Entrepreneurial Forum

PresentersTimothy K. Cutler, Esq.Connie C. Dai, Esq.CUTLER P.C.10 Milk Street, Suite 720Boston, MA 02108

Kenneth Der, CPA, CFPRichard SooHoo, CPAFAS Corporation1661 Worcester Road, Suite 104Framingham, MA 01701

The Business Partner to Businesses and Individuals

Timothy K. Cutler, Esq.tkc@cutlerlegal.com

• Practicing 24 Years• 10 Years in Los Angeles & 14 Years in Boston

• Founded CUTLER P.C. in 2004• Served as a Mediator• Completed Over 30 Trials in 4 States• Overseen Legal Matters in 8 States• Represented Start-ups and Emerging Companies in the Areas of Software,

Internet, Retail, Engineering and Marketing• Represented Chinese Companies• Creates Legal Entities• Drafts:• Licensing Agreements, Contracts and Employment Agreements

• Handles:• Employment Matters, Disputes Between Shareholders, Unfair Business Practices

and Contract Disputes• Handles:

• Purchase and Sale of Businesses

Connie C. Dai, Esq. MBAccd@cutlerlegal.com

• Practicing business, immigration and real estate• Experience in cross border transactions, contract review and

drafting, judicial internship, work and business visa, naturalization, green card petition

• Business and financial consulting in Canada• Anti-trademark infringement management, joint venture

negotiation, and IP training in Coca-Cola China• Volunteer – unemployment Insurance appeals• NECINA Engagement Officer• J.D., Suffolk, MBA, University of Calgary, B.A., Shanghai • Native Mandarin speaker

Kenneth Der, CPA, CFP• Individual, corporate, trust tax returns and financial planning• Founder and President of FAS Corp for 10 years• Financial operations, risk management, controllership,

operational analysis, internal controls, and corporate strategy• Cisco Systems, Digital Equipment Corporation, and Price

Waterhouse Coopers• Adjunct at Babson College for 4 years• MBA, UC Berkley• BA, Tufts• MST, Bentley• Board member of AACA

Richard Soo Hoo, CPA• Partner, FAS Corp• Tax planning-business, individual, corporate, LLC,

partnerships, non profits, estates, trusts, international, accounting services, retirement plans, audits

• Financial executive with extensive experience in financial operations, risk management, controllership, operational analysis, internal controls, and corporate strategy

• Dassault, National Grid, Getronics/Wang, Millipore/Waters, Texas Instruments, and Price Waterhouse Coopers

• MBA, Stanford • BA, Harvard

Corporate & Business Law

Setting Up a New Entity

Why is it Important to Have a Legal Entity?•Liability•Credibility•Holding Intellectual Property•Allows for Multiple Owners•Disadvantages of Partnerships

What Type of Entity is Best For Your Business?

• “C” Corporation• “S” Corporation• Limited Liability Company or “LLC”• Sole Proprietorship• Partnership or Limited Partnership• Delaware Entity

Management Issues

• Who Is The General?• Fiduciary Duties• Exit Strategies• Bringing in Partners

Tax Planning for Entrepreneurs

FAS Corporation

Tax Treatment of Start-Up Cost

Incorporating a Business• Tax considerations • Funding the corporation with asset transfers

• Cost of incorporation• Organization costs• Start up costs• Corporate filing and on going taxes at both federal and state levels

• Administration and structure• Board of Directors

• Director Fees • Directors and Officers Insurance

• Meeting minutes• Formality• Recording of minutes

Tax Consideration When Forming a Corporation

• Contributed capital

• Cash for stock• Transfer of assets for Stock under section §351

• A nontaxable transaction to contributor as long as no cash or debt is received by the contributor• Basis of the stock is the basis of the asset that is

transferred• Under section §267, related party rule:• a loss is on a sale to the business is prohibited

• If the asset has declined in value consider other alternatives to contributing capital so as not to lose the loss for tax purposes

Tax Free Incorporation Conditions• Non recognition of gain or loss on the transfer of assets and

liabilities to a newly form Corporation ( C or S Corp) is mandatory when all the following are met:• One or more persons transfer property to the new corporation• The transfer is solely for stock( no debt, warrants or preferred

stock)• Other assets received is deemed “boot” and gain is

recognized• Control • The persons making the transfer, taken as a group, must own

at least 80% of the corporation immediately following the exchange( Voting powers and shares outstanding)

Corporation - Considerations• IRS may not recognize the Corporation • Was the Corporation under capitalized• Cash flow issues• Tax issues

• Was the Corporation used for personal reasons• Co-mingling of personal and corporate assets• Were transactions at “Arms Length”• Was the purpose to convert personal expenses to

business• Must ensure that the Corporation has a legitimate business

purpose and can pass the scrutiny of a true business vs. a hobby

Comparison of Single Owner Business

Sole Proprietor

C Corp S Corp Single –Member LLC

Admin Simplicity

Yes No No Fair

Ability to transfer ownership

No- Can transfer business assets

Yes Yes Yes- Becomes a multimember LLC

Ability to raise capital

Limited to owners capital and ability

Very Good: Can have unlimited shareholders

Good: Can have up to 100 Shareholders

Very Good: Can add unlimited members

Ability to shelter Income from Income tax

Poor: all income is taxed at the owners marginal tax rate

Fair: Marginal rates compressed compared to individuals

Poor: all income is taxed at the owners marginal rate

Poor: all income is taxed at the owners marginal rate

Ability to shield owner from Liability

None Limited to capital invested

Limited to capital invested

Limited to capital invested

Ability to shelter income from SE/Payroll tax

Poor Good Fair: IRS can reclassify distributions as wages

Poor: all income is subject to SE tax