Chapter 2
Creation
How to Establish and Improve Your Firm’s Presence
Legal
Incorporation
There are three basic options for incorporation or creating a legal business entity. You will occasionally hear from people who will tell you that you don’t have to incorporate. Shun them—they are fools. You will, rarely, hear from a lawyer who will tell you that it’s not necessary to incorporate.
Call the ethics committee of the bar association!
You incorporate to create a legal entity that can protect your personal assets, form a firewall to protect you, independently borrow money, create certain tax advantages, and enable you to do business with major clients.1
Always use an attorney and tax advisor who are profoundly well versed in small, professional services firms. Do not use someone who has helped close on your house, done your will, and is related to you in any way closer than seventh cousin, twice removed. (If it’s illegal to marry them in your state, you shouldn’t use them as advisors.)
Three types of entity:
1. Chapter C. This is the standard corporation in the United States, like Microsoft or United Airlines. I once favored it because there were benefits and tax advantages, but recent laws have removed them. Since you have to empty a Chapter C corporation of all cash before year-end or risk being taxed twice on the same revenue (once in the corporation and once when you take it as salary or bonus), it’s no longer the best alternative for solo practitioners or small firms.
2.
