Are you looking to change from a sole proprietorship to a corporate entity? Here are some things to think about!
Most business owners decide to incorporate in order to separate their business assets from personal assets and to add a layer of liability protection between their individual actions and actions taken in their business capacity.
Which entity is right for you?
Whether it is best to incorporate or form an LLC depends the type of business you have, the owners, and your financial and business growth goals. 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, consider all the variables and work with your legal and tax professionals in order to choose the entity type that will be most to your advantage.
I’ve Incorporated – Now What?
Now that you have formed an entity, you are now able to apply for a new Employment Identification Number. You may also want to talk to an accountant to discuss any tax elections you may want to elect for your new business (i.e. S corp election).
Apply for a New Bank Account
You will need to close the bank account for your sole proprietorship and open a new one in the LLC’s or Inc.’s name (and with your new EIN number). This is important to maintain a sharp separation between your business and personal finances and to help shield your personal assets from the business – and has the added benefit of streamlining your business’ records for tax reporting.
Apply for Business Licenses and Permits
You will need to contact the City and State to determine whether you need to reapply for licenses when your business structure changes.
You should also contact your E&O carrier to determine whether the insurance coverage needs to be changed into the name of the Company.
Overall, there shouldn’t be many changes in the way you operate your business but the key benefit is that the LLC or Inc. puts separation between your business and your personal assets.