INCORPORATION AND ENTITY CONVERSION
There are numerous practical advantages to incorporating a business, including, but not limited to, tax benefits, protection against personal liability, increased credibility, greater ability to raise capital, and facilitation of ownership transfers. While each business has its own unique set of financial and legal circumstances to consider, incorporation or strategic entity conversion have proven to be valuable tools to innumerable companies and business owners.
The business attorneys of Bellatrix PC have extensive experience aiding entrepreneurs and business owners through each and every stage of their business venture, including the incorporation or conversion processes. We are prepared to help new entities draft and file articles of incorporation, or to guide existing entities through all steps required to successfully convert to another legal structure. Bellatrix PC is a results-oriented firm dedicated to providing efficient and customized business solutions for companies and entrepreneurs across all industries and levels of experience.
To learn more about how Bellatrix PC can help your company meet its goals, call our business lawyers at (800) 449-8992 to arrange for a confidential legal consultation.
Why Incorporate a Business Entity?
There are no laws mandating that an entrepreneur must incorporate his or her new businesses. As a business owner, you are free to structure your new entity as a sole proprietorship or partnership in lieu of opting for formal incorporation as a limited liability company (LLC), C Corporation, or S Corporation.
That being said, the advantages to incorporation are innumerable, and should be carefully considered by business owners when selecting and setting up a legal structure as part of the business formation process. Moreover, new business owners should bear in mind that entity selection is not necessarily permanent, and an entity which begins its life as a partnership or sole proprietorship may choose to incorporate later should the company’s objectives or circumstances change.
By incorporating your business as an LLC or corporation, you stand to reap a variety of significant practical benefits. Importantly, you will dramatically increase your protection against personal liability for the entity’s financial obligations should a debt or lawsuit arise in the future. LLCs and corporations offer members and shareholders robust legal protection against creditors, with a few exceptions for situations involving personal injury, personal guarantees, alter-ego, liability by statute, or acts of fraud. By comparison, general partners and sole proprietors remain completely vulnerable to personal liability for satisfying debts owed by the business.
In addition to providing a shield against creditors and debt collection, incorporation can also be favorable from a tax liability standpoint. For example, limited liability companies enjoy excellent tax flexibility, as the Internal Revenue Service (IRS) permits LLCs to elect to be classified as a corporation, a partnership, or a disregarded entity.
Moreover, both LLCs and S Corporations are considered flow-through or pass-through tax entities, meaning members report profits and losses on their individual income tax returns. C Corporations are subject to double-taxation, but allow full deductions for expenses pertaining to health insurance and fringe benefits, such as employer vehicles or public transportation costs.
Other notable benefits of incorporation include, but are not limited to:
- Increased authority and credibility from a business perspective.
- Ability to raise capital by selling stock.
- Lengthened entity life (with some limits for LLCs). Sole proprietorships and partnerships dissolve upon the death of a partner or owner, with some exceptions where partners make special arrangements in advance.
Our attorneys are well versed in California’s business incorporation requirements, and will insure that you are compliant with state and federal law. Among other things, we will help you file your Statement of Information, assess your ability to satisfy California’s directorial and shareholder requirements, and prepare and review your corporate bylaws, articles of incorporation, and/or articles of organization where applicable.
Can You Convert a Corporation to an LLC or Vice Versa?
As mentioned above, entity selection does not always have to be permanent. In many cases, entity conversion is not only possible, but also favorable to the business from a legal and financial standpoint. It is not uncommon for business owners to convert limited liability companies to corporations, or conversely, for corporations to be converted to LLCs. Alternately, depending on the needs of your limited liability company, it may be desirable to convert a multi-member LLC to a single-member LLC, or to add members to a single-member LLC.
Moreover, there are several different methods of conversion, some of which are less complicated than others. For example, the streamlined statutory conversion process allows limited liability companies to convert to corporations (or vice versa) with minimal paperwork and automatic transfers of debts and assets. As an added benefit, the converted corporation does not need to go through the process of business dissolution.
Nonetheless, even simplified conversion procedures can be rife with opportunities for errors and mistakes. In order to convert smoothly and successfully, you must file a Certificate of Conversion with the California Secretary of State, create a formal plan of conversion, and, in the case of corporations, obtain approval for conversion from the stockholders and board of directors — to name just a few components of the legal process.
The steps you take during the incorporation or conversion process will create the framework for your business’ future. A misstep or omission during this crucial period could undermine your company’s ability to meet its full potential, depriving your entity of the financial flexibility and legal protection it needs to grow and thrive as the business matures.
Therefore, it is absolutely critical that your articles of incorporation, conversion plan, operating agreements, and other pertinent documents are drafted and reviewed by a knowledgeable business attorney with experience representing companies and employers in these matters. When you work with Bellatrix PC, you can feel confident you will be guided by trusted and dependable legal advice in all your business decisions.
Let’s start discussing how our team can help yours. Let us act as your corporate general counsel. To schedule a confidential personal evaluation, call Bellatrix PC at (800) 449-8992 today.
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