Incorporation Question

[spinnaker]

What is the name of your state? MN

I am looking at starting a company that will sell medical products and will be looking to raise capital/seed money from investors in exchange for a portion of the company. Should I start as a S corporation and convert to a C only if necessary?

Are there any special rules/paperwork requiring someone who specializes in this type of business or can any attorney experienced in incorporating businesses do this for me?

 

[JETX]

I am looking at starting a company that will sell medical products and will be looking to raise capital/seed money from investors in exchange for a portion of the company. Should I start as a S corporation and convert to a C only if necessary?

Depends on many factors. Talk with a local attorney who can review your financial status, liability, risks, etc.

Are there any special rules/paperwork requiring someone who specializes in this type of business or can any attorney experienced in incorporating businesses do this for me?

See above response.

 

[DStaub]

Your first question is certainly one that a local attorney should answer for you. As for the second question,

Are there any special rules/paperwork requiring someone who specializes in this type of business or can any attorney experienced in incorporating businesses do this for me?

an answer requires a more complete explanation.

Forming a one-person corporation is very simple (an S corporation is simply a normal corporation that has elected pass-through status under the Internal Revenue Code). Any attorney should be able to fill in the blanks. However, many attorneys who prepare simple incorporation documents may not understand the full ramifications of that choice, particularly in light of your stated intent to turn to other sources for capital. You should be comfortable that your attorney does understand. For example, if you don't bring up your future plans for the company and he doesn't ask the question, he may not be the right attorney for you.

 

[JETX]

Your first question is certainly one that a local attorney should answer for you. As for the second question,
an answer requires a more complete explanation.

Forming a one-person corporation is very simple

And of course, that may NOT be true at all. Some states do NOT allow 'one-person incorporations'.

(an S corporation is simply a normal corporation that has elected pass-through status under the Internal Revenue Code).

And of course, that is ALSO not true.
There are other differences between a c-corp and an s-corp. For example, an s-corp has no flexibility in how profits are split up amongst its owners. The profits must be distributed according to the ratio of stock ownership, even if the owners may otherwise feel it is more equitable to distribute the profits differently. A c-corp can 'elect' how to distribute.
There are also other differences.

 

[DStaub]

The previous post is correct. My point in italicizing the word "forming" was exactly the point jetx made. I guess I was being too subtle so I will say this:

The physical act of forming a corporation is merely mechanical, in most states involving only filling in a very few blanks on a printed form. The problem is that there are a lot of decisions that go into the decision as to what information should go into those blanks and, in fact, whether the entity should be a corporation, S corporation, LLC, LLP, LP or some other form of business, which is why my next statement was:

However, many attorneys who prepare simple incorporation documents may not understand the full ramifications of that choice, particularly in light of your stated intent to turn to other sources for capital. You should be comfortable that your attorney does understand. For example, if you don't bring up your future plans for the company and he doesn't ask the question, he may not be the right attorney for you.

So the answer is that you can't just use any attorney but need to make sure that the one you choose in experienced in dealing with the issues you face.