Converting a sole proprietorship to an LLC or corporation

Sole Propriatorship

Sole Proprietorship

Changing a company organization from a sole proprietorship to an LLC

Advantages

By converting to a Limited Liability Company, an organization is entitled to a number of advantages in the form of benefits. The owner of a business is entitled to receive protection of the entire business unlike in the sole proprietorship. The informality of the business structure is kept under check even with this transformation. As a sole proprietor, there are limited liability to debts and obligations. There is a likelihood of losing property in case the business is sued. With LLC, the business has limited personal protection from debts and other challenges. With LLC, there is an open opportunity to raise capital unlike in a sole proprietorship. Continuity is another facet that is required of every business.

When a business or company shifts from being a sole proprietor to an LLC, it attains growth and development parameters needed for continuity. Moreover, other considerations are raised with this shift in business scale from a sole proprietorship to LLC (Spadaccini, 2007). For instance, moving from a sole proprietorship to LLC enables a business owner to enjoy fringe benefits that sole proprietors cannot access. For instance, a business will not pay tax on fringe benefits like disability or health insurance. Sole proprietors have a harder time embracing quality employees as compared to those of an LLC. Moreover, LLCs offer ownership interests in businesses as a making of the employee's reimbursement.

Disadvantages

With LLCs, there should be filed documentations within states just before they are established. Annual filings are a requirement of these organizations in order to maintain the secretary of state in awareness of the business activities. This is not common in a sole proprietorship. Every filing requires money while its failure leads the business to incur penalties. Taxes are accrued to LLCs unlike with sole proprietors. The federal tax filing requirements are subject to the existence and strength of the business in the market.

Changing a company organization from a sole proprietorship to a corporation

Disadvantages

Establishing a business corporation is more expensive than owning a sole proprietor business. This comes in the form of establishment capital and maintenance finances. Corporations have many formalities to be left at hand in order to have a secured continuity. For instance, tax payments for documentation and existence are necessary. Moreover, corporations, unlike sole proprietorship, are liable to unemployment insurance.

Recommendation

Sole proprietorship is a one way of establishing corporate companies and LLCs. Companies should move from a sole proprietorship to LLCs in order to stand continuity, security, and expansion in the market. It is hard for sole proprietor businesses to be established under single ownership. Therefore, the challenges embraced during transformation are of influence as compared to the benefits accrued when the company has a well established LLC or corporation in the market.

Reference

Spadaccini, M. (2007). Business structures. Irvine, CA: Entrepreneur Press.