Why Is This Topic Important to Financial Professionals? Common estate plans may include a business structure.  Helping clients form and manage structures allows a financial professional to more fully participate in clients’ planning.

Do your clients’ business, income and estate plans include corporate structures?  Generally, a client’s business, income and estate plan will include a corporate enterprise.  When the benefits of incorporation can be understood and maximized, the range of the client’s planning may expand.  To begin, a basic understanding of private corporate affairs is essential.  This should include a general understanding of corporate structures, as well as the steps necessary to form and to administer corporations.

Traditionally, the business will apply for corporate status, file yearly forms and keep certain records.  However, there are other considerations for corporate formation and administration, such as form of the structure, state of incorporation, and the tax status.  Many states also offer at least one form of incorporation such as the Limited Liability Company, also known as an LLC, that may offer similar benefits of corporate ownership while avoiding some of the traditional downfalls, such as double taxation.

Establishing The Legal Structure. It is essential to learn how to incorporate a business in your state, including filings with state departments and with the Internal Revenue Service. There is usually a small state fee for the first year of incorporation which may increase in subsequent years.  Most fees and forms can be filed online through state divisions of corporations, taxation or revenue, or departments of similar name.  The forms are general and usually ask for the principal’s name and address, social security number, business name, address and purpose.  You should also have your client file an SS-4 with the IRS, which is an Application for Employer Identification Number.[1] Once the forms are filed with your state and the Internal Revenue Service, the business is technically open for business.

Clients Stay Here. By providing these services, financial planners have found success in not only dollars, but also client retention.  Ted Robinson, a Certified Financial Planner in New York, notes that this is because the client is forced to take his or her business elsewhere when these services are not offered in-house.  “I can do this,” said Robinson, before he started offering basic incorporation services to his clients.  “Why let business go out the door?” he said to himself.  Further, Mr. Robinson notes, it makes “little to no sense” to pass up lucrative business practices that can be accompaniments to your core business.  Therefore, by doing a little research and offering such basic services as filing forms, new doors have opened for financial planners looking to expand their businesses.

Additional Income and Diversify Sources of Revenue.  Some law firms charge thousands of dollars to incorporate.  However, there is not a law that requires only attorneys to incorporate organizations.  Some do-it-yourself websites list a price of merely $29 plus filing fees.  Nevertheless, there is a middle ground between the expensive legal fees and the cheap do-it-yourself service.  A reasonable fee can be charged for your time plus any costs associated with filing.  Financial planners in general can charge much less than what an attorney would to do the same job.  It is also the case that most states allow for easy access to processing facilities online with departments and knowledgeable individuals that can help over the telephone.

For a detailed analysis of the non-tax characteristics of a Close Corporation see AdvisorFX Main Library Section 14. Close Corporations A—Brief Survey Of The Corporate Form

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Internal Revenue Service. “Application for Employer Identification Number.  http://www.irs.gov/pub/irs-pdf/fss4.pdf. Last Accessed 8/9/2010.

Tags: business planning, incorporation

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