Article: A Quick Guide To Operating Small (S) Corporations - Free Reprintable Article

Owning a small business can be a very rewarding experience. Or it can be an absolute nightmare if you don't operate your business properly. This article touches on two aspects of operating your corporation as a separate entity: Corporate Accounting and Corporate Minutes.

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A Quick Guide To Operating Small (S) Corporations

by David Berky
Owning and operating a small business can be a very rewarding experience, emotionally as well as financially. Or it can be an absolute nightmare if you don't structure and operate your business properly.

Never underestimate the resources of a good lawyer and accountant. They can help you avoid problems and even get you out of trouble you may stumble into.

The law considers your corporate a separate entity. It has a birthdate (the date of incorporation), and can have a death date (the date you close the corporation). It can enter into contracts and agreements and has the same responsibilities as you would.

As a separate entity, your corporation can protect you from lawsuits and asset seizures arising from the operation of the corporation (as long as you are not personally negligent or irresponsible). Many people see this protection as the main reason for forming a corporation vs. operating as a sole proprietor without any protection.

But in order to be considered a separate entity, you have to run your corporation according to some rule, laws and guidelines. The following information touches on two aspects of operating your corporation as a separate entity: Corporate Accounting and Corporate Minutes.

Corporate Accounting

Your corporation should have its own bank account and Employer Identification Number (EIN) issued by the IRS. This helps to establish the corporation as an entity, separate from its stockholders and officers.

Accounting records should be kept to record income, expenses, assets (equipment, real estate, intellectual property, etc.) and liabilities (debts, loans, mortgages, etc.). It is recommended that you retain an accountant to help with the accounting functions, year-end taxes and payroll taxes.

Your accounting system can be as simple as a set of spread sheets (on paper or a computer). Or you can purchase accounting software such as QuickBooks, Peachtree, MYOB, etc. You may want to have your accountant help you set up the computer software so that you have all the accounts you will need. Also your accountant can help you learn how to enter different transactions. (Don't ask them during March, April or October - IRS tax deadlines.)

Or consult with your accountant and develop a plan for recording your business activities and turning the information over to your accountant to be put into a computerized system either monthly or quarterly. This costs more for the accountant's services but can save you a lot of time and headaches (and money) if you get in trouble with the IRS or your state/city taxing agencies.

Corporate Minutes

Incorporated businesses are required to keep minutes of the activities of the business. Minutes are the voice and history of the corporate entity and can be used in court cases. Minutes also show that the officers/stockholders of the corporation are operating the corporation as an entity and not just an extension of themselves.

Officers and shareholders can lose the protection of the corporate entity if they do not operate the corporation as a corporation; this includes keeping accurate minutes.

These minutes can be as simple as a dated note written on a piece of paper and inserted into a three ring binder. Corporate minutes don't have to be on fancy paper or letterhead and don't have to use any special language style (legalese, corporatese, etc.). Corporate minutes should be clear and understandable.

It is recommended that the corporate minutes be typed, include a date, names of participants and signatures of participants or corporate officers.

Things to include in the minutes:

Authorization to open a bank or credit account.
Major purchases of equipment, assets, other businesses.
Summary of marketing or advertising campaigns.
Summary of business growth initiatives, projections and goals.
Business plan, mission statement, corporate objectives, etc.
Quarterly and yearly financial records.
Major stock sales, purchases or transfers (almost every stock activity in a small business will be "major").
List of stockholders, names, addresses, number of shares and percentage of total shares issued (update once a quarter with quarterly financials if any changes).
Hiring, firing of corporate officers or contractors.
Notes of board meetings and stockholders meetings (at least one official meeting with minutes should be held each year).
Any other significant business events.

Conclusion

There are few things more satisfying than building a business from scratch. There are few things more trying than fighting personal lawsuits and the IRS. Operating your corporation properly will allow you to focus on running your business rather than defending it or yourself. It takes an extra investment of time and money, but just consider it additional insurance, both financial and for your peace of mind.

***************************************************************
© Simple Joe, Inc.
David Berky is president of Simple Joe, Inc. a marketing company that sells simple software under the brand name of Simple Joe. One of Simple Joe's best selling products is Simple Joe's Money Tools - a collection of 14 personal finance and investment calculators. This article may be freely distributed so long as the copyright, author's information and an active link (where possible) are included.

Note: This article may be freely distrubuted and reprinted as long as the author's information and web link are included at the bottom of the article. The web link should be active when the article is reprinted on a web site or in an email. Minor edits and alterations are acceptable so long as they do not distort or change the content of the article. For more information on reprint rights email:

Article Formatted for Email & Newsletters:

1517 Words

Title: A Quick Guide To Operating Small (S) Corporations
Author: David Berky

Owning and operating a small business can be a very
rewarding experience, emotionally as well as financially.
Or it can be an absolute nightmare if you don't structure
and operate your business properly.

Never underestimate the resources of a good lawyer and
accountant.  They can help you avoid problems and even get
you out of trouble you may stumble into.

The law considers your corporate a separate entity.  It has
a birthdate (the date of incorporation), and can have a
death date (the date you close the corporation).  It can
enter into contracts and agreements and has the same
responsibilities as you would.

As a separate entity, your corporation can protect you from
lawsuits and asset seizures arising from the operation of
the corporation (as long as you are not personally negligent
or irresponsible).  Many people see this protection as the
main reason for forming a corporation vs. operating as a
sole proprietor without any protection.

But in order to be considered a separate entity, you have to
run your corporation according to some rule, laws and
guidelines.  The following information touches on three
aspects of operating your corporation as a separate entity:
Corporate Accounting, Corporate Minutes, and Corporate
Officers, Employees & Contractors.

Corporate Accounting

Your corporation should have its own bank account and
Employer Identification Number (EIN) issued by the IRS.
This helps to establish the corporation as an entity
separate from its stockholders and officers.

Accounting records should be kept to record income,
expenses, assets (equipment, real estate, intellectual
property, etc.) and liabilities (debts, loans, mortgages,
etc.).  It is recommended that you retain an accountant to
help with the accounting functions, year end taxes and
payroll taxes.

Your accounting system can be as simple as a set of spread
sheets (on paper or a computer).  Or you can purchase
accounting software such as QuickBooks, Peachtree, MYOB,
etc.  You may want to have your accountant help you set up
the computer software so that you have all the accounts you
will need.  Also your accountant can help you learn how to
enter different transactions.  (Don't ask them during March,
April or October - IRS tax deadlines.)

Or consult with your accountant and develop a plan for
recording your business activities and turning the
information over to your accountant to be put into a
computerized system either monthly or quarterly.  This costs
more for the accountant's services but can save you a lot of
time and headaches (and money) if you get in trouble with
the IRS or your state/city taxing agencies.

Corporate Minutes

Incorporated businesses are required to keep minutes of the
activities of the business.  Minutes are the voice and
history of the corporate entity and can be used in court
cases.  Minutes also show that the officers/stockholders of
the corporation are operating the corporation as an entity
and not just an extension of themselves.

Officers and shareholders can lose the protection of the
corporate entity if they do not operate the corporation as a
corporation; this includes keeping accurate minutes.

These minutes can be as simple as a dated note written on a
piece of paper and inserted into a three ring binder.
Corporate minutes don't have to be on fancy paper or
letterhead and don't have to use any special language style
(legalese, corporatese, etc.).  Corporate minutes should be
clear and understandable.

It is recommended that the corporate minutes be typed,
include a date, names of participants and signatures of
participants or corporate officers.

Things to include in the minutes:

* Authorization to open a bank or credit account.
 * Major purchases of equipment, assets, other businesses.
 * Summary of marketing or advertising campaigns.
 * Summary of business growth initiatives, projections and
goals.
 * Business plan, mission statement, corporate objectives,
etc.
 * Quarterly and yearly financial records.
 * Major stock sales, purchases or transfers (almost every
stock activity in a small business will be "major").
 * List of stockholders, names, addresses, number of shares
and percentage of total shares issued (update once a quarter
with quarterly financials if any changes).
 * Hiring, firing of corporate officers or contractors.
 * Notes of board meetings and stockholders meetings (at
least one official meeting with minutes should be held each
year).
 * Any other significant business events.

Corporate Officers Employees, & Contractors

In most states, for a small (S) corporation, a board of
directors is not required.  The major stock holder(s) can
serve as both the board of directors and corporate officers.
Your corporation should have a minimum of a President and
Treasurer (identified in the corporate minutes).  The
President and Treasurer can be the same person.  Other
corporate officer positions may include; Vice President,
Secretary, Chief Financial Officer, etc.

For a business where a single employee conducts the primary
business operations, that employee should receive a salary
even if the "employee" is also a major stockholder,
corporate officer or both.  The salary can be a percentage
of the net income of the business, but a salary must be paid
so that employment taxes are collected and paid (contact
your account for more information about payroll and payroll
taxes).

Also the salary should be realistic.  If your company nets
$100,000 a year a $2000 salary for the President/CEO would
be unreasonable.  The IRS will look at that as your attempt
to avoid payroll and employment taxes and they will not be
happy.

The remainder of the net income may be distributed to
stockholders according to their percentage of ownership.
For tax purposes, distributions will be shown on the K-1
statement for each stockholder.  The salary (and payroll
taxes) paid to any employees becomes a business expense to
be deducted from the gross income with other expenses.

You may have occasion to hire a contractor.  But be careful
to treat the person as a contractor and not as an employee.
When determining if a person will be considered an employee
or a independent contractor by the IRS use these guidelines:

(From IRS Publication 1779 - Independent Contractor Or
Employee)

Behavioral Control

These facts show whether there is a right to direct or
control how the worker does the work. A worker is an
employee when the business has the right to direct and
control the worker. The business does not have to actually
direct or control the way the work is done  as long as the
employer has the right to direct and control the work. For
example: I Instructions  if you receive extensive
instructions on how work is to be done, this suggests that
you are an employee .

Instructions can cover a wide range of topics, for example:

* how, when, or where to do the work
 * what tools or equipment to use
 * what assistants to hire to help with the work
 * where to purchase supplies and services

If you receive less extensive instructions about what should
be done, but not how it should be done, you may be an
independent contractor .

For instance, instructions about time and place may be less
important than directions on how the work is performed.

Training  if the business provides you with training about
required procedures and methods, this indicates that the
business wants the work done in a certain way, and this
suggests that you may be an employee

Financial Control

These facts show whether there is a right to direct or
control the business part of the work. For example:

* Significant Investment  if you have a significant
investment in your work, you may be an independent
contractor . While there is no precise dollar test, the
investment must have substance. However, a significant
investment is not necessary to be an independent contractor

* Expenses  if you are not reimbursed for some or all
business expenses, then you may be an independent contractor,
especially if your unreimbursed business expenses are
high.

* Opportunity for Profit or Loss  if you can realize a
profit or incur a loss, this suggests that you are in
business for yourself and that you may be an independent
contractor .

Relationship Of The Parties

These are facts that illustrate how the business and the
worker perceive their relationship.

For example:

* Employee Benefits  if you receive benefits, such as
insurance, pension, or paid leave, this is an indication
that you may be an employee . If you do not receive
benefits, however, you could be either an employee or an
independent contractor .

* Written Contracts  a written contract may show what both
you and the business intend. This may be very significant if
it is difficult, if not impossible, to determine status
based on other facts.

When You Are an Employee

* Your employer must withhold income tax and your portion of
social security and Medicare taxes. Also, your employer is
responsible for paying social security, Medicare, and
unemployment (FUTA) taxes on your wages. Your employer must
give you a Form W-2, Wage and Tax Statement , showing the
amount of taxes withheld from your pay.

* You may deduct unreimbursed employee business expenses on
Schedule A of your income tax return, but only if you
itemize deductions and they total more than two percent of
your adjusted gross income.

When You Are an Independent Contractor

The business may be required to give you Form 1099-MISC,
Miscellaneous Income , to report what it has paid to you.

* You are responsible for paying your own income tax and
self-employment tax (Self-Employment Contributions Act 
SECA). The business does not withhold taxes from your pay.
You may need to make estimated tax payments during the year
to cover your tax liabilities.

* You may deduct business expenses on Schedule C of your
income tax return

(Source: IRS Publication 1779 - Independent Contractor Or
Employee)

You do not need to fill out a 1099 form for contractors that
you pay less than $600 or contractors (and businesses) that
are incorporated or part of a LLC or other business
structure and bill you as a business.

Conclusion

There are few things more satisfying than building a
business from scratch.  There are few things more trying
than fighting personal lawsuits and the IRS.  Operating your
corporation properly will allow you to focus on running your
business rather than defending it or yourself.  It takes an
extra investment of time and money, but just consider it
additional insurance, both financial and for your peace of
mind.

************************************************************
 © Simple Joe, Inc.
David Berky is president of Simple Joe,
Inc. a marketing company that sells simple software under
the brand name of Simple Joe.  One of Simple Joe's best
selling products is <A
href="http://www.simplejoe.com/moneytools/index.htm">Simple
Joe's Money Tools - a collection of 14 personal finance and
investment calculators</A>. This article may be freely
distributed so long as the copyright, author's information
and an active link (where possible) are included.

686 Words (Edited)

Title: A Quick Guide To Operating Small (S) Corporations
Author: David Berky

Never underestimate the resources of a good lawyer and
accountant.  They can help you avoid problems and even get
you out of trouble you may stumble into.

But in order to be considered a separate entity, you have to
run your corporation according to some rule, laws and
guidelines.  The following information touches on two
aspects of operating your corporation as a separate entity:
Corporate Accounting and Corporate Minutes.

Corporate Accounting

Your corporation should have its own bank account and
Employer Identification Number (EIN) issued by the IRS.
This helps to establish the corporation as an entity,
separate from its stockholders and officers.

Corporate Minutes

Officers and shareholders can lose the protection of the
corporate entity if they do not operate the corporation as a
corporation; this includes keeping accurate minutes.

It is recommended that the corporate minutes be typed,
include a date, names of participants and signatures of
participants or corporate officers.

Things to include in the minutes:

Conclusion

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Page Title:	Article: A Quick Guide To Operating Small (S) Corporations
Keywords:	small corporation s corp business owner operating own corporate minutes accounting article free distribute information web site content website, free reprintable article
Summary:	Owning a small business can be a very rewarding experience. Or it can be an absolute nightmare if you don't operate your business properly. This article touches on two aspects of operating your corporation as a separate entity: Corporate Accounting and Corporate Minutes.