When you start a new business, one of the most important decisions you’ll need to make is to choose your business formation – the type of business entity that will best serve your needs. As time passes and businesses evolve, California business owners sometimes discover that a change in business entity is in order. It’s a complicated decision, but it can be critical to the prosperity of your business.
LLC vs. Corporation
There are several factors to consider, but if – for instance – you’re looking to avoid personal liability for your business’s obligations, that’s a function of a corporation. If you also seek a means of personally deducting your business losses to avoid double taxation (pass-through taxation), that’s a function of a partnership. If these reflect your business goals, an entity change to a limited liability company (LLC) could be appropriate. Conversely, if your business is expanding and gaining momentum, it may be time to think about converting your LLC into a corporation.
Determining the type of entity that’s best for your business as it evolves involves complex calculations, but an experienced corporate attorney will help guide you through that process.
From LLC to Corporation
There are a couple of ways California business owners can convert their business formations from LLCs into corporations:
- Statutory Conversion
The State of California has streamlined the process of making a statutory conversion from an LLC to a Corporation, and it consists of submitting several forms to the Secretary of State. Additionally, all members of the LLC must agree to the transfer of entities.
- Non-statutory Conversion
A non-statutory conversion is a more complicated process that requires the dissolution and liquidation of your current company to form a new company. You’ll then transfer your former company’s assets and liabilities into the new corporation. Again, all the members of your LLC must agree to become shareholders in the corporation, but these owners must purchase their interest in the newly formed entity.
Choosing which type of entity is right for your business and determining how to make the conversion are only part of the equation. You’ll have specific paperwork and filing requirements, you’ll need to write articles of incorporation and corporate bylaws, and you’ll be required to elect officers, appoint a corporate director, create stock certificates, and schedule board meetings.
It’s a lot, and because changing your business formation can be critical to your bottom line, you need to get it right.
If You’re Considering Changing Your Business Entity, Consult with an Experienced Corporate Law Attorney Today
If you’re a California business owner whose business’s trajectory is changing, or if you think a change in business formation might be right for you, a skilled corporate business lawyer will help you discover what’s most advantageous for your business and will guide you through the transition process. At Startup Company Counsel in California, our dedicated corporate lawyers are here to help you effectively and efficiently grow your business. Contact us , email us at admin@startupcompanycounsel.com, or call us at 408-441-7500 to set up a consultation today.
