III. C corporation

A business that is formed and authorized by law to act as a single person and is legally endowed with rights and responsibilities.

Advantages

• Has a life span independent from its owners (the stockholders)

• Personal assets are protected from business liability

• Ownership can be transferred through the sale of stock.

• It may be easy to raise operating capital through the sale of stock.

• Ownership of a corporation can change without affecting its day-to-day management.

Disadvantages

• More start- up expenses

• Subject to more state and federal legislation

• Profits are subject to dual taxation – as profits and again as dividends

• Many legal formalities in filing and maintaining corporate status.

IV. S corporation

It is a general C Corporation that elects to have a special status with the IRS and with the state. The major benefit is the avoidance of double taxation. The S Corp has pass-through taxation – the profits and losses are passed through the corporation to the shareholders and are declared only once to the IRS as part of each shareholders income.

• Must already be a corporation

• Cannot have more than 75 shareholders

• Can only Issue one class of stock

• Cannot have nonresident aliens who are shareholders

• Cannot have more than 25% of the gross receipts from passive sources (i.e. interest, dividends, rent, royalties)

Advantage

Avoidance of double taxation

Disadvantage

• Owners may not be able to participate in health and accident plans and other fringe benefits that are normally allowed to the C corporation.

V. Limited Liability Companies (llc’s)

An unincorporated business association that draws characteristics from both corporations and partnerships. The LLC can provide the favorable tax treatment of partnerships and the limited personal liability of corporations. One person can organize a LLC in South Carolina.

Advantages

• It is an entity separate from its owners

• Very few provisions of the statute are mandatory so there is much more flexibility in governance than a traditional C corporation.

• There is no limitation on the number of nature of owners.

• They are not subject to corporate formalities.

• They can choose corporate vs. partnership taxation

• If they choose to be taxed as partnerships: Pass-through taxation (profits and losses pass through the company for tax purposes)

Disadvantages

• LLC’s are still fairly new compared to other entities. (Not as much legal precedent as the other entity choices)

• They may be recognized differently in different states.

III

Business taxes

FEDERAL

• Income Tax

• Self-Employment Tax

• Employment Taxes

1. Social Security and Medicare Taxes

2. Federal Income Tax Withholding

3. Federal Unemployment (FUTA)Tax

• Excise Taxes

STATE

• Property Tax

• Sales and Use Tax

• State Income Tax

• Corporate Income Tax

• Local Option Sales and Use Tax

IV.

THE DO’S AND DON’TS OF CONTRACT LAW

DO READ THE CONTRACT BEFORE YOU SIGN IT.

DO GET A SECOND OPINION AND HAVE SOMEONE ELSE READ IT AS WELL.

DO ASK QUESTIONS IF YOU ARE UNSURE OF THE TERMS AND WORDS CONTAINED IN THE CONTRACT AND OR THE CONSEQUENCES OF SIGNING THE CONTRACT.

DO TRY TO NEGOTIATE FOR TERMS THAT ARE BENEFICIAL TO YOU.

DO CHECK FOR AN ESCAPE CLAUSE.

DO NOT WRITE THE CONTRACT YOURSELF UNLESS YOU ARE ABSOLUTELY SURE OF WHAT YOU ARE DOING.

DO NOT OVERLOOK THE FINE PRINT.

DO NOT RELY SOLELY ON THE INTERPRETATION OF THE PERSON WHO DRAFTED THE CONTRACT. ALWAYS ASK QUESTIONS BEFORE YOU SIGN THE CONTRACT.

V.

HIRING EMPLOYEES

Business owners have additional responsibilities when they hire employees.

I. Employers must report each newly hired employee to the Department of Social Services, Child Support Division. The employer has 20 calendar days from the hiring date to report the name, address, Social Security number, and hire date of each new hire, as well as the name, address, and federal employer identification number (EIN) of the business. A penalty may be assessed if the business does not file the required information.