10 posts tagged “corporate records”
Hi All,
Six days and counting till the CorporateVeil Pro system test flight!!! (starts Monday July 7)
Tim Birch asked a good question on my last post about what I meant by "border-line" activities and whether I was referring to adult sites, online gambling, etc? My answer:
"Border-line criminal" would be things like borrowing money in the corporations name that you know you probably can't pay back, getting it into your personal name, and then having the corporation go bankrupt and trying to keep the borrowed money, or taking on a contract that you almost certainly can't fulfill on and causing great harm to another person or company...
I am not talking specifically about the actual type of business, as long as an adult site is run within the legal limits, then it can be protected. I think on-line gambling is pretty illegal in the US at present, and I don't know what a "begging site" is. I am talking mainly about the types of activities that the owner might be engaged in to try and defraud someone."
Here is a bit more explanation...
As an owner, incorporation gives your personal assets a layer of protection (often called “the corporate veil”), but this is not 100% iron-clad protection. This is also referred to as "limited liability" in Legalese.
In some circumstances, courts will rule that a corporation doesn't really exist and that its owners should not be shielded from personal liability. This is called “piercing the corporate veil”. Your personal assets are still at risk if you:
□ personally injure someone; (you need Liability insurance*-see note below)
□ personally guarantee a bank loan or other debt which is not repaid;
□ fail to deposit payroll taxes withheld from your employees’ paychecks; (the IRS has no sense of humor)
□ do anything intentionally fraudulent or illegal that causes harm; or
□ fail to follow routine “corporate formalities”.
This last item is the focus of my step-by-step system called CorporateVeil ProTM. This is the one that traps many totally honest business people and can cause them to lose their asset protection. Their major sin is that they are too busy and pre-occupied with their business, and they never learned the routine tasks of operating a corporation “by the rules”.
Although it might seem opposite, small businesses are at the most risk of engaging in these behaviors that can cause the veil to be pierced. When the owner(s) are the same people that are acting as the day-to-day executive(s), or where close relationships exist between the owners, it becomes easier to start acting informally and this is when the line can be crossed that puts you in danger of losing your personal asset protection,
The three major corporate formalities that are often ignored by small business owners:
□ co-mingling of corporate and personal assets and records;
□ signing corporate documents incorrectly;
□ failure to maintain proper corporate documentation.
These often ignored items are addressed in my system, and I will walk you step-by-step through the requirements as I understand them (you should of course consult an attorney as to your specific situation, and laws may vary from state to state that I am not aware of. Do not consider the information I am giving you to be legal advice).
*Note on Liability Insurance
Incorporating and observing the corporate formalities helps protect your personal assets from business events gone wrong. But, your corporation is still at risk from business lawsuits and claims. A solid business liability insurance policy guards your corporate assets and can protect you against many of the risks of doing business. For example, if you personally injure someone while doing business for the corporation, say by causing a car accident, liability insurance will usually kick in and you won’t have to use corporate or personal assets. You also need to have adequate personal liability insurance as another level of protection in most cases.
You should talk to a Business Insurance Agent or better yet an unbiased Business Insurance consultant to ensure that you have the proper coverage for your business and that there are no gaps. I use Sonya Lenzo at www.sonyamlenzo.com to demystify my business insurance and I highly recommend her services. There will be special bonus coming your way as part of the CorporateVeil Pro program specifically dealing with business insurance!
That's all for now...
Rob Northrup
Is Your Corporation Protecting You?
PS: Tomorrow I will be sending everyone that I know of who is in the Test Flight a short questionaire and asking you to respond. Please be looking for it, I will also post on this blog with an explanation of the simple questions and my reasons for asking. Thanks in advance, the secret batcave is getting a fresh coat of paint right now and is almost ready for us to move in on Monday!
Hi All,
T-Eight days and counting till our Test Flight...
I am a full-time business person with a "regular" sales business to run, and did my own incorporation ten years ago. No one gave me any "rules" about how to maintain the proper records for my corporation so that I would maintain the asset protection that corporations provide to their owners.
Since I couldn't locate this info in an easy to use format, I developed this system myself, to help people like business owners who are looking for a fast, easy and step-by-step approach to getting their corporate records correct.
Here is my target customer>
□ Owners of “small” businesses with less than five owners;
□ Owners of regular corporations—both C and S corporations (Much of this information will apply to LLCs as well, but if you have an LLC you should trade for my LLC version- available later in 2008);
□ Corporations where the owner(s) are active in the day-to-day operations of the business;
□ Owners who want to understand these corporate records requirements and get their corporations working to protect their personal assets;
□ Owners who don’t have a large staff;
□ Owners who are very busy.
The system was specifically NOT designed for>
□ Companies with lots of silent "owners" (not involved in the business); □ Public companies;
□ Owners who are engaged in fraudulent or border-line criminal activity. (no amount of record-keeping can protect you if you are engaging in these behaviors).
Rob
Is Your Corporation Protecting You?
Hi all,
I am hard at work preparing for the Test Flight of CorporateVeil Pro on July 7th. I will be sending out a very short survey to the group of you that are going to participate to let me know a little about your situations. The content will be delivered by email and on a special "secret batcave" website I am setting up for the test flight!
I did a great interview last night I am calling Corporate Basics 101 that was done with a fantastic attorney who is very easy to understand, and who wants to help small coporation owners just like I do, to get their records in order and done right so their family's and lifestyles are protected. I am looking forward to having you all in the program...
You'll receive details and your secret decoder rings in about ten days! If you have specific questions that you want to have answered, please senf them to Rob@corporatebasecamp.com and I'll do my best.
Rob
Is Your Corporation Protecting You?
Hi all,
In one of my earlier posts, "Why did you start your corporation?", I ended with the comment
...in order to get the personal liability protection from your corporation there are VERY SPECIFIC THINGS that you need to be doing in order to maintain this "corporate veil" of protection?"
As a reminder, see the disclaimer at the bottom of this post. Now, to answer the question...
Corporations call the people who own the business "shareholders" or "owners". The shareholders elect "directors" who control the strategic direction of the corporation, and the directors also hire the "officers" who run the day-to-day business. The President/CEO, Vice President, Secretary and Treasurer are the typical officers.
When you start your corporation, there are some papers which are filed with the state during the Incorporation and some tax forms to get you ID numbers with the fed and state tax authorities. These are called "external records" since you send them out if the corporation, and every year you file an annual renewal with your state, as well as all the required tax forms and deposits.
There are many other records which are just maintained in the files of the corporation, and they are kept within the corporate files to document various corporate decisions. These are called the "internal records". One of these internal records is the Corporate Bylaws, which describes the rules for the corporation. It is just like the rules for a board game, it tells you when the shareholders will meet, and what they do. It lays down the rules for electing the directors, and describes the rules that the board will follow in decision making. And the Bylaws describe how the Bylaws can be changed. This is an important document.
In movies like Wall Street and Other Peoples Money, there are battles waged in the boardroom that are based on these corporate Bylaws, (in addition to SEC regulations which govern public companies which are outside of the scope of my information).
In a small corporation, there might be only one owner that owns 100% of the shares of the stock. In this case, the sole shareholder is often also the sole Director, and appoints him or herself to fill the roles of all the officers. They are even the Janitor, they clean up when they are done and everyone else has gone home. So, there is one person filling all three of these roles--shareholder, director and officer.
There are important differences in the way that each of these differnent roles needs to make and document decisions. Since it seems silly to have a meeting with yourself, and fill out paperwork documenting a decision reached and voted on by a single person, this is often neglected. This is potentially a multi-million dollar mistake--- that's $1,000,000's. [And that's a whole lot more than my product to help the business owner get their records in order-- www.corporateveilpro.com ]
In addition to documenting decisions, there are usually requirements for an annual Shareholders meeting, and an annual Directors meeting. Notifications of the date and time for these meetings needs to follow certain rules, and the agenda and topics discussed during the meeting need to be documented in a proper way. This is all usually covered in the Bylaws.
There are other things that need to be done, and it can be quite confusing and it can easily cost $2500-5000 for a small businesss that has been lax in this area for several years to go to an attorney and get his records ship-shape.
My new product CorporateVeil Pro, is getting ready for a Test Flight starting July 7. I will be releasing this system in a step-by-step manner as an eWorkshop, Each Monday, I release a piece of the puzzle, in a clear and concise way for the busy business owner, both written and audi versions...At the end of the workshop, you'll be ready for a brief meeting with your attorney to verify that you are ship-shape for your specific situation...
Tomorrow, I'll explore what can happen when you ignore these record keeping functions?
Rob Northrup
Is Your Corporation Protecting You?
IMPORTANT DISCLAIMER: As a reminder, I am not dispensing legal advice, you should always consult a lawyer about your specific situation. You need to have a lawyer if you have a business. I can save you time by educating you about specific terminology and general requirements, saving you many hours with your lawyer to complete these important tasks.
[Note: there is an important note about my corporate veil product at the bottom of this post...Rob]
Restarting a habit can be tougher than starting one to begin with.
We have all done it-- we have made a positive change in our life and stuck with it and gained enormous benefits.
In some cases, the new habit may have made us into a very different person, maybe healthier, maybe more successful, maybe we found a long-term relationship, maybe ten times more productivity (like using Simpleology). The new habit was formed and it became part of our life. And we loved the new us. And we basked in our glow... (nothing like a little hyperbole to get things going at 5:42 am)
Then something happened. (I am not going to dwell on what, maybe you got an injury and stopped exercising, maybe you started eating candy or other crap again, maybe you stopped watching your carbs but continued to eat buffalo wings and bacon, maybe you stopped making two hours a day of sales phone calls, maybe you stopped treating your new partner great, maybe you quit planning your day, fill in the blank___________)...
And you used that excuse to stop doing what was giving you such fantastic benefits. And it doesn't really matter WHY. Your brain is good at coming up with excuses. For many people it is their only skill.
And, when you quit...what a shocker...
The world didn't end that first day, or that second day, (just like everything didn't all get better in a day or two when you STARTED the great habit or behavior to begin with). It takes time to gain benefit from a new behavior, and it takes time to undo the positive impact of good habits and discipline. But make no mistake, there is a ticking time bomb... (deep down you know this and you are likely getting worried, but you are frozen for some reason)
Since the world didn't end one day after you stopped, your brain takes this as a positive that you have found the Holy Grail, you are the one human being on the planet that can stop doing the beneficial activity and remain successful, and continue to gain all the benefits without the work. You have found the Magic Pill...
And so a month goes by, and the wheels start to come off.
At first, the pants are a bit tighter, the phone isn't ringing as much, your new girlfriend is complaining about the way you are behaving, any number of things. And now you get scared and start to think that you don't know what to do to get things back on track...
WRONG! You know exactly what you need to do, you have done it before. You just don't want to do it because it requires work, and you have the Magic Pill that means you get the benefit without the work.
Snap out of it... this is destructive thinking.
You need to start doing exactly what you have stopped doing. And YOU NEED TO DO IT TODAY. Because you aren't getting any younger and to quote June Carter Cash...Time's a Wastin'...
To be continued...
PS: I will resume the postings on the corporate veil protection stuff in a week or so. I am busy working on the product and making great progress. For the first pass through the system, I am offering it as an ecourse that will take about 25 days. It will likely start the Monday after the Fourth of July and go through the end of the month. If you own a business or are thinking about it, you should be in this Test Flight of my system. (you don't test fly things that aren't 99% there, but even a great product needs to become streamlined). I will make it very worthwhile for you. Let me know if you are interested. I already have about 6 people who are signed up and I don't want more than 20 in the Pilot program... Let me know..
Rob Northrup
Is Your Corporation Protecting You?.
A quick one tonight...
If you are married or in a long term relationship with joint finances, then the person who handles the finances for the household should take the time, while they are healthy and able, to write out a simple list of all bank accounts and retirement accounts that you have with the names of the institutions and the account numbers. Also, a list of all insurance policies.
Put the page in a place that is obvious and tell your loved one that it is there, and maybe at the same time give them a ten minute description of the filing system, (video tape this if you want).
Every year update the list or keep it updated through the year. (I do it between Christmas and New Years)
God Forbid, if anything happens to you, then at least your family will have some clarity on these issues as they deal with other issues. And that is a gift that you can give them in a few minutes if you plan ahead of time.
Is Your Corporation Protecting You?
A few days ago, Jennifer "Small Closet" Skinner asked a great question...whether it was possible, or even advisable to start a corporation oneself without a lawyer?
First, is it possible to incorporate yourself without an attorney?
Yes. I did it yesterday here in Georgia on-line.
What to Name the Corporation?
The longest part of the whole procedure was deciding on a corporate name. I wanted to be sure that I could get the relevant websites. I decided on Basecamp Publishing Inc. and registered BasecampPublishing.com and BasecampPublishing.net, plus CorporateBasecamp.com and .net for a grand total of under $35 on godaddy (usingy coupon code OYH3 to get the $6.95 special price per year for the .com domain names.)
Which Corporate Structure: S corp or LLC?
I already knew I wanted to be an S corp (as opposed to an LLC). This is not legal advice, you need to research it yourself. Tip: Don't believe anything you read on a blog on the Internet unless you have checked it yourself.
My research led me to understand that the negatives for a S corp (vs LLC) are:
- S corp requires a bit more more corporate formality-- but not too bad especially with my package coming soon (Corporate Veil Pro) which demystifies the record keeping process;
- S corps can't have more than 100 shareholders (doesn't bother me) and
- S corp profits need to be distributed according to the percentage of ownership (I own 100%, this doesn't bother me).
The biggest drawback with an LLC is are that you have to pay payroll taxes on all of the corporate profits, not just on salaries and wages. This can be a significant amount of additional taxes that you pay with an LLC and was the main reason I went with the S corp. I am also already familiar with all the requirements for an S corp and I know how to handle them. It is not too big of a deal, once you understand the rules and have an easy to use system in place to make sure you are following them (the purpose of my upcoming product Corporate Veil Pro, sign up for notification and a special offer when it is available).
Once The Name and Structure Were Decided, I bought my "Inc." in 10 minutes!
It took ten minutes on-line with the GA Secratary of State and I charged the $100 registration fee to my credit card. I had to fill in a form to tell them the name of my corporation, who was incorporating it (me), the legal address, how many shares of stock were authorized, and my official Registered Agent (me again).
After hitting SUBMIT, I got the ARTICLES OF INCORPORATION back approved with a receipt in just a few minutes.
I was now the proud owner of a brand spankin' new corporation! One with an unlimited future that I will create and control...Now on to a few housekeeping matters, I got an Federal Employee Identification Number (EIN, it's like a Social Security number for your business) using the SS-4 form. I called and got the EIN over the phone to eliminate a wait for the paperwork to be mailed back.
The Gavel Drops... Initial Meetings of Shareholders and Directors
I also held my first shareholders meeting last night and authorized the Bylaws and elected myself as a director, and held my first directors meeting, and appointed myself President, and Treasurer. The board authorized the President to take care of the day-to-day operation of the company and created a resolution to open a bank account and deposit the initial equity of $500 into it. We (I) also elected to become an S corp, and I filled out the 2553 form electing this status. Sounds like a lot, it isn't. Total time expended less than two hours- start to finish.
I still had time last night to fix my website, and also to open my aweber account and put the opt-in form on the website. I would like for everyone to go over to www.corporateveilpro.com and opt-in to my list. That way I can be sure it is working right. You need to reply to the confirmation email to be added. I thank you in advance for opting in...
Today, I used my receipt from the Secretary of State declaring me to be an actual, honest to goodness corporation to open my corporate checking account, and to secure a Post Office box in the company's name. I'm now open for business.
Finally, Is it advisable to start a business without consulting an attorney?
Back to Jennifer's original question which I am not going to answer.
It's up to each person to decide for themselves. I do think everyone should have an attorney as discussed yesterday. You don't have to have them fill out the forms for you though if you are comfortable doing it yourself. If you are entering a high-liability area, you might be more inclined to utilize a higher amount of legal advice and there might be better ways to set up stronger asset protection.
There are a lot of books on this subject, I will put together a short list in a future post. And I will get to how to use an attorney effectively still this week, I promise. (Hint: preparation!)
That's all for now,
Rob "Sherpa" Northrup
President, Basecamp Publishing Inc.
There are many factors to consider when choosing an attorney.
I am in the process of preparing a Special Report for my CorporateVeilPro system (target launch June 30, 2008) which outlines "How to Assemble your Professional Team" in far greater detail.
As a small business owner, you need to have the best possible advice on legal/security matters ("Small business" does not mean small in revenue or profitability-- that's yet another future Blog post- "What is a "Small" business? and why that isn't a putdown...)
Your Professional Team
It is better to have these relationships established BEFORE there is a pressing emergency need for them. In many cases an ounce of prevention can equal a tanker truck full of "cure" (Corporate record keeping is one such area). You should have established relationships with the following people.
1. Lawyer (attorney)
2. Business insurance agent
3. Accountant/CPA
4. Banker
5. Mentor/Coach
Choosing your Lawyer:
There will be more information on this topic in the Special Report, but here are the basics.
1. You want a business lawyer, not one that handles divorces, or child custody, or your Uncle Ned who passed the bar exam on his ninth try and operates a Hair Care, Smoothie Bar and Law Office in Wichita. Lawyers come in two types, those who specialize in litigation/lawsuits and those who specialize in day-to-day stuff like contracts, agreements, and other legal mumbo-jumbo. These second types are what you want- they are sometimes called "Transactional Lawyers". (Of course if you are already involved in a lawsuit, then you want the litigator)
2. You want to choose a lawyer who is licensed in your state.
3. You want to hire a lawyer who has experience in your specific type of business, especially if there are going to be a lot of contracts that need to be evaluated and/or written. At attorney rates, it is just too expensive to have to pay them to learn the basics of your business and the special issues that arise. You are better to find one that already has relevant experience in your field as compared to a generalist.
4. You want a lawyer who is actively engaged in his law practice. Things change and you want someone who is abreast of the changes so they can let you know when things come up that concern your situtation. You want a successful person like yourself to represent you.
5. You want to meet them and make sure you are both on the same page. You can interview attorneys like you interview real estate agents, they want your business and know they need to earn it. Look for people that you can understand, that do not drag everything out, that appear authentic, and who you trust. But you aren't looking for a friend, they can be found for far less money per hour, you want someone who exudes competence.
6. You will ask for and check references. (You really should check them you know).
7. You need to discuss money and fees. A great lawyer at $350 an hour could be a bargain compared with the incompetent one at $200. Sometimes you get what you pay for. Sometimes not. If they have relevant experience in your field, they make only charge you for 30 minutes to pull something from their files, and fax or email it to you with a cover letter. If they are starting from scratch, you might be looking at a four hour project or even more for them to research and draft the entire reply. Which is better? 30 minutes at $350 and hour or 6 hours @ $250? Have I made the point that specific experience is good?
8. Talk to at least three attorneys, then make your decision. I know this is hard, and it is a pain in the neck, but you will be working with this person and his team for the next ___ years, isn't it worth it to choose the right firm?
Getting Referrals:
This is the tried and true method to finding any professionals for your team. As long as you ask the right people, referrals can be the key to finding a great attorney. You are better off asking people in your field of business, or associations in your field for recommendations because they will refer you to people who understand your field already (as discussed above).
Secrets to Using Your Attorney Wisely:
I'll discuss this in a future post. The key is preparation. See you soon...
Rob Northrup
Why an S corp?
The S corp is a very popular business structure for many startup companies. You start a regular corporation and then you file for S corporation status a little later using a special form for the purpose (IRS Form 2553) . One reason that S corporations are used is because they do not have to pay corporate taxes on the profits that they generate. For a regular corporation, these rates quickly rise above 30% of profits.
With an S corp, all of the profits from the business are calculated and then these profits are apportioned to the various shareholders as a percentage of their ownership (on what is called a K-1 form). These owners report this income as a line on their regular 1040 personal tax forms and they pay the income tax on the personal income. They only pay the tax on the profits one time, so this is why they say that double taxation is avoided.
A quick example...
If there are two owners- Joe with 60%, and Kevin with 40% and after totalling everything the S corp has net profits of $300,000, then Joe will get a K-1 that declares $180,000 and Kevin will get one that says $120,000. Joe and Kevin will have to pay income tax on these amounts on their regular personal returns.
All of the detail about the corporate numbers (income and expenses) is contained on the corporate tax form. Only the single number ($180,000 or $120,000 in my example) is shown on the personal tax form.
Disclaimer: I am an S corp owner, not a lawyer. Repeat. I am not a lawyer. I am not giving legal advice here and I urge all business owners to have an attorney who advises them on legal matters. I also recommend that you learn the basics and the terminology before you go to the lawyer. At $350+ an hour, they make very expensive teachers. And most of them don't want to deal with the basic cookbook stuff anyway, they want to deal with more interesting things... I will talk about lawyers and how to choose and work with them most effectively on a future post, stay tuned...
There are a LOT of S corps in the US...
In the US, in 2004, there were 3.5 million S corporations with 6.1 million total shareholders. So we can see that the typical S corporation is owned by about 1.7 people. That tells me that there are a ton of businesses out there, maybe yours?, that are S corps with one or two owners total.
These 3.5 million S corps were responsible for over $4.5 trillion in reeipts (these are 2004 numbers) and of that almost $500 Billion was income for the owners (officer salaries and net profits added together). Another almost $500 billion was paid as wages to other employees that worked for them. So you can see that S corps, although individually small, make up a good sized chunk of our economy...
And personal small businesses are the trend of the future. It is important that all small business owners understand the rules of the game...
Rob Northrup
This is for all those business owners out there who have US corporations.
Do you remember back when you first started your business and decided to become a corporation? You may have hired a lawyer, you may have done it yourself, and you probably agonized over the name, and what form of business to use...
There were probably three major reasons why you decided to incorporate (in no particular order)::
1. You wanted to be viewed as a serious and professional business, and felt that "Inc." or "Corporation" after your name would add to your credibility and increase sales and profits.
2. It was a good way to formalize a business relationship between you and other owners.
3. It provided liability protection- a mechanism to protect your personal family assets from business-related lawsuits and actions.
All three of these are excellent reasons to incorporate. But...
Are you aware that in order to get the personal liability protection of #3 that there are VERY SPECIFIC THINGS that you need to be doing in order to maintain this "corporate veil" of protection?
Is Your Corporation Protecting You?
