NYCPHP Meetup

[tedd]

Brian:

I recommend seeking the advise of an attorney and having him/her draw 
up the articles of incorporation. You can discuss with the attorney 
what the advantages and disadvantages are of the different types of 
incorporation (e.g., S, C, LLC). Each has it's own tax structure.

If the corporation is drawn up correctly and the rules of the 
corporation are followed, then you will protect yourself from 
personal liability in the event that something bad happens, like 
accidentally dropping a client's customer table while working with 
his database when there was no backup.

You should also think about getting an "errors and omissions" policy 
for that exact same reason. While having a corporate umbrella does 
protect you from being personally libel, losing a corporation is not 
the best thing that can happen to you either -- so protect the 
corporation as well.

Also, being in a corporation does come with some liability. For 
example, if you are the secretary treasurer, then that makes you 
personally responsible for state and federal withholding taxes for 
employees. So don't think you're totally safe just because you're in 
a corporation.

For example, I was a partner and the secretary treasurer of another 
corporation. I left the corporation employ, sold my stock and 
completely dissolved my relationship with the corporation. However 
two years after I quit, the corporation hired an employee and a year 
later went bankrupt. The State of Michigan came after me for the 
withholding taxes for that employee even though the infraction 
occurred three years after I had left. I spent two days fighting with 
the State showing them that I was not responsible. After which, the 
State of Michigan still would not release me from the liability other 
than to say "We'll see... ". I had to turn it over to my attorney to 
get the issue resolved. A big waste of time and money.

Additionally, if you pierce the corporate vail by not passing income 
through the corporation but taking payment directly, then you forfeit 
the corporate protection. Likewise, not having an annual minutes 
meeting can dissolve the corporation leaving you unprotected. There 
are at least a dozen rules like this that you must follow. So, hire 
an attorney, have him/her prepare the papers, and ask what your 
responsibilities are. There's no reason to start up a corporation if 
you don't know how to use it or what your responsibilities are.

Cheers,

tedd

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