Your friend is considering incorporating her business.She values your position as a legal assistant and asks?

Question

you if there are any disadvantages to incorporating.Which response would be your best?

A-Corporate earnings are subject to double-taxation
B-It will be harder to raise investment capital
C-Doing so will make her subject to unlimited liability
D-There are no disadvantages;incorporating is always best

Answer 1

Depending on how you incorporate, either A or D.

If it's a small business, you can incorporate as a Subchapter S corp. In this form, the corporation pays no tax. Instead, the corporation's profits or losses pass through to the owners, and are taxed on their 1040's. In this case, the answer is D.

If the business is incorporated as a regular corporation, then it pays corporate income taxes. Any cash passed on to the owners is taxed as dividends. So there is double taxation. The answer is A.

Answer 2

I practiced corporate law for a number of years. "A" is closest to correct but isn't entirely correct - the income of an "S" corporation is generally not subject to federal income tax at the corporate level.

Your friend should consult either a corporate lawyer or competent tax advisor that can assist her in structuring her new business.

Answer 3

YOUR correct answer is:

E. I'm clearly not qualified to answer your question, valued friend. Don't rely on my information to make your financial future secure.

Answer 4

a.

But add that you are not an attorney and she should seek advice from an attorney or a CPA.