- Who is SanDiegoEsquire.com?
SanDiegoEsquire.com is the Law Office of Richard A. Chapo. We are located in San Diego, California. Richard Chapo has been a practicing, licensed attorney since 1992. You can check his status with the California Bar Association
here. Simply type in "Richard Chapo" and hit enter.
- I found an Internet site that will incorporate me for $199? Why should I use you?
As is true with everything, you get what you pay for in the business world. Most domestic online companies will indeed incorporate your business for you. They fail to mention that the $199 doesn't cover State fees, which we do. Regardless, the service will provide you with a nice corporate book, a copy of example bylaws and a few really impressive $5 stock certificates. The process typically takes anywhere from a few weeks to a few months. Assuming that such a delay is fine from a timing standpoint, you are left with a corporate shell that has bylaws that don't apply to your specific business. What documents do you need to open a bank account? Do you need a tax identification number? Should you try to qualify as an "S" corporation? What is a corporate meeting and how often do I need them? How do you sell shares in your company to raise money? None of these questions will be answered by the service.
What if you need a corporation in a rush? We had the California Secretary of State approve a filing in two days a few weeks back. Yes, two days.
"So what? I'll figure it out eventually. What does it matter?"
The form and function of your corporation is very important because you obtain asset protection only if the corporation is
formed and run correctly. In ever state of our country, there is a method for defeating the protection provided by a corporation. This method is loosely known as "
piercing the corporate veil". If an attorney can prove that your corporation was not formed correctly or is not being run as a corporation, then a court will consider your corporation to be a sham and will make your personal assets available to the plaintiff's attorney. To this end, the first move a plaintiff's attorney will make when suing you is to determine if a service or an attorney formed your corporation. If it was formed by a service, the plaintiff's attorney will focus on attacking the validity of the corporation. Why? The attorney knows that you were not advised on how the corporation must function and thus have most likely not complied with such basic things as issuing shares or filing the proper corporate minutes to get the corporation up and running from a legal standpoint.
As an example, we were once asked to review a matter for the purpose of determining if an appeal was warranted. The defendant in the case had formed a corporation for the purposes of manufacturing products. He had purchased the corporation online, but had never consulted with an attorney until he was sued. The company was fairly successful, but was inevitably sued over an alleged defect with one of the products. The defendant lost the case and the court ruled that the corporation was a sham. The court's ruling was grounded in the fact that the defendant did not understand that his finances and the finances of the corporation were not the same. To this end, the plaintiff's attorney was able to prove that the defendant was paying personal bills out of the corporation, claiming income incorrectly as personal revenue, and generally mixing corporate assets with personal assets. Unfortunately, there was nothing that we could do based on the gross misuse of the corporation. He received what he paid for by using the online service and $199 did not buy much.
- What is the Difference Between "S" and "C" Corporations?
The primary difference has to do with taxes. Simply put, a "C" corporation is treated as a separate tax entity from the shareholders. With an "S" corporation, the financial results "pass through" to the shareholders. The designation of either corporation is something that occurs with the IRS, not the Secretary of State.
- Do I have to be the resident agent since I run my business from home?
In every state, a corporation must list a person that will receive service of process for the corporation. In short, this is the person who will be sent official government documents and be served with lawsuits. Since many small businesses are based in residences, the shareholders do not want to be listed as the resident agent. There is a certain embarrassment factor involved if your neighbors see a process server or marshal show up at your home. The agent for process of service, or "Resident Agent", does not have to be located at the physical address of the business. In practically every state, you can retain an independent person to act as your resident agent for the purpose of receiving such documents. Retaining an agent for process of service allows you to avoid uncomfortable glances from your neighbors. We charge $100 a year to act as you agent for service of process.
- Can I name my company "My Name, Inc."?
Why would you? The purpose of a corporation is to provide a shield protecting your personal assets. Why name it something that is going to attract attention? When you buy an alarm system for your house, do you leave your valuables in the front window? The only time we would recommend that you use your name is if it has brand recognition in your industry. We are happy to discuss this with you.
- Does A Corporation Protect Me From Criminal Prosecution?
No. Do not form a corporation and then pursue criminal business strategies such as pyramid schemes. A corporation is designed to protect you from civil liability and unwanted publicity. As an example, Enron has a large number of people on its Board of Directors? How many can you name? One? Even in light of incredibly bad publicity, a certain amount of anonymity has been maintained. Nonetheless, the directors and officers are still facing criminal prosecutions. No business entity will protect you from fraudulent activities.
