Converting Your Sole Proprietorship

It is common for entrepreneurs to start their businesses as a sole proprietor. Therefore, one of the biggest issues a small business owner must face is whether to incorporate, and if so, when. 

At Corporate Business Solutions, we ensure business owners are on the right track for success. Sometimes, that includes transitioning a business to an LLC or corporation.  Ultimately, we help clients understand which legal entity is the best fit for their growing business. There is no single solution that works for every type of business. If you feel it may be advantageous to convert your sole proprietorship to a corporation or LLC, we assist you with considering all the variables and choose the entity type that will be most to your advantage.

If you’re considering launching or growing a business, here are some facts you need to know:

• What Is a Sole Proprietorship?  A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss etc.
• What Is a Corporation? A corporation makes your business a distinct entity. In other words, it separates your business assets from your personal assets. In most cases, if you are considering incorporating your small business, you will want to investigate S corporations. These are corporations especially designed for small businesses. S corporations are not usually required to pay corporate taxes; instead they only pay taxes on dividend earnings.  In other words, the income of the corporation is passed on to the shareholders who are responsible for paying income taxes instead of the corporation being taxed on its profits.
• What Is an LLC? An LLC offers protection for the owners' personal assets in the event of lawsuit or debt. The owners—called members when the firm is an LLC—can collect their profits through the company without paying corporate taxes in many states. There is also greater flexibility in how profits can be distributed amongst the owners than in corporate structures.
• Advantages of Incorporating. Incorporating your business separates personal assets from your business assets. In the event of a company lawsuit or bankruptcy, your personal assets will not be at risk. LLCs offer similar protections. Therefore, if you are running a business that is at high risk for being sued or has risky finances and you have personal assets you would like to protect, it is wise to form a corporation or LLC. Corporations may also save you money in taxes. 

To learn more and / or to schedule your complimentary appointment with the strategic business experts at Corporate Business Solutions, call us at 877-357-9366.