Tuesday, September 13, 2011

How do I change from a sole proprietership (tax breaks) to a stand alone business (longevity). Options?

Specifically looking for options that include estate planning, or just converting to a corp. Pros and cons?How do I change from a sole proprietership (tax breaks) to a stand alone business (longevity). Options?
From the article ';Changing from Sole Proprietorship to a Corporation'; http://www.powerhomebiz.com/guide/cases/ :



';A sole proprietorship is not a registered legal entity that is separate from its owner and therefore cannot technically be ';changed'; or converted to a corporation (or a limited liability company, for that matter).';



';Instead the sole proprietorship would cease to exist, and you would form a new corporation to conduct business. Corporations are formed at the state level by filing the Articles of Incorporation with your Secretary of State. The Articles of Incorporation (also referred to in some states as the ';Certificate of Incorporation';) is the document that serves as the charter of the corporation. It includes such details as the corporation's name, purpose of the corporation and stock structure, as well as other information as required by the laws of the state of incorporation. You may prepare and file the Articles of Incorporation yourself, or you may hire an attorney or incorporation services company to do this for you.';



If you wish to change to a corporation, here are the advantages and disadvantages of corporations:



Advantages



- Stockholders have limited liability.

- Corporations can raise the most investment capital.

- Corporations have unlimited life.

- Ownership is easily transferable.

- Corporations utilize specialists.



Disadvantages



- Corporations are taxed twice.

- Corporations must pay capital stock tax.

- Starting a corporation is expensive.

- Corporations are closely regulated by government agencies.



If you are interested in forming a corporation, but hesitate to do so because of the double taxation, there is a way to avoid it. You can do this by making your business an S corporation. The Internal Revenue Service permits this type of corporation to be taxed as a partnership rather than a corporation. However, in order to qualify for S status, your business must meet the specific requirements set forth by the IRS. These include limits on (1) the number and type of shareholders in the business, (2) the stock that is issued, (3) the corporation's sources of revenues.



Or another way to do it is to form an LLC instead. Some states allow a one-member LLC, but not all. Check if your state allows a one-member LLC or if you have a partner in the business, then this would not be a problem.



Here is an article entitled ';LLCs vs. Corporations'; http://www.powerhomebiz.com/vol97/llcs.h that can help you understand which legal structure is best for you and your business.How do I change from a sole proprietership (tax breaks) to a stand alone business (longevity). Options?
Go to an LLC.

You do the best by making your LLC in Delaware as their business protection and cost to incorporate is the best in the US.
I agree with an LLC (Limited Liability Corporation). An LLC has the best of both worlds, tax and legal liability. An LLC will have the same liability protection as a corporation, but will be taxed like a partnership (assuming you have partners) or as a sole proprietor (on schedule C as a single member LLC). Forget about going the C corp route since the filing requirements for you would be too much and you would be taxed twice on the income, once for the corporation and then again when you take your income. You don't need to file in Delaware either, as states recognize the LLC entity.

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