Corporation legal ownerhips nd We The People

[Strongsilence-CPA]

2. Client is forming an S corp. He went to We the People instead of the attorney I recommended. They registered with the CA Sec State, which looks okay. They gave him a binder of the usual documents, without any names listed, nor signatures, which does not look okay.

The client isn't knowledgeable in the areas of taxes and legal issues. Example, he doesn't know if his spouse should be an owner or not?  I have tried to guide him but IANAL.

2.  What document officially and legally determines the ownership?  Is it the articles of incorporation or the 2553 or both?  And owners on both must match right?

I will tell him again that We the People doesn't give me confidence.

[George4Tacks]

I would guess that binder contains some Stock Share Certificates. They should be given out to the shareholders and that would determine the ownership. I HATE S-CORPS. It sounds like you are encountering the same type of S-Corp I have met my whole career. Mikey at the Barber shop mention what a great thing the S-Corp is so everyone at the bar went home and did some research with the cab driver on the way home. They all ran out and set up this mess they could done more gooder by getting a good insurance agent to buy some liability policy for themselves.  I HATE S-CORPS.

[IRonMaN]

I just wanted to second George - stock certificates are what you need to see to determine who owns what and how much.  I have never heard of We the People and hopefully I never cross paths with their work.

[qbteachmt]

"he doesn't know if his spouse should be an owner or not?"

Just a few points I would use:

Since an S Corp has a payroll requirement for Reasonable Compensation, it partly depends on their operational intent. Will the spouse be working as an employee of the business? And you would want to know your State rules for common law or community property, for the shares of ownership. Was he going to be a sole shareholder?

And as has been pointed out: why are they doing this? Who gave them some guidance for it, and is it even a thing to do? Or, was that from TikTok?

[Strongsilence-CPA]

Thank you for the advice.  You three are important and valuable!

why are they doing this? Who gave them some guidance for it, and is it even a thing to do? Or, was that from TikTok?

1. He isn't good at saving and usually can't pay estimated taxes quarterly. So I advised a payroll with regular income tax withheld. I think this is a good solution as he will have less money to spend on personal.

2. I like the PTE credit available to California taxpayers.  It is a significant benefit that is not available to sole proprietors.

3. CA community property state would suggest that his spouse is a co-owner even without actual stock ownership.

4. Spouse won't participate - in management or as an employee - in the S Corp.  I don't like that she would be required to be paid a salary.

I'm not going to recommend that she become a shareholder.

[sjrcpa]

"3. CA community property state would suggest that his spouse is a co-owner even without actual stock ownership."

Spouse needs to sign the 2553 whether actual stock owner or not due to community property rules.

[sjrcpa]

"4. Spouse won't participate - in management or as an employee - in the S Corp.  I don't like that she would be required to be paid a salary.'

She wouldn't if she doesn't do any work for the corp.

[abctax55]

2. I like the PTE credit available to California taxpayers.  It is a significant benefit that is not available to sole proprietors.

After paying a 'reasonable salary'.... and it sounds like he is a one man show.... how much income will be left over to do the 9.3% PEET calculation?