level.  An S corporation is a pass through entity where by the profits, losses, credits and deductions are passed through to the individual shareholders and claimed on their 1040 Individual Income Tax Returns.  The amounts passed through to shareholders are passed through pro rata per the shareholders ownership interest.  Because an S corporation can only have one class of stock, an S corporation does not have the flexibility of an LLC or partnership in allocating income or losses.  Losses from an S corporation may be deducted only to the extent of the shareholder’s basis in their stock and any indebtedness of the corporation to the shareholder.

A shareholder’s basis in their stock will reflect their capital contributions to the corporation and will be increased by their pro rata share of corporate income and decreased by their pro rata share of losses and distributions to the shareholder.  The basis cannot decrease below zero.  Losses or deductions that exceed a shareholder’s basis can be applied to reduce the basis in indebtedness of the S corporation to the shareholder under Internal Revenue Code section 1367(b)(2).  A shareholder’s basis is not increased by corporate level obligations to third parties.  When the distributions are made to a shareholder that do not exceed the shareholder’s basis in the stock, are not taxed to the shareholder under Internal Revenue Code Section 1368(b).

It is important to know that certain states do not recognize S corporations and thus will tax the entity as a C corporation.  You can speak with a Denver business attorney at The McGuire Law Firm to discuss your business law questions and issues.  A Denver business attorney can assist you with forming and structuring your business, the tax implications of your business, business operations and the eventual sale, transfer or disposition of business assets or interests.

Schedule your free consultation with a Denver business attorney at The McGuire Law Firm!  Offices in Denver and Golden Colorado.

Choosing a Partnership as your Choice of Entity by Denver Business Attorney

Partnerships are a very popular choice of entity for many small businesses.  There are multiple types of partnerships including a limited liability Denver Business Attorney Denver Small Business Attorneycompany (LLC), general partnership, limited partnership, limited liability limited partnership (LLLP) and others.  The article below has been drafted by a Denver small business attorney at The McGuire Law Firm to discuss a few issues about partnerships in terms of choice of entity.  Please feel free to contact our law firm to speak with a business attorney and discuss any questions you may have.

Partnerships are not taxable entities under Internal Revenue Code Section 701.  A partnership will file a Form 1065, which is the partnership income tax return and the income and losses of the partnership are passed through to the individual partners and reported on a K-1.  Thus, a partner may have to claim income on their 1040 individual income tax return even if there was no actual distribution of cash to the partner.  Under Internal Revenue Code Section 702(b), the character of income or loss is determined at the partnership level.

Not only do partnerships provide a lot of flexibility regarding their governance, a partnership may also allocate income and losses amount partners in any manner given the allocations have substantial economic effect under Internal Revenue Code Section 704(b).  Thus, through special allocations and adjusting sharing ratios for profits and losses, the partnership agreement or operating agreement can be drafted to meet the needs of the partners.

A partner’s ability to deduct the losses of a partnership will be limited by the partner’s basis in the partnership interest.  Excess losses can be carried forward and allowed to the extent of later increases in the partner’s basis.  Capital contributions and the distributive share of partnership income will increase a partner’s basis, and distributions and loss allocations will reduce a partner’s basis.  A partner’s basis will also include their share of partnership liabilities under Internal Revenue Code Section 752 and thus using the partnership format to hold leveraged properties such as real estate can be a benefit.

Generally, a partnership will adopt the same taxable year as the partners owning a significant portion of the partnership.  One advantage of a partnership to an S corporation is ownership.  A partnership, such as an LLC, can be owned by any number or individuals or business entities.  Whereas an S corporation is limited in the number of shareholders and generally all shareholders must be individuals.  A partnership can be publicly traded, I actually believe the Boston Celtics were (and still may be) a publicly traded partnership.  If the partnership is publicly traded (also called a master limited partnership) it would be taxed as a corporation under Internal Revenue Code section 7704.

The IRS has proposed regulations to help prevent potential abuse of corporate partners avoiding corporate level gain through a transaction with a partnership that would involve the equity interests of the corporate partner.  For example, a corporate partner could contribute appreciated property to a partnership and an unrelated partner could contribute cash to the partnership.  The partnership could use the cash to purchase stock in the corporate partner and upon liquidation of the partnership the corporate partner could receive its own corporate stock and thus avoid gain on the appreciated property.  The proposed regulations create a deemed redemption and a deemed distribution rule.

Your choice of entity and the related implications to your business are very important.  A Denver business attorney at The McGuire Law Firm can assist you in making these decisions and other business related issues.

Schedule your free consultation with a business attorney by contacting The McGuire Law Firm!  Law offices in Denver and Golden Colorado!

Choice of Entity by Denver Small Business Attorney

What type of business should I be?  Should I form a limited liability company (LLC) or a corporation?  These are common questions business owners Denver Business Attorney Denver Small Business Attorneymay ask their business attorney, and they are good questions.  It is important for a business owner to understand their options when forming businesses and the implications.  Choice of entity is a very important question for any business and has implications from the formation of the business, during the operation of the business and when the business or business interests are sold or transferred.  The article below has been drafted by a Denver business attorney at The McGuire Law Firm to begin the discussion on choice of entity and provide a little background as to when pass through entities began to become a little more attractive to the business owner as opposed to the C corporation.

In many ways the 1986 act reduced the reasons and advantages for businesses to operate as a C corporation.  The General Utilities doctrine was repealed and thus made it more difficult for a C corporation to pass earnings and unrealized appreciation to the corporate shareholders without creating two levels of tax (double taxation) at the corporate and individual shareholder levels.  The double taxation of a C corporation does have some relief given that qualified dividends to non-corporate taxpayers will be taxed as capital gains as opposed to ordinary income.  See Internal Revenue Code Section 1(h)(11).  It is also important to note that the American Taxpayer Relief Act of 2012 made the preferential capital gains treatment of qualified dividends permanent, but raised the top capital gains rate.  Taxpayers in the 39.6 bracket have qualified dividends taxed at 20% as opposed to 15%.  Higher earning taxpayers must also consider the 3.8% net investment income tax under Internal Revenue Code Section 1411.  Thus, one could consider the rate to be closer to 24% on qualified dividends for higher earning taxpayers.

Another potential disadvantage to a C corporation was/is that for the first time, the highest marginal income tax rates for individuals was less than the highest corporate income tax rates, which made pass through entities such as an LLC or S corporation more attractive.  Later, the top marginal individual bracket was increased, so the rate differential was not apparent for too long of a time.

The 1986 act also replaced the corporate add on minimum tax with AMT or alternative minimum taxable income on C corporations after 1989.  One provision was that the alternative minimum taxable income of a corporation is increased by 75% of any excess of the adjusted current earnings of the corporation over the alternative taxable minimum income.  See IRC Section 56(c)(1).

Given certain detriments of operating a business as a C corporation, many new businesses considered and did form pass through entities such as an LLC or an S corporation as their choice of entity.  These business entities may be even more beneficial if start up losses are expected.  Existing corporations should at least consider restructuring to avoid potential double taxation.

A Denver business attorney at The McGuire Law Firm can assist you with your choice of entity, the formation of your business, legal issues & work as your business operates and the eventual sale and transfer of your business assets or interest.

Contact The McGuire Law Firm to schedule your free consultation with a Denver Business Attorney.