Articles Posted in Tax Planning

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Starting a business partnership can be very exciting. You are ready to hit the ground running with your new venture. However, you will want to pause and make sure you have your legal interests well documented and in order before you jump into starting the business. The corporate attorneys at Structure Law Group understand the intricacies of forming a partnership and putting safeguards in place should a problem later arise.

California Partnership Legal Classifications

General Partnership

Fotolia_194134312_Subscription_Monthly_M-300x200It may seem simple to try and put together a shareholder agreement on your own. However, a carefully drafted shareholder agreement is imperative to how your business functions in the present, but more importantly how you might need to handle things in the future. You will want your shareholder agreement to be carefully drafted to match your business’ specific needs. Even though every shareholder agreement will be different, there are some common components that most shareholder agreements include.

Governance Procedures

The shareholder agreement can outline how often meetings should be held. It can also describe the process for general or special meetings, quorum needed for specific types of matters, and how notices for the meetings should be sent. The addition of theses details not only spells out the procedural process, but also notifies members of their duties and rights as a shareholder.

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Uber is almost an institution in many of our daily lives, much like Google, Amazon, or Apple. But even though many of us may simply think of Uber as the name that fulfills many of our transportation needs, it is still a company – it has offices, hires people, fights for its rights, and makes corporate policies and decisions. To this end, over the last several years Uber has been making headlines, and one reason for this is that the way in which Uber classifies its drivers has come under heavy scrutiny. In the past, Uber has been involved in heavy litigation in order to classify its drivers as “independent contractors” as opposed to employees (discussed further below), and a recently settled case involving this very issue will have a lasting effect on this classification.

Independent Contractors vs. Employees

The IRS treats independent contractors and employees very differently for tax purposes. According to the IRS, an independent contractor is a person who has a high degree of control over their work . Independent contractors are also typically not offered benefits.

Budget-Planning-300x200Starting a new business can be an overwhelming proposition for any Silicon Valley startup business. An experienced business startup attorney can help you build a profitable business from the ground up by finding appropriate financing, effectively forecasting your business expenses and helping you budget effectively.

Finding the Right Financing

The first step to an effective financial plan is putting in place the right startup capital for your particular business. Venture capital is among the most popular financing options for Silicon Valley startups, but it is not right for every business. VC deals often contain onerous terms for profitability, repayment, or reinvestment. Not every business can meet these demands. Accessing venture capital also brings in more stakeholders who have a greater say in the operation of your business. This is the very situation that many startup business owners are looking to avoid.

Fotolia_136329992_Subscription_Monthly_M-300x200The sale of a business can be far more complicated than simply signing contracts and transferring assets from one side to the other. Tax and civil liability can be incurred in a traditional sale, anonymity may be required for a host of reasons, and in hostile takeovers, the buyer will need to bypass the seller’s Board of Directors altogether and go directly to the shareholders in order to have the sale approved. Establishing a shell corporation or holding company are two examples of ways to accomplish such goals in a business transaction. A Silicon Valley corporate lawyer can help your business identify its goals and determine which tools best meet its needs in any sales transaction.

What is a Shell Corporation?

As a general matter, a shell corporation can be thought of as a tool for business transactions. As described above, shell corporation can be used to achieve specific goals in connection with business transactions, such as maintaining anonymity, reducing tax liability, or obtaining financing. For example, many startup companies utilize shell corporations in order to store funds during early stages of financing.

California recently surpassed France and Brazil to become the world’s sixth-largest economy. As such, California is home to many businesses with significant assets. In this fast paced, value creating culture, it is not unusual for asset purchase agreements to be completed with pre-printed forms and templates.

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Unfortunately, many business owners learn the hard way that an asset purchase template fails to address the particulars of the business assets being acquired or sold and provides inadequate protection for the financial and legal interests at stake. An experienced corporate attorney can help protect your company by structuring an asset purchase agreement that is suited to your transaction, enforceable, and able to cover a wide array of contingencies that may arise.

Many Things Can Go Wrong in an Asset Purchase Transaction

For California business owners, knowing what expenses are deductible from tax liability is not just a sound financial strategy. It can also prevent criminal liability for tax fraud and other white collar crimes. Ensure that all your financial and legal interests are protected by consulting with an experienced California tax law attorney.

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Common Deductions

Tax liability is a function of a company’s profit less its operating and business expenses. These expenses are known as the taxpayer’s deductions. Thus, the greater a company’s deductions, the less overall tax liability it will have. This causes many companies and business owners to push the boundaries of allowable business deductions. While this can reduce the company’s initial tax liability, it can also result in a time-consuming audit and heavy fines. In serious cases, it can even result in criminal liability. It is, therefore, very important for business owners to ensure that they are making appropriate, lawful deductions.

Business formation is imperative in order to properly operate a business. The selection of a business entity is important because it helps provide important benefits regarding ownership rights, taxes, and, depending on the entity selected, limited liability. Business law is governed on a state by state basis, and every business has the flexibility of incorporating in any state, not just the state of its principal place of business.llc

Delaware is the most popular state for incorporation. Delaware has a rich history of favorable business laws that have helped give it a very pro-business reputation. Because of this pro-business reputation, it may be very attractive to incorporate in Delaware. However, it is important that businesses be aware of both the pros and cons of incorporating outside of their state and in Delaware.

Pros of Incorporating in Delaware

When a person is considering starting a business, one of the first questions that often arises is which state to incorporate in. Many people simply choose the state in which they live and plan to do business, as it often seems to be the easiest and simply makes sense. In many cases, the decision to incorporate in your state of residence is perfectly fine and has no real long-term impact. It is important to note, however, that the choice of jurisdiction in which a business is incorporated has the potential to have a significant effect on a company’s tax liability and the way in which the business is run on a day-to-day basis. For this reason, anyone who is considering forming a business should discuss his or her options with an experienced Silicon Valley startup attorney familiar with corporate law throughout the United States.Fotolia_85658726_Subscription_Yearly_M-300x300

Why does it matter?

Corporations and Limited Liability Companies, two of the most popular business formations that can shield owners from personal liability, are created by state law. As a result, there are 50 different sets of rules that apply to business formation and corporate governance. Furthermore, each state has a separate state taxation scheme that can result in significant differences in tax liability. Some of the issues that will depend on where you choose to incorporate include the following:

More and more startups are issuing stock and other forms of equity as a form of compensation for work, especially in the early stages of a venture. This arrangement allows a business to recruit talent that they otherwise wouldn’t be able to afford and, if the company is successful, can result in a significant windfall for people who worked to get a company off the ground without a guarantee of compensation.toad-river-brown_3737_990x742

Generally speaking, when you are transferred equity in a company it is necessary to pay taxes on the fair market value of that equity as you would with any other type of income. In many cases, however, a grant of equity is subject to a vesting agreement, which means that the equity is not actually owned by the grantee until a certain period of time passes. As a result, at the time of the grant, nothing is actually owned, so there is no tax liability associated with the initial grant. When the stock vests, however, that income becomes realized, meaning that there may be significant tax liability, particularly if the company has done well.

83(b) elections can minimize tax liability associated with grants of equity