You probably formed your company, whether it is a LLC / Corp / PA or PC, for a variety of reasons. Some of these reasons may include protecting your personal assets, defining ownership if you have partners, or simply so you had a separate set of accounting records in the event you have employees or various retirement plans. How would you feel if someone were to tell you that this did not do the job you wanted, only because your entity was either not set up correctly in the first place, or that you have failed to properly maintain your entity? As an LLC / Corp / PA or PC, you have ongoing obligations that must be met in order to maintain your “corporate veil” of protection. Failure to do so will allow an attorney to “pierce the corporate veil” which can open you up to personal liability, and make your personal assets fair game to civil judgment. Read on to protect yourself from making this mistake.
The bylaws contain the most fundamental principles and rules regarding the nature of the corporation, and are generally the governing document. In simplistic terms, corporate bylaws define the Name, Objective, Members, Officers, Meetings, Executive board, Committees, and ability to make Amendments. Your corporation does not formally exist until bylaws have been adopted, unless otherwise provided by law.
LLC ́s are very flexible in nature and the operating agreement defines each member or manager’s rights, powers and entitlements. This includes capital accounts, membership interest, distributions of profit and allocated tax responsibility, just to name a few. This is an agreement agree to by the company members that contains provisions for critical items and rules that run the company. Operating agreements can be amended at anytime by the company members or managers; however, one is necessary to prove that any given member is indeed separate from the entity itself. Similar to corporate bylaws, the LLC does not formally exist until an operating agreement has been adopted by the members.
Fictitious Name Filing
This filing states that an entity other than a person will be doing business in a given county. While this may seem mundane, this is a requirement, and must be filed in a specific newspaper in the county in which you will be doing business. In addition, a similar filing must be made when you choose to close your business. Failure to file for a fictitious name can result in local fines and restrictions from obtaining necessary permits and licenses.
If you want the protection provided by being a corporation, you actually have to act like a corporation. This means that you must vote on a board of directors, and actually document that you had meetings, what was discussed, and what you decided to act on. This is one of the first items an attorney will ask for when trying to piece the “corporate veil”. Make certain you do this on a regular basis, or get some assistance to make sure your board meeting minutes are produced, and kept in your corporate compliance book.
Your corporate annual report is due the beginning of each year, and the due date varies from state to state. This form requires you to provide information on corporate officers and your registered agent. Failure to complete this form, and pay your annual renewal fee on a timely basis will result in your company being “administratively dissolved”. If you have any corporate debts, and you are administratively dissolved, you just became personally liable for those obligations, as your company no longer exists.
You spent a lot of time and effort to get your business started and making money. We all understand that you can get caught up in the day to day operations of your business, and lose track of some of the things that are required, but, do not generate sales for your business. So before you let too much time pass, and your company no longer exists, give us a call. We will work with you to bring your filings up to date, and make certain they are current on a going forward basis.
My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Small Business Owners and Entrepreneurs.
We specialize in Corporation filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts.
We are not simply a document filing service; we are here to help you with the part of the business that you have to do, so you can focus on what you love to do.
Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients.
Email us with any questions or call us at: 1 (800) 517-0CFO 1 (800) 517-0236
As a physician, you have either just signed with a contract group, or you have decided to do some shifts as a Locum Tenens. There is a chance that your contract group will require you to be an employee, but that is not often the case. Now you need to form a corporation. We are often asked why. The simple answer is that it draws a clear line between you the individual and you the professional. Another response is that as a corporation, you are afforded additional tax benefits that are not available to you via Schedule “C”. Your SEP IRA contribution for one. As a physician, your options are limited to either a PC (Professional Corporation), PA (Professional Association) or PLLC (Professional Limited Liability Company). There are subtle differences in each type of entity, but there are some specifics that you will need to keep in mind. First and foremost, your state will most likely dictate what type of entity you can form, also, some states do not allow PLLC’s. Don’t just blindly form an entity without knowing the correct type of entity for you. Also, as a physician, forming a corporation will not insulate you from civil liability. For advice related to asset protection, call us. From this point forward, we will discuss the formation of a PC/PA.
The creation of your entity:
The formation process begins with a stop at the Secretary of State office, or the division of corporations. This is where you will find the forms for your specific state, along with the filing requirements and related fees. Filing requirements for professionals differ from state to state. For example, NY requires Physicians to verify their license status with the Education department before and after filing Articles of Incorporation. This is a two-step process, and involves paying two separate fees. Find out if your state has this requirement or a similar process before you file any documents. Some online Incorporation sites do not take this step. Not only will you not get your incorporation filed, you may not get your money back. Just as a precaution, before you fill out any documents, make sure there isn’t another physician in your state with your name. This can most often be avoided by using a middle initial or middle name, but you will want to be certain. Once you have confirmed this, reserve your own name. Send two copies of these documents to the state, and request a stamped copy be returned to you in a self-addressed stamped envelope.
Tax Status and Employer ID Number (EIN):
Once you have completed the Incorporation process, you will need to become legal in the eyes of the IRS. First, you will need to request a Tax ID# or Employer Identification Number. This is essentially the social security number for your business. This can be obtained online, or via fax. Simply fill out the form and submit. Now you need to address the tax status of your entity. All new corporations are seen as “C” corporations until you request to be taxed as an “S” or “Subchapter S” corporation. The difference is simple and straightforward. Do you wish to be taxed on your income twice, or only once? Most of our clients are “S” corporations. The “S” election form can be found on the IRS website, and must be filed with the IRS as soon as possible. You will receive a letter of acceptance once the IRS has approved your status. This must be completed prior to filing your first tax return. Our suggestion is to file this the same day you receive your EIN number. Send this certified mail to make sure you have proof.
Acting Like a Corporation:
Now that you are a corporation, you will have to begin acting like one. What this means is that when you do something business related, you will need to document it. First you will need to establish Bylaws. This will be the blueprint for the way you run your corporation. Sample Bylaws can usually be found on the website for the state where you incorporated. It will define what title you will have, how many times a year your board will meet, and any means to alter the nature of your entity. You will also need to have regular meetings of your Board of Directors, yes, even if you are the only one. When you hold these meetings, you will also need to keep details of what you decided to do. Whether that is opening a bank account, or entering into a contract for employment. In these minutes, you will also document how you will be compensated by your entity, and any employee benefits you will receive. You will now have to keep all of these in one place. That is why you have a Corporate Book. A corporate book can be purchased online from a variety of vendors. Within this book, you will keep the certified copy of your Articles of Incorporation, the acceptance letter of your Subchapter “S” filing, the notification letter for your EIN number, a copy of your bylaws, and each and every set of minutes from all of your Board meetings. This is the first thing that will be requested if your corporation is ever sued.
Reducing Your Taxes:
This is the primary reason you are putting yourself through this. The first reason is that as a Corporation, rather than a Sole Proprietor, you are able to make a SEP IRA contribution up to 25% of your salary versus only 20%. If you pay yourself enough to make the maximum contribution, that would be a salary of $212,000 in order to make a SEP contribution of $53,000. As a Sole Proprietor, you would only be able to contribute $42,400 at the same salary. Not contributing the additional $10,600 just cost you an additional $3,710 if you are in the 35% tax bracket. If your state has an income tax as well, you saved even more. Also, as a corporation, you can establish a Defined Benefit Plan for yourself. This can allow you to put away $100k or more annually, thus accelerating the tax savings.
Tax returns and Annual Reports:
This is where your corporation will save you money, and make all of this worth it. Your corporation will have to file a tax return each year (Form 1120S), and you will receive a form K-1, which is the shareholder profit and loss, (think of it as your 1099 as an owner of your entity.) Regardless of whether or not your state has an income tax, you will still need to file tax returns for your corporation. No taxes will be due, as those will be paid on your personal return, but pay special attention to whether or not your state levy’s a “filing fee”.
The state will also require an annual report from you, although some are every other year, but you pay twice as much. This is simply informing the state that you are still in business along with your current address.
You can do this. Just like most things that look complicated, it is more about following the process step by step. There are no shortcuts. If you decide you need some assistance, or simply feel that you would rather work with someone who does this all the time, we would be honored to add you to our list of satisfied clients.
My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Small Business Owners and Entrepreneurs. We specialize in Corporation filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service; we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com!
Email us with any questions, or Call us at: 1 (800) 517-0CFO 1 (800) 517-0236