Entrepreneurs grant themselves stock in the companies when they start and may offer their employees and contractors some form of equity incentive to convince them to come on board. If you are considering granting stock to yourself as a founder or joining a company that is offering to grant you stock in addition to or in instead of payment, you should understand the potential tax consequences before accepting.
83(b) Election is a letter that you send to the IRS (Internal Revenue Service) in order to notify the IRS that you want to report income tax the year your stock was granted rather than when it is vested. In other words, you will report income at the current stock price when the stock is granted to you rather than the stock price the year the stock vests.
It is significant that Section 83(b) elections are applicable only for stock which is subject to vesting because grants of fully vested stock will be taxed at the time of the grant.
When founders decide to make an 83(b) election need to ensure that they do not miss the 83(b) filing due time. An 83(b) election must be filed with the IRS in 30 days after the grant or purchase date of the restricted stock. When the last day for filing 83(b) election is calculated, every day counts (including weekends and holidays) and counting starts with the day after the grant date.
Who makes the 83(b) election?
The person who receives restricted stock as compensation makes the 83(b) election.
These are the steps that you need to follow to file an 83(b) election:
There is no official form of IRS for making the 83(b) election.
There are some steps which include some paperwork within 30 days of the grant date to make an 83(b) election:
The model form submits by the IRS does not make any substantive changes to the requirements under current regulations. It indicates the current requirements. You make the 83(b) election by sending to the IRS office where you file your return the appropriate information.
To make some copies of the completed and signed 83(b) election form and one copy of the IRS cover letter.
Send the original completed and signed 83(b) election form and cover letter, the copy of the cover letter, and a self-addressed stamped return envelope to the IRS Center where you would otherwise file your tax return. Even if an address for an IRS Center is already included in the forms below, it is your obligation to verify such address.
Deliver one copy of election form to the company.
Applicable state law may want to attach a copy of the election form to your state personal income tax returns when you file it for the year (assuming you file a state personal income tax return).
Keep one copy of the election form for your records.
Note: If you are married, there have to be a spousal consent signature.
Generally, there are three options:
1) Filing with services:
In addition to the filing fees, you could pay a service provider to file the documents for you. After answering a few questions, some companies prepare and file the documents for you. However, you should know that the incorporation packages offered by “Do it yourself” services often don’t include the essential post-formation docs you need.
2) Hire a lawyer in order to file:
An attorney can help you answer tough questions. Also, you grow your company, might run into issues concerning employee agreements, protecting intellectual property, raising capital and more – areas of legal that a lawyer can help you organize from day one.
3) Do it yourself:
You’ll only have to pay filing fees and, depending on where you live, a registered agent. The process of incorporating is not complicated, and you can do on your own.
a. Choose a Corporate Name
You have to determine a unique name which is not registered with the Delaware Secretary of State. Also, the name must include a corporate ending or abbreviation thereof (ex. “Inc.”, “Incorporated”, “Company”, “Co..”, “Corporation”, “Corp.”, “Association”, etc.). You can check for availability in Delaware Secretary of State business name database.
b. Prepare and File Certificate of Incorporation
The incorporator is responsible for preparing the Delaware Certificate of Incorporation which officially creates the corporation when the state accepts for filing. The Certificate of Incorporation must contain the corporation’s name, its registered agent’s name, street address, the object of the corporation, the number of shares it is authorized to issue, the valuation of the shares, which is the cheapest price that a corporation can issue its shares to its initial founders, incorporator’s the name and address.
Corporate shareholders, directors, and officers do not have to be recognized in the Certificate. You can find this document on the Delaware Secretary of State website. Also, the incorporator’s sign and date must include the Certificate of Incorporation; you must be submitted Certificate of Incorporation with the appropriate fee to the Delaware Secretary of State by mail, fax or hand delivery but you cannot submit it online.
c. Required Personnel
A company must have at least one shareholder, one director, one registered agent and one officer secretary who can sign legal documents on behalf of the corporation and can record minutes of meetings. The director and registered agent do not have to be a shareholder. However, the director must be a natural person and registered agent must have an address — not a P.O. box — in Delaware. Also, the registered agent is the person responsible for receiving official communications for the corporation.
d. Stockholder Agreement
If your corporation has more than one stockholder, you should arrange a Stockholder Agreement. Stockholder agreement is optional. Any corporation which has more than one stockholder should have a Stockholder Agreement in order to reduce future problems of valuation, buyback, and unwanted third parties owning the stock.
Drop shipping is a kind of business model which allows a company to operate without the need for maintaining inventory, owning a warehouse to store their products. The company does not even have to ship their products to their customers themselves. It works in a way that, the retailer works with a drop ship supplier. The dropship supplier manufactures and/or warehouses products, does the packaging of the products and also ships them directly to the retailer’s customer, on the retailer’s behalf. So instead of purchasing a large amount of inventory, you simply partner with a dropshipping supplier and list their product for sale. Then, when you receive an order from a customer, you forward it to the supplier. The supplier then ships the product directly from their warehouse to your customer. Finally, you are charged only for the price of the shipped item.
Drop shipping is suitable for entrepreneurs because it doesn’t request as much as the traditional retail model. First of all, the entrepreneurs do not have to open a brick-and-mortar store, pay overhead, and stock products. Instead, you open an online storefront and buy wholesale from suppliers who already have products and warehouse space.
Millions of entrepreneurs flock to drop shipping because it requires less hassle and money to get started. That’s why you’re interested! And the best news of all? With drop shipping, you can build a business that’s sustainable in the long term right from your laptop.
Drop shipping has many benefits, including;
- The limited investment required; drop shipping businesses don’t need to keep products on hand or maintain a warehouse to store the inventory.
- It’s easy to set up; to someone who is new to e-commerce, this business model is relatively easy to understand and implement.
- You do not have exorbitant overhead costs; electricity/phone bills, stationery, etc.) are not an issue. The fixed cost of managing the website is all that a business owner has to worry about.
- You can run your business from anywhere thus the business owner is location independent; no office, no warehouse, no employees and no hassles.
- You have more time and resources to scale your business; with drop shipping, all you need to do is send customers’ orders to your dropship supplier and then let the suppliers handle everything else. In the meantime, you earn the profit and are left with more time to develop your business.
- Losses are reduced on damaged goods; since the shipment goes directly from the supplier to the customer, it is obvious that there are fewer shipment steps involved which naturally eliminates the risk of damaged items while moving from one space to another.
On the other hand, there are certain legal risks to operating a dropshipping business which every entrepreneur needs to know. In order to keep the legal risks low, you should incorporate your dropshipping business before you begin operating.
Running your dropshipping business under a U.S. company has many advantages. It is relatively affordable and easy to register and maintain U.S. company. We highly recommend you to organize your business using a U.S. legal entity such as LLC or C-corp. Since a dropshipping business owned by a non-US based entrepreneur that is not resident at any specific state; you have the freedom to choose any of the 50 states as the home state of your U.S. company. It is recommended to incorporate in one of the incorporation-friendly states such as Delaware.
Here are four reasons to incorporate your dropshipping business:
1. By Incorporating You Limit Your Liabilities
The products that you dropship may have defects. And this situation can lead to liabilities for you and your business. As a drop shipper, you will not be able to see the product that you sell. However, because of the contract for the sale, the customer will reach out to you, not the supplier, about product complaints. Since the purchase contract is between the customer and you, your business could be liable if product liability issues occur. Incorporation is a way to limit your liabilities and ensure that, as the owner of the drop shipping business, you will not be held responsible for the defective products. Therefore, your assets (like your car, and computer) will be safe from any claims made by customers.
2. Benefit From Tax Advantage for Your Corporation
From a tax perspective, there is no state corporate income tax in Delaware on goods or services provided by Delaware corporations operating outside of Delaware. (Though there is a franchise tax)Because a dropshipping business essentially deals with tangible goods, the question of sales tax becomes relevant, and as a result, many drop shippers prefer to register in one of the states that have no sales tax. Delaware, being a no-sales-tax state is often the state of choice for drop shipping business registration.
3. Customers and Suppliers are more tend to Deal with Incorporated Businesses
With the absence of an established brand name and official corporate registration, customers may be uncertain about dealing with new businesses. Incorporating makes your dropshipping business seem more professional and credible. Customers will expect your business to be accessible for customer services issues and other questions that may arise if you obtain a professional corporate name. This will also apply to suppliers who prefer, and expect, to deal with only incorporated businesses.
4. Incorporating makes it easier to grow for the future
It is a known fact that all long-term highly-successful businesses choose to incorporate. Incorporation facilitates the growth of your drop shipping business and becomes easier to hire employees once the demand for your products increases.
In conclusion, the dropshipping model provides small startups with limited resources the opportunity to confidently compete with medium and large-sized online retailers, thus making the e-commerce world an equal playground for all. Even though it seems advantageous, there are several legal risks to operating a dropshipping business which every entrepreneur needs to know. To keep the legal risks low, it is recommended to incorporate your dropshipping business before you begin operating.
Paypal is a private online transaction service that is used all over world for various transaction purposes. Paypal allows it’s users to have an alternative to their debit cards and credit cards during purchases and needs that will be covered with online payment. In this age of digitalized world where many work can be done online with no paper work, services like Paypal are more and more important for consumers and companies alike. Having a Paypal account not only brings fast and various payment methods, it brings safe transaction with tight security protocols so that consumers and companies can send money or buy their needs as fast and as secure possible.
Paypal allows you to send money, pay or recieve money using a Paypal account. With its fast and secure services Paypal quickly became one of the most used internet and application service online. One of the other popular feature of Paypal is that you can still use your bank account, debit card or credit card for payments but Paypal also gives you a choice to use Paypal itself with Paypal credit for transactions leaving out the necessity of re entering your card informations over and over again.
How to Register?
Opening a Paypal account is quite easy, you can set up your account and start using it in a matter of minutes. You can use Paypal’s website https://www.paypal, or you can use Paypal’s phone application and sign up for free. Paypal requires you to use your e-mail address and set up a password so only you can use your Paypal account, also because that Paypal is a transaction service you need to enter your address and zipcode to open your account, after that you need to accept Paypal’s user agreement, privacy statement and e-communication delivery policy. You can enter your credit card information now or later, it is optional but you will need it eventually to verify your Paypal account. If you want to recieve money you will also need to enter your bank account information so when people are sending you money with Paypal that money can be sent to your bank account.
After that you can verify your e- mail address and you are good to go. It is that simple. If you want to send money you will also need to verify your cards and bank accounts this also can be done in Paypal’s website or application and it takes a very short time.
Payoneer is an innovative financial payment company that provides money transfer and digital payments services. Since Payoneer is a cross-border payment platform, it enables payment services to millions of customers all over the world.
On the contrary of PayPal, it is available in almost all the countries in the world. Therefore it is a good alternative to Paypal for the people living in countries where PayPal is not available or only provides limited services. Specifically, Payoneer acts in India as an online payment gateway service provider (as prescribed by the Reserve Bank of India) (“OPGSP”) to facilitate certain payment services.
Most of the merchants and freelance websites pay their freelancers using Payoneer. It is also accepted by a wide range of leading companies including Amazon, Google, Airbnb, Fiverr and Getty Images, so if you work with any of them, it is more likely that you get your payments via your Payoneer account. These companies rely on Payoneer’s mass payout services.
In this article, we will be answering frequently asked question: “How to open a Payoneer account?”.
First of all, in any country, the process and requirements for opening a Payoneer account are the same. The only thing that you should consider is specifying your country during sign up. Opening a Payoneer account does not require any fees, so it is completely free to open the account.
To open the account, you only need the listed requirements below;
- An email account
- Address (postal code and residential address): Make sure you use the correct postal code. It is where your MasterCard will be shipped to.
- Local bank account: the details of your local bank accounts will be requested
- Means of Identification (ID card, voter’s card, Driver’s License, International Passport): If you have a temporary ID card slip, you can use it as long as it contains your National Identification number
You also have the chance to choose between having a company or an individual account. All you have to do is specify it during sign up.
These are the steps that you need to follow while opening a Payoneer account;
- Visit Payoneer website and click “Sign Up.”
- Enter the needed personal data including your choice of account type (Company/Individual). The data you enter must correspond with what you have on your means of identification. You should consider your Payoneer account as if it is your official bank account. Because by all means, it is pretty much the same thing.
- Then, enter your contact information in the boxes provided (country, address, phone number, employer identification number).
- Next, enter your security details.
- Enter your local bank account details.
- After you submit your application to open an account, you will get a confirmation e-mail stating that the review of your application is in progress.
- Finally, mostly less than two working days your application should be concluded.
As explained above the process of opening a Payoneer account is simple however you should be careful about the information you provide. It needs to be correct, accurate and corresponding to the information on your means of identification.
When you’re starting a new business; you want to determine the business structure that’s right for you. What’s the difference between a limited liability company (LLC) and a corporation (Inc.)? And how is a C corporation different from an S corporation?
Firstly, LLCs and corporations have some common features as they both shields personal assets from business liability and requires separation of business and personal finances. Moreover, both of the business structures are allowable in all 50 states and the District of Columbia.
Secondly, LLCs differentiate from corporations in certain points. LLCs have a highly flexible management structure and also have flexible tax reporting options. Corporations also have distinctions from LLCs such as they are preferred by outside inventors and preferred for IPO(Initial Public Offering). Furthermore, corporations are recognized outside of the United States.
After you create a corporation or LLC; you also have the opportunity to decide how you’d like your business to be taxed. Single owner LLCs can be taxed either as a sole proprietorship or a corporation. LLCs with more than one owner can be taxed either as a partnership or a corporation. Income from LLCs treated as sole proprietorships or partnerships is reported directly on the owner’s individual tax returns.
New corporations, as well as LLCs considering corporate taxation, can choose between filing taxes as a C corporation (“C Corp”) or an S corporation (“S corp”). An S corp is considered a “pass-through entity,” which means the business itself isn’t taxed. Instead, income is reported on the owners’ personal tax returns. Corporations are separate businesses entities. The profits and losses of the corporation are taxable to the corporation, not the owners (shareholders). Businesses taxed as C corporations are not pass-through entities. Income is taxed at the corporate level, and, if dividends are distributed, at the individual level as well.
After that, if the forms of those business structures are analyzed, an LLC is formed by one or more business people, as owners. The owners, called “Members,” file Articles of Organization and set out an Operating Agreement. An LLC is a pass-through type of business because the profits and losses are passed on to the Members depending on their share of membership. On the other hand, a corporation is a separate legal entity. It is formed by filing corporate organization forms in the state where the corporation is located, and by designating shareholders, each with a specific number of shares. The corporation also creates a Board of Directors to oversee the corporate business.
You can do 83(b) election in both LLC and C-Corp.
If you are planning to get investment, create a option pool, and to become a growing startup, you should choose C-Corp.
There are some key characteristic differences between C corps and S corps; however, both C designation and S designations’ owners pay personal income tax on profits. In addition to that, C designation businesses also must pay corporate income tax. Apart from that, S designation businesses have some other various features as their all business income/loss is passed through to owners each year. Besides, there can’t be more than 100 shareholders in S designations and last but not least, shareholders must be U.S citizens or resident aliens.
Finally, individuals do not have to decide about S corp status immediately. They have 75 days after the formation of their businesses to file with the IRS.