A sole proprietorship is a business entity that functions as an alter ego of the owner. The proprietor holds business assets in his own name and is personally responsible for all business obligations that have been incurred. Transferring the business is a process that involves transferring assets from the proprietor to another business entity and satisfying obligations in such a way that ends the original proprietor's liability.
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If you plan to transfer a sole proprietorship pursuant to a sale of the business, you must first establish a sales price. Accountants or business valuation experts are often hired to establish a sales price for a sole proprietorship.The particulars of the transfer should be put in writing, even if the transfer does not involve a sale. A transfer document or sales agreement provides proof of the intentions behind the transaction, in case of future conflict.
Fictitious Name Registration
A sole proprietor may have registered a fictitious business name, also called a "doing business as" or DBA, with the state or locality where the business is operating. Once the business is transferred, the new owner must amend or refile the company's DBA registration, typically within one to three months of the transfer, if she plans to continue using the DBA. If the new owner does not plan to continue using the DBA, she or the former owner should file cancellation paperwork with the state or local offices that originally processed the DBA.
General Business Licenses
In most states, sole proprietors do not need to obtain a general business license to legally operate in the state or in particular cities. A handful of states, however, do require a license. For example, Nevada requires sole proprietorships to obtain a general business license from the secretary of state's office. Certain cities, such as Las Vegas, require sole proprietors to obtain a second license to operate within city limits. To transfer a sole proprietorship in a state and city that requires a license to operate, you must update the ownership information that is on file with the licensing authority.
Occupational Licenses & Permits
Certain types of businesses are regulated in some states. The required state permissions range from occupational licenses for specific professions to permits for specific types of activities, such as food service or liquor sales. To transfer a sole proprietorship, you must transfer all occupational licenses and permits into the name of the new owner.
To transfer a sole proprietorship, you must also change the name of the current owner on all official state and federal registrations. The most common federal registration that should be changed is the contact person listed on the company's employer identification number, or EIN, assignment by the Internal Revenue Service. The most important state registration that may need to be changed is the company's registration with the state department of taxation and revenue for the purposes of paying payroll taxes and remitting sales tax.
Business Assets & Accounts
A sole proprietor must retitle each business asset and account that is in his name to transfer the company. For example, if the business owns a delivery van, the original owner must take all steps to transfer the van from his name to the name of the new owner. He also needs to contact creditors and change the responsible party for business obligations, such as loans and credit cards. An alternative way of handling outstanding debts is to pay off all obligations before the transfer takes place and require the new owner to open business accounts in his own name.