Formation Of Corporations Flashcards
Incorporators
Do paperwork with state
Promoters
Sell the corporate stock, give buyers information pertaining to the corporate stock
C-Corporation
Defined/creation
Taxes
People
- created in a state, certificate of incorporation given by secretary of state
- report federal and sometimes state taxes
- tax year unrestricted
- pays taxes
- has incorporators and promoters
S-Corp
Defined/creation
Taxes
People
- created federally through IRS
- treated regularly under state law
- it’s an election federally
- reports income and activities to shareholders through k-1
- does not pay taxes, but sometimes can pay built-in gain tax and tax on excess net passive investment income
- calendar year, unless otherwise requested or assigned by IRS
- Can elect other fiscal year if:
- There is a business purpose
- Tax year selected results in a deferral of income of not more than 3 months from required year and agrees to make required tax deposits
- Can elect other fiscal year if:
S-Corp
Calculation of tax deposits for fiscal year
Income deferred under elected tax year
X. Highest individual tax rate + 1%
Above total minus PY deposited =
current deposit due
General Partnership
Defined/creation Taxes People Tax years Majority Principal Partners Least Aggregate Other
- generally adopts tax year under majority partner rule
- must use tax year used by partner(s) that hold more than or equal to 50%.
- if majority rule doesn’t apply, then same tax year as principal partners (all principal partners must have same tax year)
- if neither, then use least aggregate deferral of income rule, where the different tax year if the principals are tested to see which of those results in the least aggregate deferral of income, overall
- other if:
- Business propose
- Tax year selected results in a deferral of income is not more than 3 months from required tax year and Partnership agree s to make a tax deposits (section 444 election)
Limited Partnership
Defined/creation
Taxes
People
- has at least 1 general and 1 limited partner
- state authorized
- some states require registration with them to sell interest to limited partners
Personal Service Corps (PSC)
Defined/creation
Taxes
People
-shareholders-employees provide personal services like health care, accounting, law, consulting, actuarial science, engineering, architecture, or performing arts.
-required to use calendar year
-can elect fiscal year if
*Business propose
*The following occurs:
~fiscal year results in no more than three months of deferred income
~pays shareholder-employee during the fiscal months after calendar year, and
~this salary is proportionate to prior fiscal year
**If salary tests above aren’t meet, can still be fiscal, but salary deduction could be limited
Limited Liability Partnership (LLP)
Defined/creation
Taxes
People
- General Partnership
- ptnrs may be protected from tort law of other ptnrs
- often used for legal accounting and other professional Partnerships
- no state uniformity
Sole Proprietorship
Defined/creation
Taxes
People
- not separately identified from owner
- can only be 1 owner, husband/wife can be considered one owner
- can be a DBA
- tax year if the SP restricted to tax year of owner
Corporation
Formation
Governance
- File articles of incorporation with secretary of state, putting this parties on notice that it exists with attendant limitation on liabilities
- AOC can be generic or specific
- governed by bylaws that don’t have to be approved by secretary of state
General Partnership
Formation
Governance
- formed by simple oral agreement
- should have a binding, written partners agreement for their protection, but not required
- 2 or more persons carrying a venture for profit can create a Partnership, without a written document
General Partnership
New 2018 audit laws
- makes Partnership, not partners, liable for tax deficiency.
- partnerships with less than 100 partners can elect out of this.
Limited Partnerships
Formation
- register with state, with same limitation on liabilities as corporations
- Partnership agreement must be filled with state, must contain provisions in IRS Reg Sec 1.704-1(b)(2)
- limited partners are often given preference in distributions and tax allocations
- special allocations to limited partners must have a business purpose and substantial economic effect
- 2018 new audit rules apply, unless elect out; tax deficiencies become Partnership liability, instead of partner liability
