Changing from a Partnership to a Corporation in CA
The biggest companies in the world started from very humble beginnings, many growing from an idea and one or two employees to having an international presence in just a number of years. Most businesses in California start out as partnerships or sole proprietorships, unless they are already large, multinational corporations.
Each type of business entity exists to serve a different purpose. Because they typically fall short of providing the same level of legal protection as corporations, partnerships can have their disadvantages. Hiring a lawyer will make the process as easy as possible. A lawyer will examine your company plan and provide you recommendations on all aspects of entity formation, including picking a corporate structure that is appropriate for your business.
Corporations and Partnerships
Taxation and the protection of personal assets are a couple of the key distinctions between partnerships and corporations. In a partnership, profits and losses are divided among the partners according to their stakes in the business. Additionally, partnerships are simpler to create, less expensive to maintain, and may give the partners more independence. However, as a partner, you are personally liable for all business debts and subject to individual suit. As businesses grow, they become more vulnerable to legal conflict. To protect themselves many partnerships transition to corporations.
Generally speaking, maintaining corporations is more expensive but they offer the following advantages:
- Investors are not responsible for a company’s losses.
- Shareholders are not personally responsible for the corporate entity’s conduct.
- Transfer of ownership does not result in the dissolution of the company.
- The corporation is not completely at the whim of a single owner.
- S-Corporations, which many former partnerships convert to, are also available in California and a business lawyer can help you decide if it’s the right entity type for you.
Changing a California Corporation from a Partnership
California also enables any general or limited California partnership to convert to any California corporate entity in addition to creating a new corporation in the state. You need to carry out the following in order to convert:
- File articles of incorporation with a conversion statement
- Pay the $150 filing fee (subject to change at the discretion of the California Secretary of State)
The legal process may seem straightforward, but it’s important to take protective measures. It’s important to establish the corporate agreements and bylaws your corporation needs to operate. You must decide how many shares to issue and in what classes. You are also required to have a registered agent, a domestic company address, and a business strategy. Experienced lawyers can help you smoothly navigate through this entire process.