Just met with a potential client who wanted advice on whether to form an S corporation “to do everything legally required” for a new business. He wants to export clothing, cars, and food to Africa. I reminded him about the tax benefits (no Social Security/Medicaid taxes on S distributions) and disadvantages (franchise taxes) of sub S versus LLC organization, but the advice did not stop there, and neither do the legalities. A dealer’s license for any more than six car sales per year, a local general business license, reliable freight services from all local shipping points to the destination, customs clearance services for same, shipping insurance for each common carrier, warehouse contracts and bonds, customs clearance services, product inspection services, and letters of credit to assure payment to his shippers (and from those payments, to him as shipping company or export broker) were all significant questions. Banking assurance of legality of payments sources and of export credit (SBA/Eximbank) could also be important, as might business interruption or political risk insurance, depending on the risks of piracy, civil war, or other things that might interrupt the flow of goods. He also needs a buy-sell (funded with key person insurance) and a shareholder’s management agreement, plus ownership, payment, and day to day tax reporting and operations management understandings with his new partner, plus enough capital to start making arrangements for new orders and the trade finance to pay for them. What this means is that anyone who gives legal or tax advice on a new business needs to know the business process or processes involved, to advise on the tax, business entity, regulatory, contract, and payments cycles involved, and to get involved enough in the details to remember local government, state government, federal government, and all international issues likely to come up in the course of any sales generation, fulfillment, and collections cycle.
Tags: AfricaAuto Dealer's LicenseBank RegulationsBusiness Interruption InsuranceBuy-Sell AgreementCustoms ClearanceEximbankExport companyExport FinanceFranchise TaxFulfillmentInternational PaymentsInternational SalesLetters of Creditlimited liability companyllcPiracyPolitical RiskS corporation distributionsS corporation taxS corporationsSales CycleSBA Export ExpressShareholder's Management AgreementShipping InsuranceStartup Capital