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s it legal for a stock holder to have the business pay mortgage - Andy Gale Answer Orange County

The client’s husband had formed a one shareholder small business corporation.

She wondered whether it was legal for her husband to pay the personal mortgage on his house, pay for the expenses of his vehicle such as loan payments and fuel utility hook up and the like. She also wondered whether or not the same rule would apply to her.

She also wondered whether or not it was a crime or against the law. She wondered whether or not the stockholder could make payments to himself such as company bonuses and the payment of personal expenses on the company business credit cards.

As you can see, she was worried about quite a number of things.

Answer: What do we consider corporate legitimate expenses in a California S Corporation?

It may theft for a shareholder of an incorporated business to pay personal expenses from the corporate bank account.

As with so many things having to do with corporate law, a helpful and proper answer would require input from lawyers who specialize in corporations, tax, and family law with an accountant thrown in for good measure. And, then, of course, it all depends on more facts.

Can you tell me how to purchase a house using a Corporation - Answer by Andy Gale Orange CountyIs it legal for a stockholder to have the business pay mortgage, vehicle payments, fuel, misc. expenses, utility hook-ups, bonuses, business credit cards as personal?

Per the IRS, business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in the trade or business.

A necessary expense is one that is helpful and appropriate to the trade or business. An expense does not have to be indispensable to be considered necessary.

Is this all legal?

Maybe. Each expense must be considered on its own merits. If the shareholder owner makes the personal expense from the entity, classifies the expense as a shareholder draw, and later pays the appropriate personal taxes, there most likely is not a problem.

If on the other hand, the expense is personal and hidden as a business expense, then the IRS (and ultimately the shareholder, will not be happy. If the wife has the knowledge and goes along with it, she could have a problem as well.

If you are not sure, send us an email and we can schedule a teleconference to review your situation.

Take a look at the S Corporation Bylaws

Many times, the subject of corporate expenses is covered in the corporate records as many shareholders of small business corporations require the limits be set out in writing before investing in a corporate start-up.


Should I use my S Corporation in California for my Business Estate Planning - Andy Gale Orange County California AttorneyIs using an S corporation for my Business Estate Planning a Good Idea?

I am trying to figure out if I should start a corporation with all my assets put into the corporation. Do I have to have my children in the corporation from the start or can I leave the assets to an estate?

Do I have to change titles and other documents when putting assets into the corporation?

Answer: I would have to say that probably the worst place in the world for all of your assets would be inside a corporation!

Here is how I would think about the question. I would have to say that probably the worst place in the world for all of your assets would be inside a corporation – California S corporation or C corporation.

Here is the reason why: corporations get sued all of the time. If your corporation gets sued and loses, the creditor has the right to collect the damages of the lawsuit from the corporation. In many cases, the creditor collects against the insurance that the corporation has purchased and the matter is over.

However, if the damages exceed the value of the insurance policy, the creditor will then next turn to the assets of the corporation.

If you placed all your personal assets inside the corporation, the creditor would be entitled to collect against those assets. In the case of a big enough lawsuit, you could lose everything.

I think that a revocable family trust will most likely achieve the goal that you are seeking. By placing your assets inside a revocable trust, you can do the planning necessary to pass your assets to your heirs without unnecessarily placing your personal assets at risk inside your business.

What kinds of Estate Planning Documents should I consider?

If you do decide to prepare your basic Business Estate Planning documents, I recommend that you create the following documents at a minimum: a family trust, pour-over wills, advanced health care directives, and powers of attorney for property management.

If you need assistance in better understanding business estate planning for your corporation, please feel free to give us a call at the Incorporation Attorney at 714-634-4838.


Can get out of this corporation - Small Business Lawyers Orange CountyCan I get out of this corporation, what legal concerns may I encounter doing this? What if I quit and take what was mine originally?

I had my own company for 10 years and then got an invitation to start a corporation with a partner 50/50. I am the only one who brought equipment for us to work, but we have been buying some new equipment.

As a company, it is rapidly going downhill.  My partner’s job was to get the work and do all paperwork (invoices as well as managing the checkbook). He has been taking advantage sometimes and we are not getting enough work to survive or at least get a regular paycheck.

I have been doing my part getting the work done as we agreed, but the company is not generating enough money for both of us to keep up with the overhead. I would like to get out and start doing something else. I am about to lose my home and cannot afford to stay any longer the company owes me a lot of money but he still wants to keep trying what should I do?

Answer: Depends, here are the steps

Conduct a meeting with your co-shareholder at the first available opportunity - Andy Gale AnswersCarefully review the corporate bylaws to locate the corporate dissolution process and schedule a shareholder meeting.

I am so sorry that you run into this problem with your co-shareholder. It is a complicated situation so the first piece of advice that I would give you is for you to call your business attorney and your CPA to bring them up to speed on the current situation.

Tomorrow morning, you want to go through your corporate record book and look for the bylaws of the corporation. You will review the bylaws carefully and look for the section that specifies how you arrange a special meeting with the shareholders and board of directors.

Following the guidance set out in the bylaws, you must schedule a formal meeting to discuss a resolution problem. Ask your CPA to prepare a current financial statement and balance sheet of the corporation. Ask your attorney to review the bylaws of the corporation and any shareholder agreements that you made during the lifetime of the corporation.

Conduct a meeting with your co-shareholder at the first available opportunity.

It would be best if you have your business lawyer and CPA present at the meeting to discuss the accounting and legal aspects of the case. I feel that it is important to make this meeting as formal as possible because the likely result will be that:

1. you buy him out;
2. he buys you out;
3. you both agree to pour more money into the operation of the corporation; or,
4. you start the process of formal corporate dissolution.

Each one of these decisions involves a lot of discussions and it will be best for the two of you shareholders to have objective professionals present while you review the options.


The legal profession can often take a lot of criticism from the cynical. Andy Gale, an Orange County Small Business Attorney challenges negative assumptions about the legal profession on a daily basis.

As a recently awarded Avvo Top Contributor, Andy from his legal practice in California regularly takes the time to answer business legal questions sent in by a range of people.

Andy believes that providing such a service to people completely free of charge is a way to give back to the community.  Andy was very surprised to get the top contributor status at Avvo.

Avvo is one of Andy’s first attempts to get involved with social media.  Andy’ believes the Avvo site is interesting because it appears to consistently offer good quality advice within very specific niches’ such as business legal.

Andy has also found the site strangely addictive in that the questions are interesting and it is also a way to see what other attorneys think about a wide range of topics.

Some typical questions, Andy has contributed answers to include:

You can see all of Andy’s contributions here Andy Gale Orange County Business Lawyer AVVO Answers.

While Avvo serves the purpose of providing good insight for business owners into a wide range of legal issues, Avvo is no substitute for proper legal counsel.  If you have a small business in California and need help contact Orange County Small Business Lawyers and schedule a kick-off call.