Author Topic: Creating an S Corp Advice  (Read 897 times)

Zigs

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Creating an S Corp Advice
« on: March 15, 2019, 09:49:34 AM »
Hello,

I'm about to create an S Corp as part of a small business purchase. My lawyer provides the service, but his fee is $2200. That sounds crazy expensive.

Does anyone have any words of wisdom when creating an S Corp? I assume I could use a service like LegalZoom but I don't want to get stuck needing expensive legal edits down the road.

Thanks!

MaaS

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Re: Creating an S Corp Advice
« Reply #1 on: March 16, 2019, 10:05:33 PM »
Hello,

I'm about to create an S Corp as part of a small business purchase. My lawyer provides the service, but his fee is $2200. That sounds crazy expensive.

Does anyone have any words of wisdom when creating an S Corp? I assume I could use a service like LegalZoom but I don't want to get stuck needing expensive legal edits down the road.

Thanks!

I created my S Corp through LegalZoom and had no issues. The process really isn't that complex - in hindsight I probably could have done it myself.

There may be unique complexities to your business of course, the S Corp itself is fairly simple.

Proud Foot

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Re: Creating an S Corp Advice
« Reply #2 on: March 18, 2019, 09:57:55 AM »
Flagging @SeattleCPA because of their vast knowledge of S-Corps and the various regulations and tax issues surrounding that election.

Are you creating an LLC or a Corp? This will be the biggest driver in what your lawyer charges you.

SeattleCPA

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Re: Creating an S Corp Advice
« Reply #3 on: March 19, 2019, 06:45:20 AM »
It's hard (impossible?) to say whether $2200 is fair price or not.

Filling out the articles of formation? Pretty easy. We've got a blog post that shows how steps work for Washington state here: https://evergreensmallbusiness.com/forming-a-washington-state-llc/ and main thing to note is, steps very straight forward...

Filing the 2553 election so you can treat your LLC as an S corporation? That's actually easier to screw up. I've got the steps outlined here: https://evergreensmallbusiness.com/steps-to-elect-sub-s-status-for-wa-llc-or-corp/ But again this is all a very reasonable DIY project for someone who is good at the details.

The above work, however, isn't all someone needs to consider.

You want to time this whole thing correctly. (Probably OP is too late to economically set up an S corporation for 2019. Probably best approach is to form LLC now... and then make election effective 1/1/2020.)

You want to really run the numbers to verify that the costs of operating an S corporation make sense given the savings. (Tip: Usually you want to be making a high five figure profit or more to make the economics work.)

Finally, you need to be able to handle the additional complexity. You're going to have to set a salary, handle payroll (or outsource that work), run a decent accounting system that generates not just a profit and loss statement but a balance sheet. (Please, no faux "Excel spreadsheet" accounting systems...)

If the attorney will help with this other stuff, it seems very possible paying $2200 makes economic sense.

You might also want to consider working with an accountant who does lots of S corporation work (try to find someone local or someone who specializes in the industry you work in). But note that the CPAs won't have time for this until after tax season. Especially this year with the new tax law.

P.S. I've got a pretty big S corporation FAQ that might be useful if you're still doing your research: http://www.scorporationsexplained.com/scorpexplained-faq.htm

trollwithamustache

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Re: Creating an S Corp Advice
« Reply #4 on: March 19, 2019, 07:57:41 AM »
I bought a Nolo book and did it myself. But I am a one man consultant so its pretty easy to do everything. I could see the lawyer being worthwhile if you have multiple shareholders/ investors or there is something about the assets/business you are buying that you need the lawyer to review.

FrontRanger

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Re: Creating an S Corp Advice
« Reply #5 on: April 07, 2019, 06:27:35 PM »
I just set up a multi-member llc and leveraged legal forms at the library. Most public libraries have access to electronic legal docs to access for small business owners. Everything from operating agreement forms, contracts, lease agreements, etc.

chasesfish

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Re: Creating an S Corp Advice
« Reply #6 on: April 14, 2019, 06:42:25 AM »
I think there's two considerations..

Consideration 1:  Like @SeattleCPA said, depending on your projected income, an LLC may be better than an S-Corp.  I also think S-Corps are toxic if you want to take on outside investors, because there are issues with other companies/partnerships/trusts taking an ownership interest in S-Corps.

Consideration 2: Are you now or ever going to conduct "big boy" activities that require real corporate documents?  These include:
- Having multiple owners
- Borrowing Money
- Taking on investors

If you're not, the legal documents (just an opinion) aren't that big of deal.  The second you consider doing any of the three above, legal documents matter.  I can't tell you how many times I was loaning money to a company and it was their first time borrowing and their legal docs were garbage.  They were bad enough that closing would get delayed because they failed to properly outline authority to borrow money for the company.




SmileAllDay

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Re: Creating an S Corp Advice
« Reply #7 on: April 18, 2019, 04:29:20 AM »
I know that it isn't like for like necessarily but my wife, and a friend of mine, both used a lawyer in MO to set up their respective S Corps for $500 each.