S-Corporations vs. LLCs – Which is Right For You?

Business owners looking to avoid the double layer of taxes associated with operating a C-corporation (the absurd taxation of dividends) often consider utilizing an S corporation or a limited liability company.  While both structures act as pass through entities for tax purposes, there are noteworthy differences between the two. Ownership & Profit Allocation – There are several significant restrictions on who can be owners of an S corporation.  A shareholder of an S corporation cannot be a nonresident alien and, more importantly, shareholders cannot be other corporations or LLCs.  Also, the number of shareholders is capped at 75 for S corporations.  An LLC has no restrictions on ownership. Unlike C corporations that can have varying forms of equity (common stock, preferred stock, etc.), S corporations can only have one form of stock.  The result is that S corporations have no flexibility as to how profits are split up amongst its owners.  So, even if the owners of an S corporation want to distribute profits in a manner they consider more “equitable,” they cannot do so because all distributions must be … Continue reading

Repeal of the 1099 “Snitch Act” on the Horizon

The Patient Protection and Affordable Care Act (PL 111-148, the “Act”) enacted in 2010 significantly expanded information-reporting requirements for businesses.  As part of the Act, 1099 reporting requirements were expanded to include all payments from businesses aggregating $600 or more in a calendar year to a single payee, starting with payments in 2012.  So, if your business engaged the services of a local florist to water your plants for $15 a week, under the Act you would have to issue the florist a 1099. Rep. Dan Lungren (R-CA) accurately labeled the expanded 1099 reporting requirements as the “Snitch Act.”  According to Rep. Lungren “[i]t’s basically assuming the people you do business with are cheating.”  “So therefore, the government requires paperwork on your side because of something they believe may or may not be occurring with respect to somebody on the other side of a business transaction.” Recognizing the ridiculous implications of the expanded 1099 reporting requirements, the House of Representatives passed a bill on March 3rd to repeal the expanded Form 1099 information-reporting requirements mandated under the Act.  The Senate, … Continue reading

New Jersey – Protect Your Business with Non-Competes

Protect your confidential information and client good will with non-compete agreements. Continue reading