Opinion ID: 1280875
Heading Depth: 2
Heading Rank: 4

Heading: Formation and Operation of Richardson, P.C.

Text: Gary began his association with Associates in Surgery, P.C. in 1976 or 1977 when he became an employee of the professional corporation. In 1977, he became a shareholder. As a result of the bankruptcy proceeding, Gary surrendered his shares in May of 1987 and became an employee. He maintained this status until January 3, 1991. In the late 1980s, Gary also entered into agreements with the Floyd County Hospital and St. Joseph's Hospital to perform part-time services. Phyllis was trained as a nurse but did not work outside the home from 1976 until 1988. In 1988, she began part-time work and her 1988 and 1989 earnings were $1514 and $533 respectively. A few months after the entry of the federal judgment against Gary, in late 1990, Gary and Phyllis formed a professional corporation, Richardson, P.C. Richardson, P.C. issued 100 shares of stock: one share to Gary in exchange for a $200 promissory note, and ninety-nine shares to Phyllis in exchange for a $19,800 promissory note. Richardson, P.C. has not made demand on either of the notes. Gary entered into an employment agreement with Richardson, P.C. providing that he would receive an annual salary from the corporation of $49,900. He later amended the employment agreement to provide he would receive no salary for the first quarter of 1991 and would thereafter receive a monthly salary of $4150. Gary then substituted Richardson, P.C. for himself in the employment agreements he had previously entered into with Associates in Surgery, P.C., Floyd County Hospital, and St. Joseph's Hospital. The agreement between Associates in Surgery, P.C. and Richardson, P.C. provided Richardson, P.C. would receive sixty-six and two-thirds percent of the adjusted gross income of Associates in Surgery during the term of the agreement. The reason Gary received no salary from Richardson, P.C. for the first quarter of 1991 was because the agreement between Associates and Richardson, P.C. provided Richardson, P.C. would receive a percentage of income generated from services Gary performed after January 1, 1991, creating a period of lag time. Pursuant to the operation of Richardson, P.C., Gary received one percent of the amount by which his earnings exceeded his Richardson, P.C. monthly salary, and Phyllis received ninety-nine percent. Gary's earnings as a physician and surgeon in the two years prior to the formation of Richardson, P.C. were $425,983 and $428,201 respectively. During 1991, the first year of operation of Richardson, P.C., Gary's earnings were $41,648. Phyllis also became an employee of Richardson, P.C. Gary's earnings account for at least 95% of Richardson, P.C.'s gross revenue.