Archive for the 'Characteristics' Category

Structuring the S-Corporation

Structuring Process

Structuring. Structuring an S-corporation allows owners to harness the power of the S-corporation to improve their company’s value. With increased value, there is an associated growth in general wealth. To put it another way, the rich understand and use corporate structure to leverage their financial health. The not so rich should too.

Structure is frequently confused with business organization. Both are essential. Structuring is not, the officers report to the directors, the directors report to the shareholders, the shareholders tell… etc. When entrepreneurs talk about structure they mean more than who answers to whom.

What is structuring? Structuring can take place on many levels:

• one can structure for outcome, i.e., the business goes to the kids (outside of probate) when the owners pass;

• one can structure for liability containment, i.e., all real property shall be held in an LLC;

• one can structure for taxes, i.e., money paid as rent is not subject to payroll taxes to the recipients(s) of that rent;

• one can structure for deductions, i.e., to get the largest, fastest possible deduction for worthless stock.

These are only examples. The list goes on.

A Familiar Example. Choosing an S-corporation is a form of structuring. A C-corporation is a similar entity. When an C-corporation pays out its profits, it is taxed on those profits as are the recipients of the payments. When a similarly situated S-corporation pays out profit to its shareholders, the income is flow through. The S-corporation is not taxed on the profit. Disbursement is not taxable event. The shareholder recipients still have to pay income tax but the income is a single line entry on their annual tax filing (1040). By choosing the S-corporation, the owners structured one taxable event, not two. Depending on the dollars involved, the savings can be large.

What, where and when to structure is not a mindless exercise in following a checklist. Facts matter. Having a goal, a plan to get there and an understanding of the pitfalls to sidestep are fundamental in structuring decisions.

No one person is likely to have all the answers. Management accountants understand structuring from a corporate tax vantage point. Corporate attorneys understand structuring from a liability/fiduciary perspective. An experience corporate secretary is familiar with structuring from a functional level, “Get ‘er done!”.

A competent corporate secretary has no problem referring the board to appropriate outside professionals. The best case scenario is to use each one as the particular situation demands. If structuring has you confused, JACS is available to point you in the right direction. Call us.

The S-Corporation Sparklers

Happy Shareholders

It is not the “Wanna be like Trump” allure that makes the small business owners’ swagger. It is not the TVland persona of “intriguing, sexy and rich” media has painted on the CEO. Yet, the twinkle in the eye of S-corporation owner is unmistakable. When owners see the whole picture, that epiphany garners robust contentment and strong personal satisfaction. That result that is not surprising.

Believe it. There is good reason why successful entrepreneurs are enamored with the S-corporation as a business structure. That feeling is well grounded in the two historical benefits: limited liability for the risks of doing business and pass-through of favorable tax treatment.  (If you are not clear on how those two concepts work, discover that elsewhere on this site.) While both of those characteristics are important, the focus here is on the more immediate, that is, the S-corporation sparklers: “Control” and “The Dream”. Leave the esoteric for another post.

Control. Business people operating from within the S-corporation structure feel more in control. Why not? After all, it is their name on door, they call the shots and they reap the benefits. Their business quite literally rises and falls with their performance. The feeling is more than being your own boss. An S-corporation gives the latitude to enjoy control and directing the business. The feeling is not without substance. The S-corporation is an extension of its owners. The personal identity can be so strong that the corporate can resemble cloning. The S-corporation’s structure is designed, assembled and directed by the owner(s). That is a powerful concept. Frequently it is not fully cultivated. (JACS can help with that.)

The Dream. The other sparkler is the concept of living “the dream”.  Entrepreneurs are part dreamer and very much about “can do, will do and get ‘er done”.  It is no wonder then when their dream materializes. They are exhilarated all the way to the office. Their corporate work is not a job. It is a lifestyle. Success awaits them. How can that not be an exciting existence?

The sparklers are never part of having a job. They are not part of working somebody else’s dream. Today more than ever, the financial well being of families and the nation depends on those thousands and thousands of small business entrepreneurs. The wise ones will also be S-corporation operators. That’s special!

If you are nurturing your business, or feel under-whelmed or overwhelmed, call JACS. Running you S-corporation should flow, not frustrate. Let’s remake it your way.