Deciding to incorporate is usually a function of seeking to protect oneself from the risks of doing business by employing a corporate shield. Ah, but can that shield be penetrated? Yes!

The internet is an amazing part of our lives, but it has created a simplification of some situations that should be handled delicately. One is in the area of incorporation. More than a few sites now offer to incorporate businesses for a few of a couple hundred dollars plus state fees. A customer pays the fee, goes through the checklist of questions and ultimately receives a corporate book with some blank forms in it. The problem, of course, is the person has no idea what to do with the book or how to run the entity. When the business is subsequently sued, this can lead to disaster when the corporate protection is pierced through the claim of alter ego.

Most shareholders believe a corporation protects them from personal liability. This is generally true unless alter ego is successfully asserted.

Alter ego is an equitable claim that a corporation should be set aside in a lawsuit and the shareholders held personally liable for a debt. The theory was antiquated and rarely used. In recent years, it has seen a rebirth as many small business corporations are formed using cheap online services. While these services file the entity with the state, there is no real follow up or guidance in regard to how the entity is actually supposed to function. This, of course, leads to alter ego claims and disaster for the shareholders.

California is a notoriously unfriendly state for business. This reputation extends to business entities for professionals practicing in the state.

California is a state with a very unique view towards business. Most business entities, for instance, are required to pay an $800 fee for the “privilege of doing business” in the state. This fee is in addition to any other fees charged in relation to the formation or maintenance of the business.

Once you decide to form a corporation for your business entity, you will quickly be faced with another question. Should the corporation pay taxes as a “C” or “S” corporation?

There is a lot of confusion when it comes to the tax designation of a corporate entity. The first thing to understand is a corporation is a “C” designation by default. As a “C” entity, the corporation will file and pay its own taxes with profits and salaries being paid out to employees and shareholders. Since the employees and shareholders have to pay personal taxes on the distributions, “C” corporations are considered double taxation entities. This is generally viewed as a negative thing.

Once you form a new business entity, you need to come up with a way to get money into it. This concept is known as capitalization or funding of the business entity.

At first glance, funding an entity seems fairly simple. Don’t the officers of the corporation simply open a bank account and deposit some money? Unfortunately, it is not that simple. The money has to come from somewhere, typically the shareholders.

Funding a new corporate entity is obviously a critical step, but how is it done. There are three primary methods, although one should check with applicable laws in your state to delineate which are available. Regardless, let’s take a closer look.

It goes without saying that the LLC is the media darling when it comes to choosing an entity for small businesses. In some cases, however, an LLC is at a disadvantage compared to an S Corporation.

Originating in the late 1970s in Wyoming, Limited Liability Companies have rise to loft heights. They are arguably the single most popular and most used entity for small business start ups. Why is this? Well, the LLC offers the tax advantages of a partnership along with the liability protection of a corporation. At the same time, the LLC does not require owners, known as members, to comply with the formalities of a corporation. In truth, said formalities are pretty simple, but there you are.