Incorporation - Definition of Doing Business??
Ron Bennett
considering incorporation. I live in Pennsylvania near Philadelphia.
Here's the questions I have - and yes, I plan to consult a lawyer, but want to
have some background on these items first:
1. Type of corporation? I'd like to trade/sell stock to others (mostly
friends) and have the option of going public in the future. Can one create an
'S' corp and later revert back to a 'C' corp?
2. Once incorporated my personal liability is limited, but not that of the
corporation. What type of liability insurance is available for a small
corporation (assets and revenues combined under $1 Million) and the aprox cost?
3. What is the definition of doing business in a particular state?? In
particular I'm a resident of Pennsylvania, etc and yet my hobby (to become a
business) doesn't really have anything in PA. I don't have a storefront, I have
no employees, etc. Instead the entire business will be conducted entirely over
the internet with customers would-wide. Does incorporation in my home state of
PA still make sense or should I consider Delaware instead??
Ron Bennett
Jim Manson
>I currently have a website which I started as a hobby, but it's grown and am
>considering incorporation. I live in Pennsylvania near Philadelphia.
>
>Here's the questions I have - and yes, I plan to consult a lawyer, but want to
>have some background on these items first:
>
>1. Type of corporation? I'd like to trade/sell stock to others (mostly
>friends) and have the option of going public in the future. Can one create an
>'S' corp and later revert back to a 'C' corp?
Yes- it's more a matter of losing the S corp status due to changes
that make it no longer eligible under the Internal Revenue Code.
>
>2. Once incorporated my personal liability is limited, but not that of the
>corporation. What type of liability insurance is available for a small
>corporation (assets and revenues combined under $1 Million) and the aprox cost?
All over the map. It will depend on what the corp does, what potential
problems can occur, which insurance company etc.
>
>3. What is the definition of doing business in a particular state?? In
>particular I'm a resident of Pennsylvania, etc and yet my hobby (to become a
>business) doesn't really have anything in PA. I don't have a storefront, I have
>no employees, etc. Instead the entire business will be conducted entirely over
>the internet with customers would-wide. Does incorporation in my home state of
>PA still make sense or should I consider Delaware instead??
You are still going to be considered doing business in PA even if
incorporated in Delaware. The difference would be that you would be
considered a foreign corporation to PA and Delaware law would apply
for some things dealing with the corporate structure.
If PA is like a lot of other states you will have to get a certificate
of authority to operate in PA from your Secretary of State's office or
equivalent, failure to do so in a several other states that I am aware
of prevents you from using the courts for other than defense and a few
statutory exceptions. PA may not have that law though, your attorney
will know.
As far as generally doing business, it's a balancing determination as
to whether or not a State's "long arm" statutes apply.
If you are domiciled in PA you are doing business there even if you
sell mail order.
These opinions are based on my work dealing a lot with foreign corps
and with determining nexus between them and my state. It's also based
on my work in tax law dealing with audit and collection matters.
Since you are not in Minnesota you need to check everything with an
attorney in PA due to differences in statutes.
HTH
YMMV
Dan Evans
>I currently have a website which I started as a hobby, but it's grown and am
>considering incorporation. I live in Pennsylvania near Philadelphia.
>
>Here's the questions I have - and yes, I plan to consult a lawyer, but want to
>have some background on these items first:
>
>1. Type of corporation? I'd like to trade/sell stock to others (mostly
>friends) and have the option of going public in the future. Can one create an
>'S' corp and later revert back to a 'C' corp?
Yes.
>2. Once incorporated my personal liability is limited, but not that of the
>corporation.
Not exactly. As a shareholder (and presumably an officer of the
corporation) you have no liability for debts of the corporation.
However, you may still be liable for your own acts. For example, if
as an officer of the corporation, you sign a lease for the
corporation, and the corporation later defaults, you have no
liability. However, if while on corporate business you have an
automobile accident, or defame someone, you can be personally liable
for your negligent or wrongful act even though the corporation is
secondarily liable as your employer.
I mention this because people often think that incorporation is a
defense against all liability.
>What type of liability insurance is available for a small
>corporation (assets and revenues combined under $1 Million) and the aprox cost?
No idea. Ask an insurance broker.
>3. What is the definition of doing business in a particular state?? In
>particular I'm a resident of Pennsylvania, etc and yet my hobby (to become a
>business) doesn't really have anything in PA. I don't have a storefront, I have
>no employees, etc. Instead the entire business will be conducted entirely over
>the internet with customers would-wide. Does incorporation in my home state of
>PA still make sense or should I consider Delaware instead??
If you are physically in Pennsylvania while conducting business over
the Internet, Pennsylvania will expect you to pay corporate income tax
regardless of where you are located.
The phrase "doing business" is not defined by statute, and court cases
indicate that all that is needed is an "active presence" in the state.
See, e.g., Clairol, Inc. v. Commonwealth, 518 A.2d 1165 (1986). I
believe that your physical presence in the state while conducting
business as an officer or employee of the corporation will give
Pennsylvania sufficient "nexus" to impose a corporate income tax,
regardless of where you are incorporated.
*Dan Evans
*The above general information is provided
*"as is" and carries no warranty of fitness
*for any particular factual situation.
Jim Manson
>On 27 Mar 1999 15:47:01 GMT, rb1...@ix.netcom.com (Ron Bennett) wrote:
>
>>I currently have a website which I started as a hobby, but it's grown and am
>>considering incorporation. I live in Pennsylvania near Philadelphia.
>>
>>Here's the questions I have - and yes, I plan to consult a lawyer, but want to
>>have some background on these items first:
>>
>>1. Type of corporation? I'd like to trade/sell stock to others (mostly
>>friends) and have the option of going public in the future. Can one create an
>>'S' corp and later revert back to a 'C' corp?
>
>Yes.
>
>>2. Once incorporated my personal liability is limited, but not that of the
>>corporation.
>
>Not exactly. As a shareholder (and presumably an officer of the
>corporation) you have no liability for debts of the corporation.
>However, you may still be liable for your own acts. For example, if
>as an officer of the corporation, you sign a lease for the
>corporation, and the corporation later defaults, you have no
>liability. However, if while on corporate business you have an
>automobile accident, or defame someone, you can be personally liable
>for your negligent or wrongful act even though the corporation is
>secondarily liable as your employer.
>
>I mention this because people often think that incorporation is a
>defense against all liability.
You may also have alter ego issues depending on what you use it for.
It's complicated but I've managed to use it against about 50 corps at
last count for tax collection purposes.
black
I am not an attorney.
My opinion is that conducting business is offering or
executing contracts.
Hypothetical:
You live in PA, but are on vacation in HI, your
mail-order company is incorporated in DE, your
web server is in NV, and a customer is MN but wants
the goods delivered to his summer cabin in NH, the
goods are shipped from warehouses in FL and NY.
The customer places an order via the Internet, and at
the instant the order becomes an executed contract you
are on Waikiki beach in HI. Does that mean you are
"doing business" in HI? I don't think so, rather one
of two scenarios happened.
(1) Your computer sent an offer to sell goods to the
customer, the customer sent his acceptance back and
the acceptance was delivered to your computer in NV.
The contract was executed in NV and you are doing
business in NV. ---- OR ----
(2) Your computer sent an order form to the customer,
the customer filled it out thus creating an offer to
buy that was sent back to your computer. Your computer
replied with an acceptance of the customer's offer to
buy and the acceptance was delivered to the customer.
The contract was executed in MN and you are doing
business in MN.
The first case above is rather simpler, in fact it's
you are essentially operating a vending machine (for
which there is lots of case law no doubt).
I'm not an attorney, view the above as a law school style
exercise.
D. Stussy
> I currently have a website which I started as a hobby, but it's grown and am
> considering incorporation. I live in Pennsylvania near Philadelphia.
>
> Here's the questions I have - and yes, I plan to consult a lawyer, but want to
> have some background on these items first:
>
> 1. Type of corporation? I'd like to trade/sell stock to others (mostly
> friends) and have the option of going public in the future. Can one create an
> 'S' corp and later revert back to a 'C' corp?
You don't create an "S" corp. s. a "C" corp. One chooses to have IRC
Subchapter S treatment by making a tax election, which need not be in the
articles of incorporation (unless required by state law).
Since the remaining questions don't pertain to taxes or tax treatment, I leave
them unanswered (reply to copy posted to newsgroup "misc.taxes").
> 2. Once incorporated my personal liability is limited, but not that of the
> corporation. What type of liability insurance is available for a small
> corporation (assets and revenues combined under $1 Million) and the aprox cost?
>
Jodie
http://lawcrawler.findlaw.com/NOLO/faq2.html.
I suggest you check out Findlaw's Small Business Center at
http://smallbiz.findlaw.com/. Here you will find additional general
information, extensive links to more detailed information, and
downloadable forms and other tools (checklists, business plans) to help
you run your business.
Good luck!
In article <7diuhl$qk0$1...@news1.epix.net>, Ron Bennett
<rb1...@ix.netcom.com> wrote:
> I currently have a website which I started as a hobby, but it's grown and am
> considering incorporation. I live in Pennsylvania near Philadelphia.
>
> Here's the questions I have - and yes, I plan to consult a lawyer, but want
> to
> have some background on these items first:
>
> 1. Type of corporation? I'd like to trade/sell stock to others (mostly
> friends) and have the option of going public in the future. Can one create an
> 'S' corp and later revert back to a 'C' corp?
>
> 2. Once incorporated my personal liability is limited, but not that of the
> corporation. What type of liability insurance is available for a small
> corporation (assets and revenues combined under $1 Million) and the aprox
> cost?
>
> 3. What is the definition of doing business in a particular state?? In
> particular I'm a resident of Pennsylvania, etc and yet my hobby (to become a
> business) doesn't really have anything in PA. I don't have a storefront, I
> have
> no employees, etc. Instead the entire business will be conducted entirely
> over
> the internet with customers would-wide. Does incorporation in my home state
> of
> PA still make sense or should I consider Delaware instead??
>
> Ron Bennett
--
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Jodie Jones http://www.findlaw.com
jo...@findlaw.com http://legalminds.findlaw.com