Shorthand Court Reporting Corporation Details

Overview

A California professional shorthand court reporting corporation is a corporation formed under the Moscone-Knox Professional Corporation Act whose articles of incorporation, bylaws, and other corporate documents contain language in compliance with both the Moscone-Knox Professional Corporation Act and the general provisions of the California Corporations Code.

Restrictions

Only a professional licensed to practice shorthand court reporting may be a shareholder of a California professional shorthand court reporting corporation.

Other restrictions on who may be a shareholder are contained in the California Business and Professions Code, the California Corporations Code, and other applicable law.

A California professional shorthand court reporting corporation with only one shareholder need have only one director, who also must be the sole shareholder, and the sole shareholder must also serve as president and treasurer of the California professional shorthand court reporting corporation; in general, other officers need not be licensed professionals. California Corporations Code § 13403. A California professional shorthand court reporting corporation with only two shareholders need have only two directors, who also must be the two shareholders, and those two sole shareholders must also serve as president, vice-president, secretary, and treasurer of the California professional shorthand court reporting corporation. California Corporations Code § 13403.

Formation

A California professional shorthand court reporting corporation is formed by filing articles of incorporation with the Secretary of State. California Corporations Code § 200(c). In addition to the formation procedure of a regular corporation, additional language is added to the articles of incorporation to create a California professional shorthand court reporting corporation. The filing fee for articles of incorporation is currently $100.00. California Government Code § 12186(c). Bylaws, which dictate how the corporation operates, must be adopted.

Shareholders may enter into an optional, separate agreement restricting the sale or transfer of shares of the stock of the California professional shorthand court reporting corporation, a formula for determining the value of shares upon transfer, voting provisions, and other clauses.

Personal Liability

A shareholder of a California professional shorthand court reporting corporation is not liable for the debts and obligations of the California professional shorthand court reporting corporation unless: (1) the shareholder personally guarantees a debt or obligation; (2) the shareholder engages in tortious conduct; (3) the shareholder receives improper distributions of the professional corporation’s assets; (4) the shareholder intermingles personal and corporate matters (alter ego; piercing the corporate veil); or (5) the shareholder breaches a duty owed to other shareholders.

A shareholder in a California professional shorthand court reporting corporation who acts as a corporate director and/or officer may have increased liability stemming from his or her actions as a director and/or officer of the professional corporation.

Anonymity

Shareholders in a California professional shorthand court reporting corporation have the right to inspect the books and records of the professional corporation, thereby learning the names of fellow shareholders. The names of shareholders of California professional shorthand court reporting corporations also may be subject to public record and disclosure by the state governing body. The names of officers and directors of a California professional shorthand court reporting corporation are a matter of public record.

Management

Unless otherwise named in the articles of incorporation, the incorporators appoint the initial directors of a California professional shorthand court reporting corporation. California Corporations Code § 210. After shares of stock in a California professional shorthand court reporting corporation have been issued, the shareholders vote annually to elect a board of directors, and the elected directors then elect officers to handle the day-to-day operational management of the California professional shorthand court reporting corporation. A California professional shorthand court reporting corporation must have a president, a corporate secretary, and a treasurer/chief financial officer. Other officers may also be elected in addition to the three required.

Shareholders in a California professional shorthand court reporting corporation exercise no management in a California professional shorthand court reporting corporation based upon shareholder status alone. When shareholders do exercise control of management, the California professional shorthand court reporting corporation risks losing its limited liability protection.

Capitalization

Shareholders contribute assets to the California professional shorthand court reporting corporation in exchange for shares of stock. If the assets contributed are non-cash, the fair market value of the assets establishes the price of the stock.

Securities Issues

Shares of stock in a California professional shorthand court reporting corporation are securities.

Federal Securities Issues

Federal securities laws should be considered when issuing stock in a California professional shorthand court reporting corporation. Regulatory filings may be required either to qualify an offering and sale or to receive an exemption.

California Securities Issues

All offers and sales of securities in California require qualification with the Department of Business Oversight unless either the transaction or the security itself is exempted from qualification. The securities laws of other states may also apply to offers or sales of stock made outside California. California Corporation Code §§ 25000-25707; 10 California Code of Regulations §§ 250.9-260.617.

Taxation

General

The net income of a California professional shorthand court reporting “C” corporation is taxable by both the federal and state governments at personal service corporation tax rates. The federal personal service corporation tax at the time of this writing is a 35% flat federal tax and an 8.84% California franchise tax.

If a California professional shorthand court reporting corporation distributes dividends to shareholders, the shareholders must report the dividends received as income. This income will be subject to both federal and state income taxes. Taxation of dividends is commonly referred to as “double taxation” because the net income of the California professional shorthand court reporting corporation is taxed twice: first at the corporate level and again if distributed as dividends to the shareholders. Dividend payments made to shareholders are not treated as an expense of the California professional shorthand court reporting corporation.

Double taxation may be minimized by the payment of wages to shareholder-employees, by payment of fair market rent or royalties of assets owned by shareholders, or by payment of fair market interest on a debt owed to shareholders.

California professional shorthand court reporting corporations must pay a minimum annual franchise tax of $800 to the State of California’s Franchise Tax Board for the privilege of doing business as a limited liability entity. Employment taxes and workers’ compensation insurance must be paid on employees’ wages.

S-Corp Election

Net income, loss, and tax credits of a California professional shorthand court reporting “S” corporation are not taxed at the corporate level and are instead “passed through” to the shareholders.

Ownership Changes

If not restricted by shareholder agreements or securities law requirements, a shareholder in a California professional shorthand court reporting corporation may readily transfer stock to a new owner, provided the transfer is made only to another licensed professional permitted to own such shares of stock.

Change of ownership does not dissolve or terminate a California professional shorthand court reporting corporation.

Termination

A California professional shorthand court reporting corporation can be dissolved by a vote of 50% or more of the voting power of the professional corporation’s shareholders and the subsequent filing of a certificate of election with the Secretary of State. California Corporations Code §§ 204(a)(4), 1900(a), 1901.

Pricing Assumptions

The organization of a California professional shorthand court reporting corporation for the pricing listed on this page assumes a single class of stock and the issuance to founders domiciled in California valued at US$25,000.00 or less. More complex organizations and share issuance available by quotation. Filings required by applicable federal and blue sky securities laws available for additional fees and with additional costs.