How to Change From Sole Proprietor to Incorporation

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A sole proprietorship is a business that is owned and run by a single person. All of the profits of the sole proprietorship belong to that person. Unfortunately all of the liabilities of this type of business also belong to you as the owner. A sole proprietorship is a quick and inexpensive way to start a business to test the waters. Once your business grows to a point where a sudden loss could irreparably damage your personal finances, it is time to upgrade to incorporation. This move will insulate your personal finances and make the business an entity unto itself.

Create a new corporation. Hire an attorney to help you through the creation process.

Draft sales documents under the name of the old business. Transfer the ownership of the equipment, buildings, vehicles and all other physical assets of the old company to the new corporation.

Draft purchase documents under the name of the corporation. Transfer shares of the new corporation to yourself, the owner of the sole proprietorship, to pay for the assets being transferred.

Transfer employees from the sole proprietorship to the new corporation. Technically this process involves firing each employee from the old company and hiring each one at the new corporation.

Empty the bank accounts owned by the sole proprietorship. Open new bank accounts in the name of your new corporation.

Notify the county business licensing entity, as well as the federal and state tax authorities, of the change. Obtain new federal and state tax identification numbers for your new corporation.

Contact your insurance provider. Cancel the policies owned by your old company and purchase compatible policies for the new corporation.

Notify the DMV and county clerk's office of the change. Transfer all of the titles and deeds of the vehicles and real property into the name of the new corporation.

Notify your clients of the situation. Change any existing contracts to match the name of the new corporation.


About the Author

After learning electronics in the U.S. Navy in the 1980s, Danny Donahue spent a lifetime in the construction industry. He has worked with some of the finest construction talent in the Southeastern United States. Donahue has been a freelance writer since 2008, focusing his efforts on his beloved construction projects.

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