How to switch types of business
jushil
How would you go about turning a Sole Proprietorship into a
corporation. I own a website that I would like to expand on. Can anyone
tell me what sort of process you would have to go through in order to
do this process.
xpyttl
"jushil" <jus...@usedcarstar.com> wrote in message
news:cq32h...@enews1.newsguy.com...
It is almost always really stupid to be a sole proprietorship. However,
what works best for you is not likely to be what works best for the next
guy.
There are a number of business forms, and a corporation might not be best
for you. But, being a sole proprietorship is very risky, so you should move
quickly to understand all the implications of changing and what is best for
you.
First and foremost run to your friendly favorite accountant and talk with
him about the tax implications of the various alternatives open to you.
Then go talk to your lawyer. Ideally, get them both together in the same
room with you so you can understand all the issues.
The various forms, LLP, LLC, S Corp, C Corp, all have different implications
on your liability, what freedoms you have to operate your business, the
amount of paperwork you have to deal with, and the tax implications. You
need to understand all of these before you go jumping in.
In general, I would be surprised to see a SP move directly to a corp. There
are reasons you might do this (I did), but I suspect they would be rare.
Generally, the fees and paperwork associated with a corp are higher than for
an LLC, and there are more constraints on how you can run your business.
For an S Corp, the tax implications aren't a lot different. But if you have
other investors, there can be advantages to an S Corp. A C corp is
interesting depending on your financial goals. A C corp gets you taxed
twice, so it's usually not a good idea. But talk with your accountant about
your financial goals, because there are situations where it is the best
plan.
Sutton's "Own your own corporation" has a lot of good information, but your
state could be different, so rely on your attorney more than what the book
says. But a quick read of the book could leave you better prepared to ask
the right questions.
The actual mechanics of any of these are pretty simple. The tough part is
deciding what is best for you. Expect to spend about a grand, maybe a
little more if you are in an expensive state like California. Once you
decide, your lawyer gives you a bunch of papers to sign, you plunk down a
big pile of money, and depending on your state, in a couple of days their
website lists you as legal. Actually, in most states the money almost all
goes to your attorney. The actual fees aren't all that high.
Since the cost is almost all attorney fees, if your brother in law is a
lawyer you might think about that. But be advised, you need to have some
very personal discussions with the accountant and lawyer. This part could
be time consuming if you don't already have a good relationship with your
accountant. If you do, chances are he knows better than you what your
financial objectives should be. But if you don't, be prepared to do some
thinking about things you probably haven't thought of before.
...
fp
If you have registered as a DBA you would unregister. This normally is with
a classified in your local paper for one month, but check with your county.
You do not really have to do this though. Form your corporation and have it
purchase the sole proprietorship. You can then keep the DBA, it would just
have a new owner. For the corporation, you will need to register with your
State. Call or use the web site for your Secretary of State.
--
******************************
Fred Parker
Lynn Consulting Group, L.L.C.
http://www.lynnconsultinggroup.com
******************************
Tom Healy
<< How would you go about turning a Sole Proprietorship into a
corporation. I own a website that I would like to expand on. Can anyone
tell me what sort of process you would have to go through in order to
First make sure that the corporate form of business is the appropriate one to
use (consult with an accountant and attorney). If so,
Second, create the corporation with your state's secretary of state. The fee
can range from $0.99 in Colorado (at least as long as the SOS has their
electronic filing sale going on) to several hundred dollars in some other
states. If you are doing business in more than one state, you need to register
as a foreign corporation in each of the other states.
Next, get a federal employer ID number with Form SS-4, and register your
corporation with your state's department of revenue or franchise tax board.
You'll need these for filing the corporation's income tax, payroll tax, and
possibly sales tax returns.
In general, incorporating a sole proprietorship is tax free for federal income
tax purposes, though both you and the corporation need to include a statement
describing the incorporation with the income tax returns for the first year of
the corporation and the calendar year in which the transaction occurred for
you. If the liabilities assumed by the corporation exceed the tax basis of the
assets contributed, there could be a taxable gain because of relief of
liabilities.
You need to evaluate whether the corporation should be a taxable one or an S
corporation, which passes its income to you to include on your personal return.
If you decide S status is appropriate, you'll need to file Form 2553 with the
IRS within 75 days of beginning the corporation.
--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: t...@tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772
Mike Turco
The details of how you incorporate depend upon where you are located and
what you are trying to accomplish. Are you trying to bring in partners?
Do you want to limit your liability? Looking for investors? Want to save
taxes? Or are you just trying to look more professional to your client el?
This is an international forum, by the way, and you haven't mentioned
where you are located.
The bottom line is that you need the help of a lawyer if it is at all
possible. Before then, though, you need a pretty good idea of what it is
you're trying to accomplish by incorporating, and try to get some ideas
of how the various forms of corporations work.
Mike
Mike Turco
"xpyttl" <xpyttl...@earthling.net> wrote:
> It is almost always really stupid to be a sole proprietorship.
I'm curious as to why you say that. I think there are a lot of good reasons
to inc., but if your business doesn't fit into such a category you're better
off not incorporating.
Mike
Jackhat1
>> It is almost always really stupid to be a sole proprietorship.
>
>I'm curious as to why you say that. I think there are a lot of good reasons
>to inc., but if your business doesn't fit into such a category you're better
>off not incorporating.
>
>Mike
>
>
==
I would be curious to hear the reasoning behind that statement also. Liability
is one good reason to incorparate. What are the others?
Jack
Jack
xpyttl
"Jackhat1" <jack...@aol.com> wrote in message
news:cqet9...@enews4.newsguy.com...
> I would be curious to hear the reasoning behind that statement also.
Liability
> is one good reason to incorparate. What are the others?
I was mostly thinking about liability. It can be pretty simple to form an
LLC or some other liability protection without quite the complexity of a
corp. I suppose you could cover yourself with insurance, but I bet that
would be an order of magnitude more expensive than limiting your liability
through the business form. And it probably also depends on the type of
business. I suspect some are more prone to lawsuits than others. But a
sole proprietorship is a pretty exposed thing. And even absent lawsuits,
if there is any value in the biz much of it is gone when you die. A corp,
for example, lives on after you, which can leave you more options for
passing it on to your kids.
I'm not so sure what goes on with forms like an LLC or an LLP, but I suspect
forming an LLP with one's spouse might not be a bad plan in some instances.
You also don't need to incorporate in the state where you live. At least if
you form a C corp (I know I said that isn't for most), you can choose where
you incorporate, and depending on your objectives, some states can be better
than others. To a degree, what options you have depend on the state where
you live. I don't know what your options are there for an LLC or an LLP.
But also like I said before, it's not a one size fits all deal. Gotta go
talk to the lawyer and the accountant first.
...
Mike Turco
"xpyttl" <xpyttl...@earthling.net> wrote in message
news:cqfh2...@enews3.newsguy.com...
>
> "Jackhat1" <jack...@aol.com> wrote in message
> news:cqet9...@enews4.newsguy.com...
>
>> I would be curious to hear the reasoning behind that statement also.
> Liability
>> is one good reason to incorparate. What are the others?
>
> I was mostly thinking about liability.
Incorporating a sole proprietorship really doesn't do anything to limit your
liability. Its really easy for a lawyer to poke through the corporate veil.
Where incorporating makes a difference is in cases, for example, where a
person owns a company (or a lot of it) but had no hand in running the
business. For example, the shareholders in a corporation, who have no hand
in running a business, are fairly well protected in regards to their
personal assets. -- Mike