By MATT CHANDLER
mchandler@bizjournals.com | 716-541-1654

Kevin Zanner knows business.

The attorney at Hurwitz & Fine P.C. and 1996 graduate of the University at Buffalo Law School is a member of the firm's business/corporate and economic development practice groups. He focuses on entity formation and business structuring, contract matters and other corporate transactions.

At a time when many who are out of work are considering going into business for themselves, Zanner provided some information on forming a corporation.

BLJ: People see the idea of incorporation as something only for big companies with lots of capital and employees. But anyone can form a business, correct?

KZ: I think the idea that corporations are only for big companies is a misconception. There are a lot of small businesses that choose to incorporate, and a lot of those companies have only one owner or a small number of owners. I see it every day where people come to me as a small business to incorporate.

BLJ: What types of entities are there and what are the advantages to each?

KZ: It depends how deep down you really want to dig, there are some really bizarre entities out there, but for purposes of this, when we talk about corporate structures, the two primary ones people deal with are the typical corporation and then the limited liability corporation (LLC). The main feature that both types share is that they limit the personal liability of the owner of the business. The LLCs in New York have only been around since the mid-1990s and they have taken off as a business form. At least in my business, they have become the preferred choice of business structure to hold real estate. As far as other differences, a corporation has a board of directors and it holds shareholders. It is a little more formal than the LLC. In the end, the decision on the type of entity you use is often dictated by the purpose of your business.

BLJ: What are the primary legal advantages of forming a corporation?

KZ: As I mentioned, the primary legal advantage is a protection of the owner from liability if things go wrong. Let's say you form a corporation for your small business and you invest $1,000 in the business. If the business fails or there is a lawsuit, you can only be held liable up to the amount you invested in the business. So you don't risk losing your house or personal property or money. As the name suggests, there is a limited liability you face as a shareholder in the business.

There are also certain tax advantages to forming a corporation. It is very complicated, but basically there are some things available under the Internal Revenue Code to corporations which are not available to someone operating as a sole proprietorship. Those can include deductions for medical expenses and the opportunity to establish fringe benefit plans. Some of these are available to a sole proprietor, but many are not. I actually see this quite often where a business with one or two owners will form a corporate entity just so they can take advantage of some of these opportunities.

BLJ: What about Delaware corporations or those in Nevada? What are advantages to establishing something out of state?

KZ: There is no residency requirement to form a corporation. Delaware and Nevada are considered two states that have business-friendly corporate statutes. There are certain things under their laws that are a little more business-friendly than under New York law. Delaware has always been the place to incorporate, and part of that has come through court rulings where the courts there show that they understand some of the complexities of corporate law and they have developed their jurisprudence. So it is generally accepted that Delaware is the state of incorporation and Nevada is going that route, as well.

BLJ: OK, I'm ready to form one. What do I do? Where do I go?

KZ: People will see things on television or on the internet offering to sell them the package to incorporate for $200. And they can do that. Forming a corporation, in part, is filing paperwork. But I always advise people that they should seek counsel before they incorporate. There are subtle things that need to be considered and people who are going it alone may not always know what to ask and how to properly answer the questions.

Also, if a client comes to me and wants to incorporate, I want to look over their business and make sure I am advising them in the best way. For some small businesses, it may make more sense not to incorporate. There are some fees involved, both up-front and annually, and it may not always make sense. So another advantage to seeking out an attorney to file your corporation paperwork is that you will get the advice and guidance, as well. Plus, people might be surprised, but it isn't as expensive to do as some people think.