S Corporation Questions

[carolinarider09]

I have noted that there are several members on this board that might experience in this area. 

If so, I'd like to ask a couple of questions before someone is actually hired to help set up said corporation. 

And it might not be a viable option but.....

My daughter worked for a closely held corporation that was in the energy and hospitality industries.  She was recently let go.  She has had several offers for employment some short term, some long term.  She was recently contracted for a task which she completed and was paid. 

The question is, for someone one who wishes to work with/for several different groups, be paid as a consultant, what are the pros and cons to setting up an S Corp and are there other options that she could consider. 

[Jess from VA]

Bill, I know little of corporation law (other than what I heard/read in one class in 1978, and passing a bar exam).  

But this is a subject easily researched (from a comfortable chair).

https://corporatedirect.com/start-a-business/entity-types/s-corporation/

https://www.google.com/search?q=pros+and+cons+of+s+corp&ie=utf-8&oe=utf-8&client=firefox-b-1

All I can point to is:

1)  does her consulting work present any significant risk of liability?  is there a need for corporate insulation from personal liability (vs, or including, liability business insurance)?

2) if she incorporates, she must scrupulously follow all the requirements of meetings, minutes, records, votes, or whatever they are (even as a one woman show), or risk having no insulation from personal liability at all.    

3)  incorporation is often for tax benefits (especially S corps for a small or one man show), but it's my (limited) understanding that there has to be X amount of money involved before there actually is much tax advantage (over a sole proprietorship), or it may even be higher taxes.  I do not know what that money amount is today, but it used to be more money than most individuals made in a year.  And both state and federal taxes are at issue.

If she has some kind of business plan, she could talk to a business planner or corporations lawyer and ask if an S Corp is a good idea for her.  For a consult fee.  A good lawyer should tell her if it's a bad idea for her, rather than convince her it is and sell her a set up package anyway. 

You never go to a lawyer (or consultant) to hire him, you go to interview him for your job, assess his competence and work ethic, get him to tell you what he can do for you and what it will cost.  If he passes the interview, you might hire him.  Or try again.

If you can afford F Lee Bailey, you can skip the interview and just hire him.    

[Robert]

Look into an LLC, has many of the benefits of a corporation as far as not being able to be sued personally and also not as stringent reporting requirements. They can also be formed in about 10 minutes and does not require the corporate structure.

[Jess from VA]

The principle tax advantage for S corp is there is only one tax stream.  For ordinary corporations, the corporation itself pays taxes (as a legal person), and so do it's officers/stockholders on any declarable income from the corporation. 

[carolinarider09]

Thanks Gentlemen.  Good information I will pass on to her. 

[Willow]

As for the advice on LLC, I can tell you from experience that if an LLC is owned by a single individual it doesn't protect the owner's private property as on would expect of a corporation.

[Oss]

as important spend a few $ speaking with a CPA

Let the CPA know the expected income and expenses and risk

A PC can be also an S corp (I am)

End of corporate life strategy is something to think about before opening  therefore have the discussion with a CPA   We have a great one on this board

[carolinarider09]

Thanks,

I have passed the information on to my daughter.  She has some time but is intent on making a decision so, we shall see what happens. 

I think she has found out that, while she was paid adequately where she worked, her skills were more or less taken for granted. 

Now that she is or can be independent, she has found several persons/groups that are reaching out to her for help in the hospitality startup industry.  Seems they have the money, want to be in that industry but no knowledge on how to make it work.  Or at least that is my interpretation. 

One would think that COVID might have sort of limited that but ........