Getting the Benefits of Equity Compensation from Family Businesses through Phantom Stock

Last year, on September 6, 2017, CEOWorld magazine published an article I wrote on “Getting the Benefits of Equity Compensation from Family Businesses through Phantom Stock.

This article was designed for CEOs, C-suite executives and other senior executives who currently work in a family business or are offered a position in a family business and receive now or are offered NO equity compensation because most family businesses do not issue equity to non-family members.
Continue reading “Getting the Benefits of Equity Compensation from Family Businesses through Phantom Stock”


Family Business Transition and Succession Planning – 10 Questions

Family business – Hour-long radio program – on transitioning to the next generation; resolving family issues in and out of the business; planning for succession or sale of the business.

By Robert Adelson

This post is about  an hour-long radio show “Exit This Way” where I was the sole guest for the show’s host Kerri Salls, which show aired three times on Monday, March 18, 2013, on The show was on the topic of Family Business Transition and Succession Planning.   To have a listen, go to I hope you enjoy this radio show.  Let me know if you have any questions.

Continue reading “Family Business Transition and Succession Planning – 10 Questions”

Board Building: Assessing the Value Advisers Bring

Board of directors or advisors (even in informal), allow entrepreneurs and family business to tap marketing, production and personal experience and contacts.

Boston Business Journal , June 9-15, 2006. Page 48

By Robert A. Adelson

Are you an entrepreneur trying to build a startup company?  Do you feel your family business is stalled?

If you face hurdles in your early-stage company, or if you are in a family business and find the family expertise limits you, you may wish there was someone on your side to offer useful advice.

One way to get that help is to hire paid consultants.  Another is to recruit executives who have that experience.  However, both approaches can be expensive to an early stage company that must conserve its cash or to a family business not used to paying outsiders.  Also, if only one or two people can be hired or contracted with the breadth of experience needed, the hire may be insufficient.

There is another way: recruiting a board – a board of advisers or a board of directors, sometimes both.

Corporations must have a board of directors.  However, most entrepreneurs like to be their own boss and often regard a board of directors as a nuisance to be avoided.  So most early-stage companies have single-member boards.  That’s likewise true in even more mature family businesses, with either a single-member board or two or three members of the family, but no outsiders.

However, the board can be an asset to your business—to offer a key supportive resource.  A board can offer advice on an “as needed” basis, at a fraction of the cost of employees or consultants, with no long-term commitment, and if you choose your board carefully, a board can offer greater depth of experience.

To tap this resource, you don’t have to create a formal board of directors.  Many entrepreneurs start with an informal board of advisers that meets on an occasional basis.

When picking this board the entrepreneur should avoid friends and relatives and instead focus on filling in experience, gaining practical advice and opening doors, including:

◦Tips to build your organization and structure
◦Marketing and production advice to expand
◦Personnel references and contacts
◦Contacts and credibility to raise capital
◦Advice when unforeseen hazards arise
◦Independent advice on succession planning
Boards of advisers generally meet several times a year, often over a meal.  Initially, the board may meet and help for the cost of the entrepreneur picking up the cost of a good meal.  In time, stock options may be offered.  For the board member, advantages include the ability to help a colleague, and to do so with no liability or responsibility and with limited time commitment.

To get best use from this initial, informal board of advisers, the entrepreneur should value the time and advice offered: Prepare for adviser meetings, keep advisers informed on company developments and set limited terms for service to keep the board fresh.

The Voice of the Family
The board of advisers in family businesses also deals with interpersonal family issues that affect the business.  Thus, a family advisory board should have at least one member with professional expertise or knowledge and credibility within the family to lead resolution of interpersonal disputes.  This role can also be filled by a separate family council.

The adviser’s mission is to reconcile the family’s vision and direction with business needs.  Sound management, growth and profitability can clash with needs and ambitions of family members.   Non-family business also has issues with “office politics” and corporate greed versus meritocracy and system growth.  However, family businesses require special vigilance to check erosion of competitive position and personnel attrition over perceived family restrictions or nepotism.  They also require timely development of succession planning.

As the early-stage company takes on full-time employees, generates revenue and considers investment and expansion, selecting a board of directors can expand the reach and enable the entrepreneur to reach the next level.

With growth, knowledge gaps become more pronounced, the demands are greater and the need for real experience more acute.  In the family business, this can come when the knowledge and skills needed can only come from outside the extended family.  With growth, the entrepreneur may be more willing to share the burden of running the company.

Unlike advisers, directors take real responsibility and potential liability for management of the corporation.  The board of directors directs officers and governance.  Directors generally meet monthly, and instill financial accountability and appropriate record keeping in the business.  That discipline and the time board members invest can help the company avoid or overcome pitfalls, and it can put the company in its best posture to gain financing, forge alliances or make important hires.

© 2006 Robert A. Adelson


To follow-up this “Building Boards” article, if you have questions or needs –

◦For a start-up, early stage or maturing business? Or a family business?
◦Concerning a board of advisors or Board of Directors? Or both?
◦Over formation, recruitment or management of the board?
◦Over liabilities, responsibilities and corporate governance?
◦Over how to compensate board members? Other issues?
Below is contact information for the author –

Robert A. Adelson, Esq.

Engel & Schultz, LLP

265 Franklin Street, Suite 1801

Boston, MA 02110

Telephone: 617-951-9980 ext 205


Business Succession Planning: For the Family Business, For the Closely Held Business

Family business owners need to develop and implement a tax efficient plan to continue the business to the next generation if possible or for an orderly internal or external sale if not.

Foundation for Continuing Education , June 11, 2008

By Robert A. Adelson, J.D., LL.M.

A.      Business Succession Planning:  Overview
1.Why plan – Circumstances giving rise to Necessity
◦Death or Disability of owners
◦Retirement of owner or business owners
◦“Hastened” Retirement – revolt in the ranks
2.  How to plan – Alternative choices for succession

◦Internal Transfer one Generation to the next and Continuation of existing Business
◦External Sale of Business to outside third party
3.  What we seek – Goals to try to accomplish

◦Continuation / survival of the business
◦Retirement and Liquidity for the owner(s)
◦Fairness / Inheritance for non-owner family members
◦Maximization of value & favorable sale terms
◦Efficient tax planning
B.      Internal Transfer and Continuation of Business
1.Case Example – Bonanza Lumber, Inc. (Hypothetical)
2.   Planning for Continuation

◦Identification of able employees
◦Training of family members
◦Recruitment and Utilization of employees outside family
◦Provision of capital / means for success
3.  Transfer to next Generation

◦Employment agreements
◦Buy-sell agreement terms
1)   Functions

2)   Advantages

3)   Triggering Events

4)   Structure – Cross Purchase, Redemption, Hybrid

5)   Valuation

◦Life-time Stock Transfers
1)      Intrafamily Installment Sales

2)      Private Annuities

3)      Self-Canceling Installment Notes

◦Gift Transfers
1)      Gift Tax and Annual Exclusion

2)      Estate Freezes

3)      FLPs / LLCs for Discounts

4)      GRAT, CRTS, Grantor trusts

◦Non Family key employees
1)   Phantom Stock &  Employee Incentives

3)   LBO – Zenz “bootstrap” sale

4)   Sale to ESOP

4.   Providing for non-operating family members

◦Separation of real estate / non-operating assets
◦Corporate separations
◦Life insurance to equal out interests
◦Buy-sell agreement / to provide buyout terms
◦Voting and non-voting shares
◦Springing interests
5.   Further Planning for Estate Taxes

◦IRC §303 redemption to pay taxes
◦IRC §6166 to defer taxes
◦IRC §2057 Family Business deduction
C.      Desiring Internal Transfer vs. Facing External Sale
1.80% of Family Businesses do not succeed to next generation
2.  Recognition that continuation not possible

◦Inability or disinterest of next generation
◦Sale at peak price rather than fire sale
◦Owner liquidity & preservation of estate
3.  Preparing business for sale

◦Maximize value of business
◦Maintain good business records
◦Engage key consultants
◦Develop contracting process
◦Confidential information memorandum
◦Auction atmosphere
D.      External Sale of Business to Outsiders
1.Case Example – El Tiante Sports Shoe Co. (Hypothetical)
2.   Purchase and Sale of Corporation – Key Business Issues

◦Tax Issues  – Basis, Character of income, Deferral
◦Purchase Price / Earn Out
3.   Structure of sale

◦Sale of assets
◦Sale of stock
◦Nontaxable sale
◦Bootstrap sale / Redemption
◦Corporate separation
4.   Implementation and Documentation of Sale

◦Letter of intent
◦Due Diligence
◦Sale Agreement
◦Post closing obligations
5.   Estate & Family issues

◦Tax Planning for Year of Sale
◦Calibrate income and loses
◦Acceleration of deductions
E.      Conclusions – Implementing a plan
◦Beginning and continuing succession plan
◦Determining a direction / hedging bets
◦Engaging the parties concerned
◦Communication, involvement, ownership
◦Committing the plan to writing
◦Perils, pitfalls and dispute resolution
◦Updating over time
◦Working with consultants
**  This outline was for the presentation by Attorney Robert Adelson,  a 4-hour seminar course he offered for attorneys, accountants and other professionals, for continuing professional education credit, sponsored by Foundation for Continuing Education.
Questions on this presentation or the subjects covered, including any questions by

Owners or participants in family businesses or closely held businesses on buy-sell agreements, estate freezes, gifting plans, phantom stock, employment and bonus plans, and other issues concerning business succession planning or the sale of a business,

may be directed to the author and speaker at his current law firm, as follows:
Robert A. Adelson, Esq.

Engel & Schultz, LLP

265 Franklin Street, Suite 1801

Boston, MA 02110

Tel:  (617) 951-9980 ext 205


Business Formation and Early Stage Tax and Legal Issues

In the formation of for profit and non-profit corporation or LLC, the founder faces many early stage tax, business, intellectual property, employment, finance and contracts law issues.

Young Entrepreneurs of Tufts , March 3, 2010


¨   Liability Risks and Protections in Business

¨   Choice of Entity – Tax /State law Structures

¨   Patents, Trademarks & Proprietary Rights

¨   Contracting for Employees, Subcontractors

¨   Product, Sales and Finance Arrangements

¨   Nonprofit Corps – Organization, Tax Status

By Robert A. Adelson, Esq.

 EXAMPLE (Hypothetical and Fictitious) 


                                            FREEDOM TRAIL TECHNOLOGIES

Waltham, MA

Founded 2008

Founders                                                                               Financials

Paid in

P. Revere, d, Pres 10,000                      P/L (FY 09 -Projected)*

J. Adams, d, VP/Sec 10,000                Revenue 500   Expenses 500

H. Knox, d,Treas  10,000                       Balance Sheet (12/31/09)*

J. Hancock, director  [10,000]            Assets                    Liabilities                 

P. Henry – employee                                 A/R, Equip,         A/P, Loans – 275

F. Marion – employee                               Cash, Other         Shareholders     

T. Paine – employee                                                                   Equity                40

Total – 8 – 6 employees                                         300           Accum Deficit (15)           

            2 contractors                                              (*,ooo omitted)            

           Freedom Trail Technologies was founded in 2008 by techies P. Revere, J. Adams, and H. Knox, three former employees of giant Bay Colony Scientific Inc. Each contributed cash, equipment and know-how, and Knox also advanced additional funds as needed to fund the company.  So far, most of revenues come from consulting often work bundled into big projects. The economy hasn’t helped.  Lots of work they thought they’d get didn’t come in.  They’ve retooled. They’ve lost assignments because they aren’t  incorporated and had some collection problems.  Most of the clients have been satisfied but there are two problem accounts which raise some concern with the founders.  Though no suit has been filed, Knox is concerned about protecting his new home “Ft. Knox” in Weston.  In any case, the group wants to spend more time developing e-Revolution™ a new product they feel can make an impact in B2B e-commerce.

          A colleague of Revere, J. Hancock who led Tea Party Inc. and other successful companies in the past, has likewise expressed desire to see the group spend more time in development and has said he’d like to invest $10,000 to match contributions by the founders.  Besides his own willingness to invest, Hancock introduced Revere to A. Hamilton the wealthy managing partner of Below-Zero Stage Investments, a Cambridge-based VC fund.  Hancock  also suggests meeting M. Gandhi, a US resident with key contacts in Banglapore India (Gandhi, Nehru & Mountbatten). Hancock says she may be helpful raising funds off-shore (and Revere thinks… in providing additional programmers if and as needed.)

          In the meantime, Adams has interested G. Washington, CEO of  First-In-War Co. a nationally known VAR out of Arlington, VA, in e-Revolution™, so much so that Washington asked for detailed product specifications, information on where it’s been marketed, revenues and prospects to this point.  Adams is gathering information to send Washington who just sent his 20-page standard Exclusive License.  Revere likes FIWC.  It’s marketed other e-products and is well known, so he’s tempted to sign.

          Both Adams and Knox have pushed Revere to form a corporation or LLC for financing reasons.  He just wants to get the work out.  Unfortunately, that’s gotten harder of late since B. Arnold, a valued employee since launch, quit FTT recently and joined the competition.  Arnold felt he wasn’t appreciated enough.  Meanwhile, other recruits, P. Henry, F. Marion & T. Paine have also asked for equity.  Revere particularly doesn’t want to lose Patti or Frances or even vociferous Tom.  Time has been short since the move to a bigger space in Waltham. However, the founders have decided it’s time to attend to paper work – to consider some form of business “entity”, whether to sign the VAR contract, whether to get a costly  patent of e-Revolution and other “legal stuff”.  Time and money are short. What will we recommend? 



… and Other Questions to help you tell –

Is a Corporation the best choice for me?

¨     What are your motives? What are your goals and objectives in choosing an entity (new entity) under which to conduct business?

¨     Have you lost business because of concern over lack of incorporation, “continuity of existence” or lack of commitment to the enterprise?

¨     Are you selling products or services now? What potential liabilities do you face?  Were you sued?  What assets do you want to protect?

¨     Does your business have sufficient capital?  Have you borrowed? offered loan guarantees? collateral?  What are your expected capital needs in the near future?  expected capital sources?  Is any offshore?

¨     Is your business capital intensive?  Does it involve substantial investment in real estate, oil, gas, cattle or other investment assets?

¨     Do you expect to encounter substantial losses?  Is immediate pass-through of losses or differential pass-thru to investors important?

¨     Is your business people intensive?  Is employee and executive recruitment important?  Do you want to offer equity incentives?

¨     Is your business family held?  Do you seek to keep in the family ownership? Management?  What other family goals are sought?

¨     Are you a life-style company?  If not, what is your exit or harvest strategy?  Is planning for that important to you now?

¨     Do you have important concerns over timing /fiscal year? Cash basis vs. Accrual accounting? Fringe benefits?  Deduction of expenses?



Organizational Legal Structures
  Limited Liability   State Filing   State Tax
1)         Sole Proprietorship      
2)         Partnership            
            ►Limited   GP—


    No ann Fee after orig filing
►Limited Liability Partnership            (“LLP”)       ann.Fee $500/yr
3)         Limited Liability Company (“LLC”)       ann. Fee $500/yr
4)         Corporation (for Profit)            
   or Professional
            ►Domestic or Foreign (Del.)  
–           ► “C Corporation”      
            ► “S Corporation”       Minimum Frchise Tax
$456/yr; Tax if>$6m GrossRcpts


ADVANTAGES of Incorporation over

Partnership or Sole Proprietorship 

1)      Limited Liability (without insurance)

  • exceptions: professional malpractice
  • limited partnership/LLC and LLP also provide limited liability
  • Single member limited liability in corp.

2)      Ease of Transfer of Interests & Financing

  • Sale Securities/IPOs
  • Potential ease in liquidity to investors
  • Debt Financing – lender confidence however, personal guarantees may still be required

3)      Continuity of Enterprise

  • Sale confidence, credibility in business dealings
  • Familiarity of corporations,
  • Rules established by case precedent & Structure to dealings
  • Security of structure and rights to employee recruits
  • Security of structure to strategic allies 

DISADVANTAGES of Incorporation

1) Complexity and Paperwork  

  • Organizational documents,
  • Minutes, annual meetings, notices, upkeep . . .
  • Tax returns, bank accounts, separate financial records
  • Corporate form – operating in corporate form

2) Cost  

  • Professional Fees, Accts. Lawyers
  • State Taxes, Filing fees, Ann Reports
  • Separate Capital maintained for corporation/ no shell

3) Taxes  

  • Profits and Capital Apprec. potentially Taxed Twice

            –     exceptions: S Corps and many offsetting issues (see Taxation)


Merits of Structure Entity Tax Issues   C Corp   S Corp   Pship   LLC
  • Second Level Tax
  Yes   Mainly No   No   No
      Profits over $50,000        Profits under $50,000   Bad Good   OK    OK   OK    OK   OK OK
  • Personal Service Co.
  Bad   OK   OK   OK
  • Corp AMT
  Bad   N/A   N/A   N/A
      Accum Erngs Tax   Bad   N/A   N/A   N/A
      Pers Holdg Co Tax   Bad   N/A   N/A   N/A
  • Pass Thru Losses    Loss Carryovers
  Bad Good   OK    OK   Good OK   Good OK
  • Sale on Liquidation
    Assets sale
  Bad   OK   Good   Good
  • Sale of Stock
  OK   OK   OK   OK
  • Sale of §1202 Stock held 5 years
  • Rollover on shares sale








  • Flexibility in Allocating income, loss, expense
  Bad   OK   Good   Good
  • Social security taxes
  OK   Good   Bad   Bad
  • Cash Method
  Bad if > $5mil rev   Good   Good   Good
  • Fiscal Year
  Good   N/A   N/A   N/A
  • Interest expense for auto, other bus. Items
  Good   N/A   N/A   N/A



 Patent –     Strongest protection for proprietary technology but also hardest to attain

  • Subjects: Process, Machine, Manufacture of Composition, but not naturally occurring. 
  • Patentable Only if New, Useful, Unobvious
  • Time Bars:     U.S.: 1-Year from invention;Foreign: 1-Year from US filing if not disclosed
  • Prior Art@ search on novelty, publication
  • Patent Application required with US PTO, Claims (coverage)Review, approval or appeal
  • Inventorship, Documentation, Ownership

Advantages – Limited Monopoly, covers Ideas, upheld against innocent users, reengineering

Disadvantages – High Threshold to achieve, cost, time, claims may be limited/circumvented. Policing

Copyright –        protection for expression, against reproduction of proprietary matter, easier to attain

  • Subjects: Original works of Authorship, Fixed and Tangible medium or expression
  • Copyright Coverage? Only if Expression, Reproduction or Derivative of the same Does not cover Ideas or concepts
  • Registration, deposit with Copyright Office, Notice (c Name Year) useful, not required

Advantages – Long Duration, low cost/threshold

Disadvantages – Not protect ideas, only copying, not against independent devlpt or innocent use

Trademark –         word or symbol describing product or service protection available with use in commerce

  • Mark cannot be descriptive or generic Prior search advisable
  • “Likelihood of Confusion” test for registration or infringement
  • Common Law marks or Federal or State registration,
  • Proof of use in commerce (state or interstate) normally required in one or more of 42 international classes of goods or services
  • Federal filing allowed with Intent To Use in 6 months (extendable)
  • U.S. Priority based on First Use (or ITU filing date), Federal filing establishes use in all 50 states
  • Foreign priority generally based on 1st to file; Paris convention Federal filing date gives 6 month window to foreign filing
  • Use of Ô (state or common law) or Ò (federal), other protections Affidavit of Use required after 5 years

 Trade Secret –    Broadest subject matter.  Protection for business Competitive advantages, easy to gain, difficult to maintain

  • Covers: Information used in trade or business Giving advantage over Competition, and not generally known  Can include customer lists, market info, sources of supply, as well as new inventions
  • Applies based on nature of secret, action to preserve it, no formal filing
  • Must show value or cost in development
  • Must show reasonable efforts to preserve

–Internal security – employee confidentiality

–External security – plant / computer security

–Document control, visitor non-disclosure agmts

  • Not lost due to disclosure in violation of confidentiality agreement; however, gives no protection against independent discovery


Employment Agreements – Executives and key Employee contacts

 1.         Founder and Key Employees, both for loyalty and to secure key human assets

2.         Duties, Outside Affiliations, Board Control

3.         Salary Compensation, Benefits

4.         Confidentiality, New Inventions, Non-compete and restrictive covenants

Employee Manual       – Employment terms of other salaried employees

  • Company policies including Confidentiality

Service Contacts – independent contractor

1.         Description of Services, milestones, reports

2.         Fees, flat, formula, segment; Expenses

3.         Warranties, indemnification, Confidentiality, non-disclosure

4.         Independent Contractor status

 Cash Compensation and Benefits

  • Salary, Incentive Income (limited for start-up)
  • Deferred Compensation
  • Insurance/Benefits, Expense Reimbursement

 Equity Incentives / Participation

  • Stock Purchase Plan
    • Income Tax on Value over Amount pai Tax paid when no substantial risk of forfeiture,
  • Repurchase for Vesting / ‘83(b) Election
  • Attraction for 93 Tax law & 97 law rollover
  • Stock Option – ISO, Incentive Stk. Option Plan
    • Strike price is original FMV, limits on amount, exercise  
    • Capital Gain on sale of stock, subject to AMT
  • Stock Option – Non-Qualified
    • No IRC limits on strike price, terms or exercise 
    • Income Tax on Value over Amount paid
    • Tax paid when option is exercised – ordinary tax not CapGain
  • Equity Based Compensation
    • Phantom Stock 
    • Stock appreciation Rights (SARs), Tax Gross-Ups

 Shareholder / Share Purchase Agreements

  • Founders Buy-Sell Agreement
    • Goals: stabilize management, ownership provide liquidity, valuation of share
    • Means: restriction on share transfer
    • Involuntary transfer – death, disability, by legal process (divorce) – redemption/ cross sale
    • Funded Plans – via insurance – co-sale for step-up, avoid AMT 
    • Voluntary Transfers – right of 1st Refusal
  • Employee Stock Restriction
    • Company Repurchase Rights 
    • IRC §83 election; standoff 
  • Investor Stock Purchase
    • Warranties and Information covenants 
    • Registration Rights or exemption 
    • Tag Along and Cash-out rights 


Production Contracting Arrangements

 1.         Supply contracts and Purchase Orders – Battle of Forms

  • Delivery, Risk of Loss
  • Warranties: patent, copyright infringement, express of implied product warranties
  • Remedies and Damages 

2.         Payment and Credit Terms

3.         Equipment Leasing

4.         Service Contracts

5.         Manufacturing Arrangements

  • Delivery, Risk of Loss

Distribution of Products or Services

1.         Identification of Company=s market niche,

2.         Distributor and Dealer Agreements

a.         Territory, Exclusive or Non-Exclusive

b.         Sales levels, Pricing, Credit Terms

c.         Product, Parts, Supplies, Service

3.         Sales Agent / Representative

  • Agreements – where customized services / products

4.         Sales Contract Terms

5.         Marketing and Promotional Arrangements

 Product Licensing

           1.         Types: Use, Manufacture, Distribution, Trademarks, Licenses, OEM, VAR, Agreements 

2.         License Terms

a.         Grant, Exclusivity Back Licenses

b.         Royalties and Audit Reports

c.         Intellectual Property Protection

d.         Warranties, Liabilities, Expert Controls

3.         Software Licensing Issues

a.         Source Code, Object Code, Escrows

b.         Shrinkwrap

c.         Boxtop licenses, Enhancements

Strategic Technology Alliances and Joint Venture Arrangements

  1. Alliance of type listed above, contributions, mutual benefit
  2. Can include formation of Joint Venture partnership or LLP


Raising Capital and Securities Law Compliance

Venture Capital Finance

1.         Development of Financing Strategy

2.         Business Plan

a.         Product, Technology, Uniqueness, Edge

b.         Market, Competitive Strategy, Penetration

c.         Management Team, motivation, track record

d.         Financial Forecast, underlying assumptions

e.         Capital Sought, financing stage, funds use

3.         Valuation – from Company’s pre-money worth

4.         Presentation, negotiation, commitment, then Venture Capital Due Diligence

NONPROFIT CORPORATIONS:                           


 Different Purpose of Nonprofit from Business Corporation

  • Civic, charitable or other public purposes
  • Not formed for personal, pecuniary gain
  • Can engage in limited commercial activity but profits used for organizational purpose and not distributed for private benefit
  • Funding largely from contributors, grants, dues, merchandise sales, admissions

Planning for Nonprofit entity

  • Goals and mission statement
  • Nature and number of participants
  • Operational weeds – employees, financing
  • Regulating requirements
  • Exposure to liability
  • Tax considerations

NONPROFIT CORPORATIONS:                   


 Articles of Organization (M.G.L. Ch: 180)

  • Filed with Secretary of State
  • Nonprofit purposes: civic, educational, charitable, religious,                               social clubs, chambers of commerce, business league
  • Limiting assets to qualify purpose and other terms for                                            tax exempt status


  • Regulation and management of corporation
  • Management by Board of Directors or Board of Trustees
  • Meetings, treasurer, elections, committees
  • Include or not include members

Registration with Division of Public Charities

  • Office of Attorney General
  • Before engaging in charitable work or raising funds

Annual State Filings

  • Filed with Secretary of State



 Application for Federal Tax Exemption

  • IRS Form 1023
  • Enables tax deductible contributions to corporation
  • If filed within 27 months of incorporation (15 months plus 12 month extension) tax exempt shares retroactive to filing date of incorporation

Annual Tax Reports

  • IRS Form 990

Application to Mass. Department of Revenue (DOR)

  • Application for Original Registration as Exempt Purchaser
  • Exempt for State Sales taxes


           These materials were prepared by Robert A. Adelson, Esq., Partner at Engel & Schultz, LLP, 265 Franklin Street, Suite 1801, Boston, Massachusetts 02110, (617) 951-9980, fax: (617) 951-0048.  His e-mail addresses Mr. Adelson is a graduate of Boston University, Phi Beta Kappa and Northwestern University Law School in Chicago where he was a member of  Law Review.  He also has an LL.M. degree in Taxation from New York University and is a member of the Massachusetts, New York and US Tax Court Bars.

          Robert Adelson began his legal career in 1977 as an associate at major New York City law firms, first Dewey Ballantine and later Weil Gotshal & Manges, before returning home to Massachusetts in 1985, where he has been a partner at several Boston firms before joining his present firm as senior business law partner in 2000.  Mr. Adelson is specialized in corporate, taxation, finance, commercial and technology contracting law.  In those areas, he frequently represents startup and smaller companies in software, and other technology-based fields.  He also represents executives or consultants in executive compensation and stockholder arrangements, incorporation and liability protection, intellectual property protection, and in vendor, client and subcontractor contracting arrangements.

          Mr. Adelson’s  law firm, Engel & Schultz, LLP, is a small but broad service law firm of 6 attorneys in Boston.  The firm complements Mr. Adelson’s work in business and tax law with seasoned attorneys in family, probate, real estate and litigation matters. 

          Mr. Adelson is a frequent speaker at business forums. Additional information on the subjects on which he speaks is shown at  Further information on Mr. Adelson’s background and his past published articles is available at his law firm website

           The speaker thanks Artem Efremkin, for the invitation to speak to Young Entrepreneurs of Tufts (YET) on the topic of Business Formation and Early Stage Tax and Legal Issues” at the YET meeting in Medford, Massachusetts, on March 3, 2010.

          The examples on page 1 of these Materials are hypothetical and fictitious in their entirety (although the questions on page 2 are drawn from actual client questions).  The purpose of the examples and materials, as developed by Robert Adelson, is solely to illustrate planning concepts and stimulate meeting discussion.  The purpose of the remainder of these materials is to illustrate and offer rough outlines of broad areas of corporate, tax, contracts and business law which affect choice of business entity and issues in the structure of start-up and early stage businesses including issues of finance, executive and employee recruitment, stock and compensation in high technology and more traditional fields.  Thus, it is hoped these materials will be informative to those in attendance.  These materials are not legal advice and not intended as any substitute for professional advice or counsel in a particular case.

By Robert A. Adelson, Esq. ©2010.  All Rights Reserved.