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Category: llc

Comparison of Subchapter K v. Subchapter S

Posted on July 25, 2022August 1, 2022 by g83js92js91
Depositphotos 7352892 s

Both Subchapter K and S of the Internal Revenue Code (IRC) are pass-through tax structures in which the members of the entity are taxed for the entity’s income, gains, losses, and expenses on their individual tax returns. That is where the similarities end.

There are several differences discussed below that make Subchapter K seem more taxpayer friendly than Subchapter S. Much of the popularity of the LLC is attributable to the fact that LLCs offer limited liability to all investors combined with the more flexible partnership tax regime. In some situations, however, the goals of the business owners may be better achieved with an S corporation.

Subchapter S places very strict restrictions on the ownership and capital structure for S corporations.  S corporations are limited to 100 shareholders (although members of a “family,” broadly defined, are counted as one shareholder), and they may not have more than one class of stock.  Additionally, all shareholders much be individual U.S. citizens or residents and other corporations or partnerships cannot be shareholders of the company.  Anyone can be a member or partner of an entity taxed under Subchapter K.

Partnerships and LLCs taxed under Subchapter K may make special allocations of income and deduction items, while shareholders of an S corporation must include corporate income and loss on a pro rata share basis.  Thus, partners/members may agree to share certain income or deductions disproportionately, and the agreement will be respected for tax purposes if it reflects their economic business deal.  Additionally, in most cases, partnerships and LLCs taxed under Subchapter K, can distribute appreciated property in kind without immediate recognition of taxable gain.

In a business with only a few owners, an S corporation may be the entity of choice because the flexibility of Subchapter K is not needed.  S corporations are often used by owners that prefer to conduct their business as a state law corporation instead of a partnership or limited liability company because they are more comfortable with the corporate governance structure.  S corporations are also often used by service providers to minimize their exposure to employment taxes.  S corporations are not viable options in many situations – a business with foreign investors would not be able to make the S corporation election because foreign investors are not permissible S corporation shareholders.  Additionally, many institutional investors (e.g., tax-exempt pension funds and charitable organizations) are discouraged by the tax system from investing in any type of active business that is operated as a pass-through entity.  Venture capital funds, which provide a large source of capital for start-up companies, appear to be more comfortable using the familiar C corporation capitalized with several classes of stock, a structure not available in an S corporation.

McGrath and Spielberger logo seal

For a complete analysis of the tax implications of C Corporations, Partnerships, and S Corporations click here for the Joint Committee on Taxation’s publication entitled “Choice of Business Entity: Present Law and Data Relating to C Corporations, Partnerships, and S Corporations.”

McGrath and Spielberger, PLLC assists clients with all sorts of tax matters, both federal and state (including but not limited to North Carolina and South Carolina). Click here to contact an attorney about your tax matter.

Posted in business, internal revenue code, IRS, Life and the Law, limited liability company, llc, small business, starting a business, subchapter K, subchapter S, tax, tax attorney, Tax Issues, Tax Law

Letter of Good Standing and Certificate of Existence

Posted on July 24, 2019April 20, 2022 by g83js92js91

This video contains helpful information for those going into business within the state of North Carolina including:

  • Certificate of Existence from the N.C. Secretary of State
  • Letter of Good Standing from the N.C. of Revenue

Business law attorney Jason McGrath discusses Letters of Good Standing and Certificates of Existence for North Carolina businesses in this informational video.

Click here to view on YouTube – https://youtu.be/EFhxSwkVy2E

If you are in need of legal assistance for your business in North Carolina, South Carolina, Tennessee, Georgia, Florida or Ohio, please fill out our confidential client intake form.

Posted in attorney, business, Business Law & Contracts, Certificate of Existence, corporation, Jason A McGrath, Letter of Good Standing, llc, McGrath amp; Spielberger, North Carolina, small business

Where Does an Arbitration Physically Take Place?

Posted on May 27, 2019April 20, 2022 by g83js92js91

Attorney Jason McGrath shares some information about where you can expect an arbitration proceeding to physically take place in this short video and summarized in this blog post.

Understand the practical logistics of an arbitration that may arise from a dispute about your business contract.

Here are some of the key points contained in this informational video:

Where will the arbitration physically take place? What city or county? An attorney’s office? The courthouse? City hall?

  • As far as city or county, arbitration often takes place where a related lawsuit would be (or is) taking place.
  • Some arbitration agreements will dictate what city or county the arbitration must occur in.
  • Arbitration can usually occur anywhere that the parties agree.
  • The arbitration hearing could take place at a private law office or the arbitrator’s office.
  • Arbitration doesn’t usually occur in the courthouse.

Occasionally a court will enter an order as to the logistical specifics of arbitration, such as the hearing location. You should get advice from a contract attorney to assist in handling litigation issues like arbitration.

If you need legal services in North Carolina, South Carolina, Georgia, Florida, Ohio or Tennessee, we invite you to fill out our confidential client form for possible legal assistance.

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Posted in arbitration, business, Business Law & Contracts, Business Law Disputes, Continuing Series, contract law, contracts, Jason A McGrath, lawyer, Litigation, llc, North Carolina, series, video

What Factors Should You Consider When Starting a Business?

Posted on March 7, 2018April 20, 2022 by g83js92js91
Startup Business People Group 251096971When you decide to start a business venture, there are a myriad of things to consider.  You have possibly already chosen the purpose of your venture and what it is you are going to make, do, or sell.  You have probably also played around with what to name your business.  Now what?  Where do you go from here?

We regularly assist small business owners, especially start-up businesses, walking them through the steps that need to be taken in order to make the business official and legal.  There are many ways a business can be organized and there are non-tax factors, tax factors, and state statutory requirements that need to be taken into consideration when embarking on this exciting journey of starting a business.

This article focuses on a few of the non-tax factors that need to be considered.  A follow-up article will discuss the tax factors of organizing your business.  Much of the information in this article relates to the laws in a majority of jurisdictions along with examples of specific instances where North Carolina law is different from the majority of jurisdictions.  The statutory requirements of starting a business are state specific, therefore it is important to seek the assistance of a professional who knows the law in your jurisdiction.  There are also state and local licensing as well as registration requirements that will need to be met depending on the jurisdiction your business will be located in.

In the tables below the entities are listed from the broadest/most flexible to the most restrictive.

limited liability3 pt 1

Limited liability is probably the most sought after attribute of business owners forming a new business venture.  New business owners wish to protect their personal assets from the claims of business creditors.  This can usually be achieved by organizing the venture under a state law that limits the owners’ liability to the amount of capital the owner has invested in the entity.  Be very careful when capitalizing the business and applying for loans.  Some lenders may require that the owner(s) of the business provide a personal guarantee for the business obligations, thereby making the owner liable to those creditors of the business and defeating the purpose of the limitation of liability.

management and control1 pt 2
capital structure pt 3
transferability of interests pt 4
transferability of interests pt 4 1

The business lawyers McGrath & Spielberger, PLLC assists clients with all sorts of tax, business, and estate planning matters in North Carolina.  Click here to contact us about your tax, business, or estate planning matter today.

Posted in business law, corporation, forming business, Life and the Law, limited liability, llc, North Carolina, online legal services, partnership, s corporation, single member llc, start-up business

How Do You “Transfer” Your Company Into North Carolina From Another State?

Posted on November 3, 2016April 25, 2022 by g83js92js91
Transferring Your Company Into North Carolina From Another State, moving

As a business attorney, one of the most frequent questions I am asked is some variation of “How do I transfer my out-of-state company to North Carolina?” I’ll address the most common scenarios and the reasonable options available. I’m using Florida as the other state just for example purposes (I also practice in FL), but the same general process is true regardless of which state your company originated in or currently exists in.

Scenario A: “I live in Florida, where my company was formed, but I’m moving to North Carolina and going forward I will be doing business out of North Carolina instead of Florida. What should I do and how do I do it?”

Option 1: convert your Florida company into a North Carolina company.  NC allows a company formed in another state to convert to become a NC LLC. The company would need to follow the law of the state it is coming from as far as winding down any business and otherwise wrapping up affairs in that state, and would typically need to have passed a resolution or similar approving the conversion to a NC company. The LLC can then file its Articles of Organization/Conversion with the NC Secretary of State.

Option 2: shut your Florida company down and start a new one in North Carolina. You would “wind up” your Florida LLC and dissolve it, such that it no longer exists. While the timing of the steps in North Carolina may vary to some extent, you’d go ahead and create a North Carolina LLC. The name would not have to be the same, but there are advantages to using the same name, if possible (this article does not attempt to address those issues).

Option 3: keep your Florida company open and register it with the State of North Carolina as a foreign business authorized to transact in North Carolina. You’d obtain a “Certificate of Good Standing” or similar from Florida. You then provide that to the NC Secretary of State as part of your North Carolina Application for Certificate of Authority (to conduct business in North Carolina). Assuming you are approved by NC, you’re now good to go to conduct business in both states, or either state, and you can have your principal place of business in either state. You will likely be required to pay annual fees to each state and file taxes in each state, which are important factors to consider.

Option 4: start an affiliated company or subsidiary in North Carolina. In certain specific instances, you may keep your Florida LLC open, and instead of registering it with North Carolina, you’d prefer to create and register a separate but related business entity in North Carolina. This is typically referred to as a “subsidiary” or an “affiliated company”. You will likely be required to pay annual fees to each state and file taxes in each state, which are important factors to consider.

Additional notes. Under any of the above options, you’ll have to have a registered agent with a “continuous presence” in NC. Many law firms (like mine) agree to provide that service for a small annual fee, but your company’s “RA” doesn’t have to be a lawyer or law firm. Of course, we also provide the very services needed to transfer your business overall.

These actions can be accomplished without an attorney, but you should at least consider consulting with an attorney any time you make a significant change to your business entity. Good luck!

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Posted in attorney, business, business law, Business Law & Contracts, contracts, florida, Jason A McGrath, llc, North Carolina, small business

Requests for Admissions In a Lawsuit

Posted on September 6, 2016May 2, 2022 by g83js92js91
Litigation Attorney Jason McGrath explains Requests for Admissions in a lawsuit under the rules of civil procedure in this short video.

https://youtu.be/f6iMEvfSr_A

If you are dealing with a lawsuit in North Carolina please fill out our confidential client intake form for legal assistance.

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Posted in attorney, Business Law & Contracts, Business Law Disputes, discovery, interrogatories, Jason A McGrath, lawsuit, Litigation, llc, NC Rules of Civil Procedure, North Carolina

Why does your Corporation or Company Need a Registered Agent?

Posted on August 26, 2016May 2, 2022 by g83js92js91
In this video, business law attorney Jason McGrath explains what a registered agent is, what it does, and why it’s legally required.

This discussion focuses on registered agents in North Carolina, but most of this information will *generally* apply to other states – but you need to study the specifics for your state, of course.

https://youtu.be/WuBeC-UVHew

If you are in need of legal assistance for your business in North Carolina, South Carolina, Tennessee, Georgia or Florida please fill out our confidential client intake form.

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Posted in attorney, business, Business Law & Contracts, corporation, Jason A McGrath, Life and the Law, limited liability company, llc, McGrath amp; Spielberger, North Carolina, registered agent, small business

NC LLC Operating Agreements Even More Important Due to Changes in North Carolina Law

Posted on December 31, 2014April 25, 2022 by g83js92js91
In this video, business law attorney Jason McGrath answers the question of why the change in North Carolina law makes it even more crucial that limited liability companies – LLCs – have a written operating agreement.

https://youtu.be/TFZkqOQn-5c

Posted in business contracts, business law, Jason A McGrath, limited liability company, llc, McGrath amp; Spielberger, North Carolina, operating agreement

Legal Advice on Problems in Business Contracts: Strategic Thinking Versus Knee Jerk Reaction

Posted on December 8, 2014 by g83js92js91

Strategic Thinking / What Does Your Attorney Advise You?

In this video, attorney Jason McGrath discusses how a business law attorney can – or should – handle mistakes and other problems found in contracts. The approach Mr. McGrath discusses is not the obvious one.

Does your business attorney think it through in depth, considering the bigger picture, and employ strategic thinking or just go with the standard, knee-jerk reaction when (s)he renders you advice?

For legal advice on business law and contracts, contact McGrath and Spielberger law firm today.
Posted in business contracts, business law attorney, Business Law Disputes, contract analysis, contracts, Jason A McGrath, Litigation, llc, McGrath & Spielberger

North Carolina LLC Partners – Fiduciary Duty

Posted on January 13, 2012 by g83js92js91
Does My NC LLC Partner Owe Me a Fiduciary Duty?

In this short video blog, Attorney Jason A. McGrath discusses whether a partner (member) in a North Carolina limited liability company (LLC) owes a fiduciary duty to other partners (members). This is one of the more common questions that Mr. McGrath is asked by his business law clients. See the video below, or click here to view in You Tube.

Posted in attorney, Business Law & Contracts, business partners, Charlotte, lawyer, limited liability company, llc, members, North Carolina, raleigh

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  • Lease or License: What’s the Difference and Why Does it Matter? – Part Three
  • Lease or License: What’s the Difference and Why Does it Matter? – Part Two
  • Lease or License: What’s the Difference and Why Does it Matter? – Part One
  • Comparison of Subchapter K v. Subchapter S
  • Registered Agent for your North Carolina Business – Can you be your own Registered Agent?

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