While it’s always important to have the right professionals representing you, including your attorney and accountant, it is also very important that they all work together as a team for your benefit.
This point cannot be overemphasized and is often over looked.
Since the accountant typically has more day to day/week to week dealings with the client that the lawyer does, we feel it is important to get their input from day one.
In most instances, we like to talk to the client’s accountant prior to forming an entity (and that is always one of the first questions that I ask the client-do they have a relationship with an accountant), as they may have specific preferences as to what type of entity it should be based upon a variety of circumstances. Depending on the situation, they may suggest a corporation, or S corporation, over an LLC. This could be for a variety of reasons, including salary/compensation issues for the principal (payroll in a corporation vs. self-employment income in an LLC) as well as whether items should be reported on a separate tax return (i.e., if there is one owner, in a single member LLC all items are reported on an individual owners individual tax return, Schedule C, vs. an S corporation, where all items are reported on a Form 1120S and then the shareholder’s share of income would be reported on their individual return).
Depending upon the particular business, there may also be various state and local tax issues to consider in terms of where to form the entity and what type of entity it should be and the attorney and accountant, working together, should discuss those issues.
As discussed in other articles, the type of entity to form also must take into consideration future financing needs, including investors down the road and the fact that an S corporation structure may limit that.
There may be various other matters that the attorney and accountant can also strategize on together either at the time of formation or early on in the entity’s life. One such example of this is that this author, in tandem with the accountant, devised a strategy whereby S corporation stock was gifted to the founder’s adult children several months after the entity’s formation, with control remaining in the hands of the founding shareholder. Since the value of the entity was small, there were no real gift tax consequences to the gifts of the stock. Within 3 years, the enterprise was merged into a public company and the owners received an aggregate of $35 Million, which was an excellent estate planning tool to get assets to the younger generation tax free!