Tuesday, December 1, 2015

Trading as a C Corporation


From Our November 2015 E-mail Archives: Our Head Trader, Robb, replied to an e-mail from one of Maverick's traders who had just passed the Maverick trader qualification program. He had a question regarding starting a C Corporation and the estimated cost.*


-----Original Message-----

From: Omar L.
Subject: Re: Approval for Capital Sharing

Good morning,

First and foremost, I want to say thank you for making all of your traders pass the qualification program. It has helped me build a solid foundation. I do not have a scanner, so I am faxing the attached documents this afternoon.

I do have a couple of questions about starting a C corporation. What is the first step in starting a C corporation and what is the estimated cost?

Best Regards,
Omar


-----Reply Message-----

Hi Omar,

The process of starting a C corporation (or S Corporation or LLC) is actually very easy. However, just because it's easy to fill out the required forms doesn't necessarily mean that it's easy to do it correctly. You will have to do a bit of research first.

I would say the best thing to do is to educate yourself. There are tons of articles and websites that will teach you the differences between corporations, what you can legally write off and how to structure things. Of course, there are companies out there that are willing to do this for you for a price, but they will simply be consulting and filling out the paperwork for you.

Once you understand and know what you are doing, the next step is to choose the state that you will incorporate in. Most people simply pick the state they live in. However, some people will incorporate in another state. For example, many people in California go elsewhere since fees in California are much higher than everywhere else. The fee to register a corporation in most states is typically between $50-$200 – in California, the fee is around $800.

Go to the state's website and search for corporations or incorporating. On that page, there will be instructions on what forms to fill out and how to complete them. Many states just have a template where you fill in the blanks and it creates your Articles of Incorporation for you. The Articles are the main paperwork that the state needs (along with your fee...of course, they never forget to ask for that!).

Once registered with the state, you need to register with the IRS and get your Tax Identification Number. I believe it is Form SS-4 – "Application for Employer Identification Number (EIN)" – that needs to be submitted to the IRS.

Once you are registered with the state and the IRS, you can now go to banks/brokerages and open corporate accounts. This is where it gets tricky since we are getting into the accounting now. I always tell our traders that the registering of a corporation is easy and can typically be done on their own. However, the accounting of the corporation definitely needs to be done by someone who knows what they are doing.

Your first step will be putting capital into the corporation, but you need to determine if it is a loan, buying of shares, etc. Then, you need to generate income and expenses in the business through your activities. Again, there is a lot of great information out there and I know that by logging in the hours to learn it, you will know what to do. Legally, I can't offer any specific advice.

Alternatively, you can hire a CPA at this point and have them do everything for you. A good CPA will only cost a few hundred dollars for a simple S Corp or LLC tax return. A C Corp will likely cost a bit more. We have a firm called Trader's Accounting that we refer a lot of our traders to if you feel that you need help at this point – contact us if you want more details about their firm.

Please feel free to send any further questions that you have to me.

Thanks,

Robb

* NOTE: Some original wording has been modified for legibility.