Archive for the 'Operations' Category

What Corporate Actions Need Board Approval?

It is not complicated to know when the board of directors must lead. Action is required in situations similar to those in one’s personal life when making important decisions. For the S-corporation the answer is simple:

“All significant corporation transactions should be considered and approved by the board prior to acting. In particular, obligations, contracts or agreements that will last longer than one year and a day are done at the board level.”

As a minimal guide, the board should officially approve each of the following:

• Amendment of the bylaws;
• Issuance of shares to new or existing shareholders;
• Election of officers;
• Approval of transactions or activities involving conflicts of interest;
• Employment agreements for any corporate director, officer or shareholder;
• Borrowing by the corporation or loans from the corporation to others;
• Leases involving the corporation;
• Distribution of money/assets to the shareholders;
• Approval of any major purchase or sale or other significant corporate transaction, such as real estate purchases;
• Approval of employee benefit plans;
• Approval of hiring professionals such as accountants, lawyers, registered agents, consultants, etc.
• Selection of banks and opening of accounts; and
• Annual reports and other financial statements.

Naturally an exhaustive list cannot post here because the nature of corporate business implicates what the duties of the board might be. These above cover the bases for the majority of small companies.

The most insightful move any young S-corporation can make is to get an experienced corporate secretary. Such a professional can act as guide for first couple years of business operation. This is exactly where JACS can be an invaluable asset to young, start-up and medium-sized s-corporations. Corporate secretaries are perhaps the most important individual in the whole corporate structure; don’t leave home without one.

The Chart of Accounts

Dealing frequently with small and start-up companies, many basic questions are repeated. That is the way with “What is a chart of accounts?”

The chart of accounts is a structured set of general ledger accounts that simplifies recording business transactions and facilitates channeling those transactions into appropriate income and deduction categories. Translated for lay persons (non-accountants), it is the possible pigeon-holes in to which every business expense may/should/must be plugged in order to get the proper credit at tax time. Income has fewer options with less confusion; all income must be reported. Since income and expenses happen all year round, this “chart” is always relevant.

What does the chart of accounts look like? Here is a sample one. Keep in mind that one may not use all the categories and other categories may need to added based on the business.

Advertising/marketing Auto and Truck Expense Bad debt Bank Charges Business Gifts Charitable contributions Commissions Continuing & Professional Education Credit & Collection Costs Discounts Dues & Subscriptions Income Income, other Independent Contractors Insurance Insurance – Disability Insurance – Life Insurance – Medical Insurance – Shareholder Disability Insurance – Shareholder Life Insurance – Shareholder Medical Interest Expense Interest Income Janitorial & Cleaning

Legal, Accounting & Professional fees Licenses & Permits Meals & Ent – Company Party Meals & Entertainment Office Expenses Parking Fees & Tolls Payroll – Officers/Shareholders Payroll – Other Employees Postage & Delivery Printing & Copying Rent Expense – Office/Equipment Repairs & Maintenance Retirement Plan Contributions Security Taxes – Other Taxes – Payroll Taxes – Property Taxes – State Income/Franchise Telephone/Internet Tools Travel Uniforms/Laundry Utilities Worker Compensation

The reason for separating the expenses into the above classes is that different types of expenses may well get different treatment at tax time. Separating them as entered into your books makes that task easier… and tax time much less stressful.

JACS is not an accounting service, but companies struggle with poor bookkeeping methods all the time (a major reason for failure). If your company has poor bookkeeping habits and is without a corrective plan, JACS can help. Do not wait “until after the first of the year”!!!