Law Offices of
Dorfman and

Frequently Asked Questions About Business Law

What is "Business Law"?

It is a highly diverse service that includes:

What is the Difference Between a Subchapter C and S Corporation?

Subchapter C Corporations

Subchapter C corporations face double taxation on their profits when they pay dividends.

C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, and then shareholders are subsequently taxed on their individual returns.

Subchapter S corporations

Subchapter S corporations are allowed to insulate shareholders from corporate debts but avoid double taxation imposed by subchapter C. To qualify they must meet the following criteria:

  • Must be domestic
  • Must not be affiliated with a larger corporate group
  • Must have no more than one hundred shareholders
  • Must have only one class of stock
  • Must not have any corporate or partnership shareholders
  • Must not have any nonresident alien shareholders.

What is the Difference Between an LLC and an S Corp?

When starting a new business it is important to understand the difference between the different structures available for tax and liability management.  Two of those are LLCs and S Corps.

There are many features in common between S Corps and LLCs.

  • Limiting Liability.  Owners of LLCs and S Corps are not personally liable for debts and liabilities.
  • Separate Legal Entities. Both are separate legal entities created by a state filing.  They are formed and governed, however, by different business entity statutes.
  • Taxation.  Both are pass-through tax entities.  The business does not pay income taxes (unless the owners opt to do so).  Profit and loss of the business is passed through to the owner’s personal tax return.
  • Both have by state statute the obligation to maintain a registered agent and to file annual reports, pay annual fees, and various other reports of changes such as name, registered agent change and details of qualification to do business outside of the state in which they were formed.

There are also many differences that affect how you conduct your business. While the IRS does not restrict ownership of LLCs, the IRS does restrict S Corps as follows:

  • S Corps can have no more than 100 owner-shareholders.
  • S Corps owners must be citizens
  • S Corps cannot be owned by corporations, trusts, LLCs or partnerships.
  • S Corps can only issue one class of stock.

There are many differences in management of LLCs vs S Corps.  You should always consult an expert in business formation before committing to a particular business structure to make sure that it best serves your business plan.

What Happens if I (My Business) Gets Sued?

Regardless of how careful you are to avoid lawsuits, there is a chance that you will be sued.

Your chances vary with the type of business you do and things like the number of employees you have and the number of customers or clients you are working with.

The prudent way to prepare is to consult your attorney to create a plan for dealing with such a lawsuit should it happen.

What Challenges Can I Expect When I Start Up My New Business?

In a word, ‘more.’ More than you expected.

Here’s a list of common challenges, but be ready for the unexpected ones that nobody thought of.

  • Shortage of capital and/or cash flow. Have enough capital to carry you through the first year if possible.  Be prepared to have many of your assumptions on costs and expenses to exceed your estimates.
  • Have an excellent business plan. Find someone qualified to evaluate it who can make suggestions and point out flaws.
  • Make sure you have a really great product or service to provide. Know who else is likely to be your most successful competitor.
  • Be prepared to work much more than you expected would be required.
  • Be prepared to have customers reject your best pitches.
  • Hire the best employees you can and be prepared to fire those that don’t perform.
  • Manage your time so that you don’t neglect your personal life and your family.

Hire an experienced business lawyer to assist you. It will be money well spent.

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Debra Sitzberger (530) 274-1321

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Neil Dorfman (530) 559-6881

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