If someone appears to be repeatedly personal, lean towards patience as they might not mean offense. If you are sure, however, then do not deepen the problem by being negative; instead, simply place them on ignore by clicking the unhappy yellow face to the right of their name.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 2
5 middle age employees are inheriting a small company, whose original owner passed away about 10 months ago.
The company is presently an S corp. They have the choice now about making it a C corporation, or have it remain as is.
They have a lawyer and an accountant, whom I assume are quite competent. And they are getting assistance and advice from the Service Corps of Retired Executives (SCORE).
I was asked a question or two about the advantages and disadvantages of each, and I replied that the decision was way out of my league.
But I said I would post something here, since there are some very sharp people here that work in this sort of thing. I imagine there are a lot of variables to consider for this sort of thing. But if anyone would like to offer an opinion, or advice, or what to watch out for, your comments would be greatly appreciated.
I'll be hanging out in Ashevill, NC area for a little while longer, then up to Queens..and who knows from there. I'm always happy to buy someone a drink.
No. of Recommendations: 1
I was asked a question or two about the advantages and disadvantages of each....
One thing to consider is long-range and a consideration should one or more of the partners want to change his mind later. When my wife and I were setting up LLCs for our ventures (one in New Mexico and one in Texas--the laws regarding LLCs are State-specific), one factor that was emphasized to us is that it's easier to convert an LLC to a C-Corp than it is to convert a C-Corp to an LLC.
Eric Hines
No. of Recommendations: 7
Without an awful lot more information, it's hard to even guess which choice might be better. Books have been written going deep into the subject. So it's hard to even summarize things into a single discussion board post.
One of the primary differences is that C corps are theoretically subject to double taxation, while an S Corp is not.
A C corp pays tax on its income, which can then be distributed to shareholders as dividends. The shareholders pay tax again on the dividends. An S corp avoids that double taxation. But it does so by making the shareholders pay tax on their portion of the corporation's income whether the income is distributed to the shareholder or not.
One wrinkle is that C corps often pay out the bulk of their profit to the shareholders as salary. This is only possible if the shareholders are actively involved in the business. In practice, most are - at least in smaller businesses. That negates much of the double taxation.
The usual game with S corps is avoidance of social security and/or medicare taxes on payroll. Pay a smaller salary (can't pay zero unless the shareholder is not involved in the day to day business at all) and let the income flow through as a shareholder rather than an employee. That income is not normally subject to social security or medicare taxes.
With a single shareholder, an S corp is easy to administer. The shareholder can decide how much of the corporate income to distribute and how much to retain in the corporation for future growth. Adding even a second shareholder makes things harder. The two shareholders now have to agree to some extent. Decisions will get made by majority vote - majority of the shares voted, not majority of the shareholders. Two or three people going into business together with a shared vision can usually come to agreement on such things. Multiple people dumped into a business via inheritance might not have that shared vision.
Frankly, one of the first decisions to make after an inheritance like this is whether to keep the business or to sell it. And there's good arguments for selling. Because the business was inherited, the basis of the shares gets adjusted to the current market value of the shares - which is going to be the value of the business (give or take a bit for majority or minority interests in the business). So the business could be sold with little or no income tax to pay.
That might be something to consider if the inheritors have not been involved with the business previously. Many 'family' businesses have been run into the ground after the founder passes away because the children don't know how to run the business.
--Peter
No. of Recommendations: 1
I sent you information to your trees* email account on 12/26 that I use to guide my SCORE.org clients when making decisions re: entity types for their business. I trust you got it. I didn't get any response from you.
'38Packard
