Legal Question in Business Law in Maryland

Incorporation

My husband is self-employed and wants to become Inc. (S corp). Should I (wife) be included on the corporation papers? If i am not, what rights do I have over the company if he dies or we divorce? We are creating this corporation for liability and tax reasons and will be opening up a flooring business in another state where we jointly own a building. We will be creating an LLC for the building, but my concern,(question) is of not being included in this incorporation. If my husband wants me included, is that fine also? My step son is a minor and lives with us. My husband has full legal and physical custody and I am concerned if my husband should die while my step son is a minor, where does the estate go?

Please respond as soon as possible, we are trying to inc. before 1/1/06..Thank you.


Asked on 12/14/05, 3:01 pm

2 Answers from Attorneys

Robert Sher Wagshal and Sher

Re: Incorporation

A corporation, and its assets, is owned by its shareholders of the stock that it must issue. If your husband owns 100% of the stock, he has total control over the corporation. He could write a will leaving his shares to his son and nothing to you. If he dies during the marriage and leaves you nothing in his will, you will have a right to claim 1/3 of his property, but if you are divorced by then, you'd get nothing. Of course, in a divorce, you would have the right to claim your share of any marital property, which could include part of the business assets.

The best protection you have is to seek to have the shares of stock issued 50/50 between you and your husband. That would give you some control over the property. But I suspect that if you don't work in the business, or if he owned the business before you got married, he'll be reluctant to do this.

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Answered on 12/14/05, 3:25 pm
Steven Rinaldi Steven D. Rinaldi, P.C.

Re: Incorporation

I would advise having your husband include you as a shareholder in the S-Corporation. If your husband dies you would remain a shareholder in the S-Corporation. For succession planning purposes, I would advise that you both enter into a buy-sell agreement funded by a life insurance policy. If your husband dies the insurance company would issue you a check for which you can purchase your husband's shares. If you die, the insurance company would issue your husband a check for which he can purchase your shares. The buy-sell agreement could also apply in case of divorce; however, it would not be funded by the life insurance policy. The policy may be paid for by either the S-Corporation or by you/your husband.

Also, I would strongly recommend incorporating in Nevada for both liability and asset protection reasons(as opposed to incorporating in Maryland)! Nevada permits officers and directors to use many asset protection schemes (ways to limit your liability and your husband's liability)that other states like Maryland do not permit. I would be happy to assist you in incorporating your business in Nevada, electing closely corporation status in the state of Nevada, preparing and filing form 2253 (the Sub Chapter S election), preparing a shareholders agreement, as well as writing the buy-sell agreement.

If you have any further questions, please contact me at [email protected].

Sincerely,

Steven D. Rinaldi

Steven D. Rinaldi, P.C.

Suite 700

3 Bethesda Metro Center

Bethesda, Maryland 20814

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Answered on 12/14/05, 5:11 pm


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