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Raleigh Estate Planning and Corporate Law Attorneys

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    • Lesley W. Bennett
    • Frances M. Clement
    • Scott H. Dunnagan
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    • Michael A. Ostrander
    • Daniel C. Pope, Jr.
    • Kristine L. Prati
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    • Toler W. Ratledge
    • Paul F. Toland
    • Thomas J. Wilson
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Business Law

How Small Businesses Can Recover Financially From The COVID-19 Pandemic

May 20, 2020 By wrlaw

Small business owners throughout North Carolina are facing critical decisions, from evaluating the pros and cons of laying off staff, to shaving overhead costs, to finding creative and affordable marketing solutions to generate new leads. Those who’ve seen a substantial downtick in business, or who’ve lost one or more revenue streams entirely, may find themselves in need of emergency financial support simply to keep the lights on. 

Fortunately, there is (arguably) no better time for business owners and founders in need of help. The U.S. Small Business Administration (SBA) recently granted a request made by Governor Roy Cooper for federal relief for business owners facing coronavirus-related economic hardship. Specifically, the approval allows qualifying small businesses to apply for low-interest disaster relief loans and grants. The federal government is also offering, through the IRS and other agencies, a variety of options for small businesses at risk of financial collapse. 

Here, we will survey a handful of those options and share how your business can benefit from them. 

Automatic Relief On 504 Loans

If your business holds commercial properties and received financing through the SBA’s 504 loan program, you may be eligible for relief. Starting in April, the government is automatically making mortgage payments on behalf of qualifying businesses for the portion of mortgages held by the SBA. This initiative is part of the recently-passed Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Economic Injury Disaster Loans (EIDL) 

The federal government is offering low-interest EIDLs directly through the SBA. These loans are intended to help qualifying businesses replace working capital income. They carry an interest rate of 3.75 with up to a 30-year term and an automatic one-year deferment. Additionally, there is no personal guarantee on amounts up to $200,000. 

Some businesses are also eligible to apply for a grant in an amount of up to $10,000. The grants can help replace lost revenue and do not need to be repaid, even if a loan application is denied.

Payroll Protection Program (PPP) Loans

An existing SBA loan program is adding another $349 billion in forgivable small business loans to help businesses maintain payroll. To qualify, applicants must certify that the pandemic-related economic upheaval necessitates a loan to support the business’ ongoing operations. If you qualify, you can receive a loan up to 2.5 times your company’s average monthly payroll. This includes amounts paid as wages and benefits to employees, including small business owners and those with an annual salary of up to $100,000. 

Loans are forgiven if they are used on qualifying expenses like payroll in the eight weeks after the funds are disbursed. However, the amount of the loan that is forgiven may be reduced if the business doesn’t return payroll to pre-pandemic levels by June 30 or if more than 25 percent of the loan is used for non-payroll expenses like rent or utility payments.

Tax Credits For Payroll

If you do not receive – or don’t qualify for – a PPP loan, you may be eligible for other forms of tax relief. New legislation is allowing a refundable employee tax retention credit worth up to $5,000 per employee. To qualify, your business must either be ordered to partially or fully shut down or have experienced a 50 percent decline in quarterly revenue year over year from 2019.

If your company has fewer than 100 employees, the government will pay half of the wages for your employees who are continuing to perform productive work. You can also seek tax deferment, meaning that half your payroll taxes can be delayed until the end of 2021, with the other half due at the end of 2022.

Tax Assistance From A CPA

The CARES Act includes various other forms of tax relief, like the elimination of penalties for withdrawing from 401k funds. As such, speak with your CPA to ensure you are maximizing the relief available to you and to ensure you receive it at the earliest opportunity. To help your CPA and to expedite the process, keep thorough, organized financial records for your company. Be sure to maintain copies for yourself, your CPA, and your corporate attorney.

Increased Vigilance Against Scams And Phishing Attacks 

The fallout from the coronavirus goes beyond economic injury: hackers and scammers are capitalizing on the increasing vulnerability of businesses. Cyberthreats like phishing scams are skyrocketing as companies move to remote workplaces, and tech vendors who support the virtual marketplace are finding themselves less able to respond as they try to manage an unprecedented demand for their services. 

Small businesses should take all steps necessary to avoid these attacks. When you receive communications from an entity or individual purporting to be a government actor, proceed cautiously: generally, the government will not charge a processing fee to originate a loan or disburse grant money, so an organization or individual seeking a fee is likely not legitimate. With phishing scams on the rise, never release any personal information for yourself or your business without first vetting and verifying the source. 

Additionally, do what you can to secure your sensitive business information, from your bank accounts to your login credentials to your CRM system or other customer databases. If you have questions about how to best accomplish this, contact your attorney or an IT professional for assistance. 

Professional Financial and Tax-Related Help for Your Business

At Wilson Ratledge, our corporate law professionals include tax and business attorneys with more than 60 years of combined experience helping business owners thrive. We understand that each situation demands particularized attention and as such, we can help your business navigate pandemic-related economic distress. From evaluating your options to navigating negotiations with creditors and financial institutions throughout the loan application process, we are here to help you do what you can to recover.

For assistance managing your corporate financial affairs, call us at 919-787-7711 or reach out to our team via our contact form below. We look forward to helping you overcome your financial challenges and to keep your business running. 

Vital Steps To Take Before Investing In A Business

May 5, 2020 By wrlaw

While no reasonable investor would fund a business on the brink of financial ruin, sometimes, that’s exactly where investors find themselves. This happens when debtors lie about their financial health to secure a loan.

What surprises many clients is that investors often find themselves with no recourse against duplicitous debtors if they fail to take a critical step as part of their due diligence. For various reasons, the most well-intentioned creditors seeking investment opportunities find themselves empty-handed when their debtors file for relief from the debts in bankruptcy court. Unless a bankruptcy judge declares a debt nondischargable, creditors can be completely out of luck.

Fortunately, though, all hope is not lost. The U.S. Bankruptcy Code protects creditors, too, including provisions that allow certain claims to be declared nondischargeable. This means that bankrupt debtors may still be legally on the hook to repay debts, even if the rest of their debts are discharged (released) through the bankruptcy process.

While there is a booming industry of lenders who knowingly take (calculated!) risks in lending funds to debtors without fully knowing their financial situations, this article is directed to the unwitting lender who did not fully understand the risk involved in a transaction. Lenders can – and should – take certain vital steps to ensure they understand a debtor’s financial health before entering a transaction.

Non-Dischargeable Debt: The Bankruptcy Code’s Lender Protection Provision

The U.S. Bankruptcy Code protects creditors by barring debtors from discharging certain debts if they obtained such debt by false representations or fraud, including a failure to disclose their financial hardships or challenges.

In a bankruptcy case, debtors can seek relief from various debts, many of which will be discharged unless a creditor files an objection. These actions will take the form of an “adversarial proceeding” under the Bankruptcy Code and will lead to an entirely separate legal action.

11 USC 523(a)(2) is a mainstay of the bankruptcy system. In short, it protects creditors from losing money to a debtor who may have misrepresented – or failed to disclose the full extent of – his financial situation.

Let’s take a closer look at the Bankruptcy Code’s language: 

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . .

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;

(B) use of a statement in writing—

(i) that is materially false;

(ii) respecting the debtor’s or an insider’s financial condition;

(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive[.]

Stated differently, this section of the Bankruptcy Code allows creditors to seek a court declaration that their debts were obtained by false pretenses, a false representation, or actual fraud, and are therefore nondischargeable.

Although the Code doesn’t define the terms false pretenses, false representation, or actual fraud, a bankruptcy court will apply rules and guidelines established in prior cases with similar fact patterns. 

Most importantly, however, the Code only allows false representations about the debtor’s financial condition to serve as the basis of a dischargeability objection if those misrepresentations were made in writing.

The law affords a basic protection: If a debtor lied about (or concealed the full extent of) his financial situation, in writing, before you loaned it money, the debtor may be prohibited from receiving the benefit of having the debt discharged through the bankruptcy system. This means that as a creditor, you may be able to ask a judge to declare your debt nondischargeable.

What Should You Do to Protect Yourself Before Lending Funds to a Business?

Simply put, you, as the lender and potential creditor, must insist that everything related to the financials of your debtor is put in writing before lending anything to keep open the possibility that your claim would be considered non-dischargeable. Ultimately, it will be your burden to prove that the debtor’s statements were materially false and that you relied on those statements to make the loan. If you do not have these representations in writing, unfortunately, you are out of luck.

If you’re a creditor, it’s your burden to prove that the debtor was intentionally deceitful, misleading, or fraudulent in his dealings.  You must also prove that you relied on the debtor’s misrepresentations in deciding to lend him funds.

To ensure your claim remains nondischargeable and to keep your debtor on the hook, develop a practice of collecting financial statements from your debtors before lending any funds. If you lend money to either an individual or business, secure a written statement about the debtor’s financial situation.

The best way to do this is by requesting the following information from the debtor: 

  • written profit and loss statements
  • balance sheets
  • cash flow statements
  • bank records for multiple pertinent time frames

Also, demand that the debtor make written representations that the financial documents provided are true and accurate and that the financial documents disclose all his liabilities. If it turns out that the debtor falsified those statements in any way, you will then have a leg to stand on should you object to the discharge of your debts in bankruptcy court.

These critical steps can be useful in other ways: They will force the debtor to be open and transparent. Securing accurate financial statements will help you assess the debtor’s financial health, potentially saving you from making a bad business decision (that is, lending money to a debtor on the cusp of financial ruin).

Contact Our Experienced Business Law Attorneys.

If you find yourself in need of advice and representation regarding a dischargeability dispute or any number of bankruptcy issues, our attorneys are experienced in representing both debtors and lenders and are here to help.

At Wilson Ratledge, we assist businesses in taking steps to keep them financially secure, while protecting them from legal pitfalls. For assistance growing your business or navigating a deal, contact one of our experienced North Carolina business attorneys today at 919-787-7711 or via our contact form below.

Entity Types When Starting A Business: Corporations, Partnerships, And More!

November 17, 2019 By wrlaw

A very important consideration for someone who is starting a business is the choice of entity. Wilson Ratledge has experienced attorneys that will help counsel you with regard to which entity is the right choice for your business.

Corporations (C corps and S Corps), partnerships (general and limited), LLCs, and sole proprietorships differ significantly in many areas, including formation, ownership, taxation, governance, asset preservation, and liability protection. Below is a brief discussion of each type, but by and large, the most common choices are S Corps and LLCs.

Sole Proprietorships

Sole Proprietorships arise without any formality when one person begins to conduct business. This simplicity comes at a great cost: the sole proprietor is personally liable for the debts of the business and his or her personal assets are exposed to creditors when the business is insolvent.

Comprehensive insurance coverage for the business and the individual are very important, but not a reliable asset preservation plan for the sole proprietor. The business’s tax items are reported on the Schedule C of the sole proprietor’s individual income tax return.

General Partnerships

General Partnerships also arise without any formality when two or more persons (or entities) conduct business jointly. Again, the simplicity comes at the cost of the general partners being personally liable to business’s creditors just like the sole proprietor and regardless of whether that partner actually participated in the act(s) or omission(s) giving rise to the liability. Again, comprehensive insurance coverage is very important, but not a reliable asset protection plan.

Also, the partners are free to allocate risk, management duties and many other aspects of the business between them via a partnership agreement; therefore, one is strongly advisable in nearly every instance.

Partnerships (and S Corps for that matter) are “flow through” entities for tax purposes, meaning that taxable income and other tax items of the entity are passed through to the owners and taxed only at the owner (partner, member or shareholder) level. Partnerships are taxed under Subchapter K of the Internal Revenue Code.

Limited Partnerships

Limited Partnerships are formed by filing a Certificate of Limited Partnership with the Secretary of State. Limited Partnerships consist of limited partners and at least one general partner.

Liability is limited for the limited partner(s), but not for the general partner(s); however, limited partners can become personally liability if they actively participate in management of the business. The tax treatment, and the need for a partnership agreement and liability mitigation for the general partner(s), are the same as for general partnerships.

Limited Liability Partnerships

Limited Liability Partnerships (“LLPs”) are formed by filing an Application for Registration with the Secretary of State. LLPs can provide limited tort liability for all partners, allowing partners to actively participate in management without completely losing limited liability.

Professionals should keep in mind that state regulations may prevent any limited liability for malpractice. In most states, an LLP will shield partners against liability for the malpractice of other partners, however, this is not the case in every state.

The tax treatment for LLPs is the same as for general partnerships, and the need for comprehensive insurance coverage, particularly professional malpractice or errors and omissions, cannot be overstated.

Limited Liability Companies (LLCs)

An LLC is formed by filing Articles of Organization with the Secretary of State and may have one or an unlimited number of members (subject to certain securities restrictions). Unlike corporations, they are not bound by corporate formalities such as holding regular ownership and management meetings.

However, in contrast to corporations, they do not operate under a well-defined regime of uniformity and legal precedent. An operating agreement is entered into by members of the LLC. LLCs offer limited liability to all members, and do not require the formalities of corporations. They also offer considerable flexibility with respect to control and management. Different LLCs will be taxed differently according to certain criteria:

Single-member LLCs: If the LLC has only one owner (owners of LLCs are referred to as “members”), it will be treated by default as a sole proprietorship for tax purposes. The “single member LLC” can choose (or “elect”) to be treated as a corporation (by default a C corp, discussed above), and further elect to be treated as an S corp (discussed below), for tax purposes.

Multi-Member LLCs: If the LLC has more than one member, the LLC will be treated by default as a partnership for tax purposes. The multi-member LLC, like the single-member LLC, can elect to be taxed as a C corp or S corp.
C CORPS

Corporations, whether C corporations or S corporations, are formed by filing articles of incorporation with the secretary of state. The owners are called shareholders, and are issued shares of stock. The shareholders elect a board of directors, which in turn elects officers to carry out the day to day business of the corporation. When only a single owner or small number of owners create a corporation, the same individual or individuals can serve as shareholders, directors, and officers. Various formalities must be attended to in order to properly create and maintain the corporation.

Both C corporations and S corporations provide limited liability to shareholders. Shareholders agreements can be used to govern transfers of ownership and deadlocks. C corps have well-defined structural accountability, with governance responsibilities held separate and apart from the owners. Management is accountable to the board of directors and therefore has the ability to transact business without stockholder participation in each decision.

However, corporations are required to pay attention to formalities that legislatures and courts have determined to be significant (e.g., meetings of boards of directors and maintenance of corporate bylaws,corporate minute books, stock ledger books, separate bank accounts, etc.). A C corp will report and pay tax on its income at the entity level. When the corporation goes on to pay dividends to its shareholders, the shareholders will report those dividends as income, and pay income tax on those dividends.

This is the infamous “double tax” that many wish to avoid by forming an S Corp or LLC. You should, however, consider your individual case before deciding to avoid the double-tax on principal alone. The C Corp structure can be advantageous where a company intends to retain its earnings and grow its business rather than pay dividends, because the C corp flat rate structure may result in a lower rate of tax than if the income were to “pass through” to its shareholders as it does in other tax structures.

Also, if the corporation will initially generate tax losses, again, you should seek appropriate advice to determine if those losses are going to be more advantageous being retained with the corporation to offset future income, or if individual owners will be able to benefit more from the losses in a pass through entity. C corporations may offer several tax advantages, however, with respect to deductibility of retirement contributions, group insurance premiums, and other benefits.

S Corporations (S Corps)

As mentioned above, S Corps are “flow through” entities, like partnerships. Unlike partnerships, however, S corps must allocate tax items (mainly profits and losses) to the shareholders in direct proportion to their ownership percentages.

An advantage over the partnership for tax purposes is that shareholders who also work for the corporation can receive compensation (which must meet or exceed a level considered “reasonable’ for the services rendered) through a salary, whereas a partner in a partnership cannot.

This allows a shareholder to benefit from the business’s additional profits via a distribution that is not subject to self-employment taxes. In contrast, all of a partner’s income from the partnership is subject to self-employment taxes. Taxable losses at the entity level may be used to offset other taxable income of the shareholders, but only to the extent of the shareholders’ tax basis in their shares. As noted above, a shareholder will receive basis for loans to the entity only if the loan is made to the shareholder and shareholder in turn loans the funds to the entity.

A shareholder does not receive basis for loans to the entity guaranteed by the shareholder. S corporations are subject to several restrictions including on the number of shareholders, other corporations cannot serve as shareholders, foreign citizens cannot be shareholders, and only one class of stock may be issued. If these restrictions do not interfere with business plans, an S corporation is often a good starting point for a start-up business.

Unlike C Corps and LLCs, S corps are limited in the number of shareholders they may have, and who can be a shareholder. Generally speaking, shareholders must be non-foreign individuals (US citizens or residents), or a qualified trust, estates, or exempt organization. Ownership transferability is flexible and similar to that of C corps.

Which Should You Choose?

Wilson Ratledge assists clients in making one of the most important decisions upon formation of their business – the choice of entity. There are many considerations to evaluate before making this choice, such as self-employment tax costs, benefits, liability, and creditor protection are also among the chief concerns in determining choice of entity.

Contact one of our experienced North Carolina startup attorneys today at 919-787-7711 or via our contact form below.

Why You Need A Business Succession Plan

January 25, 2019 By wrlaw

If you’re a small business owner, you may have had a conversation with a loved one about business succession planning. Your loved one asks you if you’ve thought about your plan for the business and business succession. You make a joke that you don’t plan on going anywhere any time soon. If you’re one of the many small business owners who has had this conversation, you’re not alone. 

There are lots of reasons that small business and family-owned business owners don’t like to talk about business succession planning. Maybe you think it’s too far off in the future. Maybe you’ve put your life’s work into your business and talking about succession is just too painful. There are lots of great reasons that you should have a business succession plan. Here are our top eight: 

1. Unexpected life events can happen at any age

Major life events can happen to you or a loved one at any age. No matter how much you plan for the future, you just never know what might happen tomorrow.

Creating a business succession plan can protect you if you or a loved one has a life event that leaves you unable to tend to your business. Succession planning before you need it puts you in the driver’s seat. You don’t have to worry about an event that leaves you unable to control your business’ destiny. Instead, you’re prepared for any possibility. 

2. Your business can continue smooth operation

When you have a business succession plan, you’re able to ensure that your business doesn’t have any hiccups during the transition. As part of your planning, you gather financial records, valuation data, inventory and even client lists. Even information for day-to-day operations can be critical to gather in order to keep your business running smoothly in the future.

For example, passwords, bank account information and even IT information can all be critical to prevent business disruptions in the future. Succession planning helps you think of all of these details as part of the planning process. 

3. Business succession planning ensures a fair transition on your terms

You can get a better deal as you exit your business if you have time to plan. With business succession planning, you can use buy-sell agreements to establish prices, purchase terms, the value of each share and even who can purchase an ownership interest in the business. It can take time to find a buyer willing to pay. Planning ahead gives you time to consider how much retirement income you need and what your goals are in retirement. 

4. You ensure the right people inherit your business

Your business is personal. It may be your life’s work. Pre-planning for business succession gives you time to step back and think about who you want to inherit your business. 

If you expect family members to take over, it’s important to start having those conversations now. You should speak with family members in depth about their commitment and their goals for the business. Your loved ones may have different interests and priorities. They may need the training to run the business successfully.

The sooner you have these tough conversations, the more time you have to ensure that the right person takes over and continues to make your business thrive. 

5. There’s time to make a deal

A successful business deal takes time to negotiate. Even if an option looks great, when you start to iron out the details, the deal can fall through. It may take several tries to get the right deal in place.

Business succession planning gives you time to try again if the first plan doesn’t work out. It gives you time to explore contingencies and make sure that you’re getting a fair deal and fair terms for your business. 

6. Due diligence can help you get a better deal

When you start to look at the details of your business, there may be things that potential buyers don’t find flattering. There might be changes to make, issues to address and things to put in order in order to make your business more attractive to potential buyers.

Starting your business succession plan now gives you time to make adjustments to ensure that you get every dollar that you need and deserve when it’s time for retirement. 

7. Planning can minimize tax burdens

Planning for business succession now can help you avoid surprising and burdensome taxes on down the road. A professional business and estate planning attorney can help you look at business succession planning as part of an overall estate planning strategy.

There are things that you can do now that can reduce your tax burden later on, as well as things that you can do that make the transition logistically easier when it’s time to transfer ownership of the business.

Thoughtful planning can make things so much easier on down the road. Qualified legal advice can help ensure that you look at all the important considerations in your planning. 

8. You have peace of mind that you’re leaving a legacy

Your business is your life’s work. You want to leave it in the right hands and look back on it with pride. Business succession planning at any stage gives you the peace of mind to know that your business is in good hands. In addition, succession planning helps the ones that depend on you also have the confidence to know that their future is in good hands. 

Business succession planning

Business succession planning doesn’t mean announcing a retirement date. Instead, it means taking steps to protect you and your loved ones as well as establishing an exit strategy that’s on your terms and for a fair price when the day comes.

Taking steps for business succession planning now can keep you in control and protect your family. Our experienced team can make business succession planning a key part of your overall retirement and estate planning strategy.

Preparing To Sell Your Business In 2019

December 14, 2018 By wrlaw

selling your business

A new year often brings change. If you’re a business owner, 2019 might mean selling your business. If you want to sell your business in 2019, there are things that you should do in order to protect your interests and go about it in the best possible way. Doing the right things can help you get top dollar for your business and make the sale as smooth as possible. Here are 10 things that you should know about preparing to sell your business in 2019:

1. Prepare the paperwork for your business sale

Smart buyers want to see the paperwork for your business. They rely on the paperwork when they first make the decision to explore buying the business. They also rely on your documents when they make the final decision to close the sale.

One of the first things that you should do when you decide to sell your business in 2019 is put your business paperwork in order. The sooner you get started, the more time you have to address any questions that might arise. Having your paperwork prepared and orderly is the first step to finding enthusiastic buyers and getting a great sale price.

This generally includes several years of statements for all your bank accounts, credit cards, copies of customer contracts, and more.

2. Learn how to value your business for the sale

To get a fair price, you need to know what your business is worth. Different types of businesses use different valuation methods. You need to learn about the various business valuation methods like profit, assets and cashflow. The more that you know about how to value your business, the better you can justify your asking price.

Also, research the different types of business sale (asset vs stock), know the differences and how they affect your valuation.

3. Perfect your sales pitch

You need to be prepared to market your business. It’s important to think through how you’re going to communicate to potential buyers that your business is a great investment. Even if your business is sound and a great opportunity, you still need to convince buyers that they should jump in with both feet. Use the start of 2019 to think through how you’re going to market your business to potential buyers and convince them to buy your company.

4. Pick your team

At least some of your employees are going to know about the possible sale of the business. You’re going to rely on them to help you prepare documents at the least. Think through who you want to know about the sale of the business and why.

Think through who’s best suited to help you work on selling the business. Remember that your employees may have strong opinions about you selling the business, and they may have lots of reasons to want a particular outcome. Decide who’s best to help you prepare documents and work towards your goals.

5. Prepare employees for your business sale

There are some important considerations for employees when you sell your business. The buyer may want them to have non-compete and non-disclosure agreements so that they can’t jump ship as soon as you sell. Your attorney can help you prepare the agreements that you need to make sure that your team can continue to help your business now and into the future.

6. Think through answers to tough questions

Your potential buyers are going to ask you difficult questions. Now is your chance to think through your answers. Preparing to sell your business in 2019 means thinking through how you’ll address unflattering points and weaknesses in your business.

7. Be prepared to open up about lawsuits

One of the things your potential buyers want to know about is outstanding litigation. They want to know if you’re suing anyone and if you’re being sued. A lawsuit isn’t necessarily a bad thing, but you’re going to need to explain what’s going on and what your position is in each matter.

8. Gather specifics about top clients and vendors

If your business depends on one client or a few top clients, you can expect extra scrutiny from potential buyers about the business relationship. They want to know that your relationship with your top client is solid. They want to know that your top client is still going to be there after you sell the business.

Be prepared to open up about the nature of your relationship with your top clients. Potential buyers are going to ask a lot of questions about the business you do with major clients and how secure your business relationships are with clients that are make-or-break for your business. Having this information ready to go for potential buyers can show that you’re knowledgeable about your client base and confident in your business relationships.

9. Be patient and wait for the right opportunity

The right buyer likely won’t come along in the first week of the new year. To do it right, it might take the entire all of 2019 to sell your business. Remember that selling your business is a marathon. Gathering the financials, finding the right buyer and preparing the perfect pitch all take time. If you’re in too much of a hurry to sell, you’re not going to get the sale price and terms that you deserve. While you wait, you can get your paperwork and other affairs in order.

Usually, the best time to sell your business is during the busy season. You should sell your business while you’re at a high point. Selling at a low point can mean not getting a fair price for your business. Be ready to wait for the right time to sell so that you’re in a good position to negotiate the right price.

10. Seek expert advice for your business sale

As you prepare to sell your business in 2019, expert advice from an experienced mergers & acquisitions attorney can be crucial to help you arrive at the right agreement. Wilson Ratledge can help you understand what you need to do in order to structure your paperwork in order to make a great showing. In addition, there are important legal agreements that should go into place even as you begin to negotiate the sale.

We can help you identify areas that you can work on in order to make your sale go smoothly, and can help you think through how you’re going to respond to points that might be unflattering. When it’s time to prepare preliminary documents, final documents or employee agreements, we’re ready to provide you with the expert advice that you deserve.

Selling your business in 2019

Selling your business can make 2019 an exciting year. Making sure that you’re prepared can help you command top dollar for the sale. It can help you avoid road bumps that may make the sale difficult. Ultimately, the right preparation can make your business sale the highlight of 2019.

What Is A S Corporation And How Can It Help My Business?

November 16, 2018 By wrlaw

business entity choice

If you’re a business owner or you’re thinking of starting a business, the type of business entity that you choose has a big impact on what you do. Choosing a legal entity for your business can impact everything from who can own the business to how you pay taxes. The success of your business can ride on choosing the right structure. Make the right choice, and you can maximize your profits and grow your company.

Whether your business is large or small, the type of structure you choose matters. There’s no right answer based on size, either. Even small businesses have a number of structure options that might be right for them based on the circumstances.

One of the types of business entities that you might choose is an S corporation. An S corporation is a type of corporation that has some special tax considerations that may be beneficial in some circumstances. But what is an S corporation?

What is a S corporation?

An S corporation is a type of business entity. An S corporation is a unique business structure that operates a lot like other corporations only with some special tax advantages. The most distinguishing trait of an S corporation is that profits pass directly to owners before taxes. Owners might choose to have an S corporation in order to enjoy the corporate structure of a traditional corporation along with the tax benefits that come with S-corporation status.

S corporations have been law since 1958. They’re legally considered a corporation with federal income tax that’s a lot like a partnership. There’s only one class of stock in a S corporation. All outstanding shares of stock have equal ownership interests and rights, and shares of stock may be voting or non-voting shares. Profits and losses are distributed in proportion to shares.

Is a S corporation a corporation?

Yes, an S corporation is a corporation. It’s just a special subtype of a corporation that gets some special considerations. An S corporation comes with all of the corporate structure that you expect from a corporation like articles of incorporation. Not all corporations are S corporations, but all S corporations are corporations.

How do I start a S corporation?

To start an S corporation, you must file paperwork with the Corporations Division of the North Carolina Department of the Secretary of State. You must pay the state filing fee and file Form 2553 with the Internal Revenue Service. All corporations need Articles of Incorporation that explain how the company is going to be structured.

What makes a S corporation unique?

An S corporation gives you the benefits of a corporation in terms of corporate structure, but it gives you the benefits of a limited liability partnership or a partnership when it comes to taxes. Unlike other corporations, an S corporation doesn’t have double taxation. That is, the corporation itself doesn’t pay taxes. Instead, the owners of an S corporation pay taxes on the profits the business makes.

An S corporation is beneficial in that owners can take advantage of the things that help corporations succeed while they also maximize profits to owners by avoiding the double taxation that happens with traditional corporations. Shareholders must report income on their individualized tax returns through a Schedule K-1. The income is taxed at each shareholder’s personal tax rate.

You might be thinking that S corporations sound great and that everyone should incorporate as an S corporation in order to save on taxes. It’s not always that easy. In order to incorporate as an S corporation, the business must qualify.

An S corporation is governed by the laws of the state where it’s organized. Generally, an S corporation may have only a limited number of shareholders. The number can be quite high, with as many as 100 shareholders allowed in an S corporation. No non-resident aliens may be shareholders, and other corporations and partnerships are ineligible to be shareholders.

An s corporation may own a subsidiary s corporation. Trust and estates may also own shares of a S corporation. Non-profit organizations organized under IRS code 501(C)(3) qualify to own shares in a S corporation. Spouses are treated as a single shareholder.

What are the benefits of a S corporation?

The primary benefit of an S corporation is that unlike general corporations, business profit isn’t taxed before it’s passed onto shareholders. In that respect, an S corporation is a lot like a partnership. However, S corporations also have the added benefit of a corporate structure.

Corporate structure allows the corporation to continue to operate without much interruption when owners come and go. In addition, articles of incorporation provide structure or how the business operates. A S corporation continues in perpetuity until the corporation’s representatives actively take steps to end it.

Where do laws for S corporations come from?

Laws for S corporations come from both state and federal law. IRS laws determine how an S corporation pays federal income taxes or how they’re exempt from income taxes. Federal law also decides what form you have to file and in what time frame to file in order to have special status. Federal S corporation regulations come from Internal Revenue Code sections 1361-1379. The state the corporation is in also makes the laws for how to file the corporate entity and how to comply with periodic reporting requirements.

A S corporation shareholder must pay themselves a reasonable salary

At first glance, it might seem like the best plan to keep taxes low is to avoid paying salaries to any shareholders who work for the S corporation. North Carolina law requires the corporation to pay the shareholders who work for the company a salary that’s reasonable. States and the IRS may even put extra scrutiny on S corporations in order to ensure that they don’t try to skirt employee taxation laws by avoiding salary payments to working shareholders.

Should I file as a S corporation?

A S corporation may be the right legal entity whether your business is large or small. It’s not the right entity in all situations, but the tax benefits can be lucrative if you qualify to operate as an S corporation. If you’re considering choosing the S corporation status, other business entities that are worth considering may be a general corporation or “C corporation,” a limited liability company and a partnership.

Because the business structure that you choose may ultimately have a big impact on your profits, your business operations and what you must do to operate lawfully, it’s important to weigh your options carefully when you begin a business venture. Wilson Ratledge can help you explore your options and decide which business entity is right for you.

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