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I am creating an S-Corp for consulting services. I will be the sole employee for now, and likely for the foreseeable future.

I am trying to figure out initial shares for the corporation, which will likely be 1000 shares at .01 value. Should I make my wife a shareholder/Director, and have each of us hold 500 shares? Or is her ownership in the business assumed since we are married and she is entitled to half of everything we jointly own?

I want to make the corporation and overhead as simple as possible, but want to ensure that my wife is protected in the event of my death, etc.

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  • I'm not sure you understand what a 50% stake in a S-Corp means. Have you had a talk with a tax adviser, as I suggested you previously? – littleadv Apr 9 '13 at 17:37
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If you're creating an S-Corp for consulting services that you personally are going to provide, what would it give her to have 50% of the corporation when you're dead?

Not to mention that you can just add it to your will that the corporation stock will go to her, and it will be much better (IMHO, talk to a professional) since she'll be getting stepped-up basis.

Why aren't you talking to a professional before making decisions? It doesn't sound like a good way to conduct business.

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  • Thanks. I was trying to collect the information and do the work myself following some online examples, but keep running into questions. I will have it done professionally. – Phil Sandler Apr 9 '13 at 18:20
  • @Phil again, suggest considering LLC instead of a corp. – littleadv Apr 9 '13 at 18:22
  • I actually did take a look at that from your note in my last question--the payroll tax advantage of an S-Corp makes a huge difference in my case. – Phil Sandler Apr 9 '13 at 18:28
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    @Phil I'm not sure I agree. I believe you think that you can divide your S-Corp income into salary and distributions. That might not be so, especially if you're the sole contributor of work. Your wife is a related party, so giving her shares might not solve the problem, just cause more dealings with the IRS. Again - talk to a professional. – littleadv Apr 9 '13 at 18:29
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    @Phil get a good one, a lot of people do many things that aren't allowed. It will be you standing in court or paying penalties, not the CPA. – littleadv Apr 9 '13 at 18:37
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There are many aspects to consider in deciding what sort of company you want to form. Instead of an S-corporation, you should determine whether it would be better to form a Limited Liability Company (LLC), Limited Partnership (LP) or even a professional company (PC).

Littleadv is correct: There is minimal benefit in forming an S-corp with you and your wife as the shareholders, if you will be the only contributor-worker. There are costs associated with an S-corporation, or any corporation, that might outweigh benefits from more favorable tax treatment, or personal protection from liability:

  • The cost of initial filing to incorporate is monetary;
  • Additional disclosure requirements for an S-corp versus a sole proprietorship is non-monetary, but just as burdensome as filing fees.

Filing fees and disclosure rules vary from state to state. For example, my father was a cardiologist who had no employees, other than my grandmother (she worked for free), in a state with income taxes (NM). He was advised that a PC was best in New Mexico, while an S-Corp was better in Florida (there are no personal income taxes in Florida).

The only way to know what to do requires that you consult an accountant, a good one, for guidance.

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