Philadelphia Business Lawyer Sarah E. Holmes
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Corporations

Forming a Corporation for a Business

Sometimes a new business will decide that the best legal entity to form based on its goals is to form a corporation. There are some pros and cons to using a corporation as a business entity.

Pros:
  • easy to distribute stock to many shareholders;
  • different classes of stock with different voting rights are possible;
  • many investors will prefer a corporate entity

Cons:
  • corporate formalities MUST be observed;
  • meetings must be held and minutes recorded;
  • a board and officers must be appointed;
  • many states have annual filing fees and compliance deadlines;
  • administrative burdens of upkeep.

​But what about an "s" corp? There is no entity that is a "s corp!" "S" refers to subchapter s of the IRS code and is a tax designation. The actual business entity can be a corporation or an LLC that elects to be taxed under subchapter s.  For a number of business owners, the s election may save money on federal taxes. However, the s election comes with several requirements and restrictions and the s election must be done properly and timely.

A corporation should also have bylaws and a shareholders' agreement in place. The bylaws will set forth many legal formalities for the corporation and the shareholders' agreement will set forth the different rights and duties of the shareholders.  One is wise to have these documents drafted by a business attorney.

Should your accountant form your corporation? Many accountants will offer to form a corporation or other entity. This is okay, except we've found that in many cases, they form the entity and stop there. Why is that problematic? Because no one has properly issued or logged the stock certificates, the business owner doesn't understand how to keep meeting minutes, and most disturbingly, no bylaws and no shareholder agreements are drafted.  We can't stress this enough with clients that have or want to form a corporation:  these formalities are NOT OPTIONAL when it comes to a corporation. You MUST have them in place to retain the liability protection of the entity.  Failing to have the proper formalities can expose the shareholders, officers and directors to personal liability. 

If you'd like the help of one of our Pennsylvania or New Jersey business lawyers in forming a corporation, drafting meeting minutes, corporate compliance and filings, or a shareholders' agreement, please reach out to our center city or main line business law office.
Holmes Business Law, P.C.
​Two Convenient Locations- Main Line and Center City
40 E. Montgomery Avenue (all mail)
4th Floor
Ardmore, PA 19003
and
1515 Market Street
Suite 1200
Philadelphia, PA 19102
215-482-0285
 

info@phillysmallbusinesslawyer.com

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This website and its content herein constitutes attorney advertising.  Any content on this website should be construed as informational, not legal advice.  No information on this website is intended to create an attorney-client relationship.  Only a signed fee agreement between Sarah E. Holmes and the client will establish an attorney-client relationship.  Use of any information on this site is provided "AS IS" with no warranty of any kind, either express or implied.  Always consult with a licensed attorney in your own state for legal advice.
  • Home
  • Attorneys & Areas of Law
    • Business Entities >
      • Corporations
      • Limited Liability Company (LLC)
    • Business Immigration
    • Business Purchase or Sale
    • Raising Capital & Investor Agreements >
      • Promissory Notes and Debt Financing
      • Private Placement and Equity Financing
    • Business Contracts >
      • Consulting Agreement
      • Employment Contracts
      • Independent Contractor (1099) Agreements
      • Website Terms and Privacy Policies
    • Copyright & Trademark
    • Hiring Employees/NDA/Non Compete
    • Estate Planning & Wills
    • Commercial Real Estate >
      • Commercial Lease
    • The Right Start Program
  • About
    • Speaking and Events
    • Client Testimonials
    • Privacy Policy/Terms of Use
    • Contact
  • Business Success Tips
  • Flat Fee Packages
    • New Businesses
    • Existing Businesses
    • Dispute Resolution
    • Trademarks & Copyright
    • Estate Planning
  • COVID-19 HELP