How to Change From Sole Proprietor to Incorporation

By John Cromwell

While a sole proprietorship and corporation are both business entities, there are vast differences between the two. Choosing the correct form for your business’s needs is essential. A sole proprietorship is just an extension of the business owner. Establishing a sole proprietorship does not require registering with the state -- and the owner is personally liable for all the business’s obligations. A corporation is legally distinct from its owners, who are generally not personally liable for the business’s liabilities. Forming a corporation, however, requires registration with the state.

Step 1

Choose a name for the corporation that conforms to your state’s rules. The name of your business must include a corporate designation such as “corporation, “incorporated,” or “limited.” The name cannot suggest that the corporation is affiliated with the federal government or a restricted type of business like a bank. No two corporations in a state can have the exact same name. Most states have an online database that allows you to see if your chosen name is available.

Step 2

Choose a registered agent. A registered agent is a person or entity who receives “service of process” for the business. All legal communications go to the registered agent. This includes summonses, notices of lawsuits and license renewal documents. A registered agent generally must reside in the state where the business is located -- and must be available at that location during normal business hours. An officer or partner in the corporation can assume the role of registered agent, as can the business's attorney or a service company.

Ready to incorporate your business? Get Started Now

Step 3

Obtain an articles of incorporation form. You can generally obtain this form from your state’s secretary of state website. Complete the articles of incorporation and file the form with the state. Be sure to include the identity and address of the registered agent. You must submit the form to the secretary of state, or similar state office, and pay required fee. Alternatively, you can use an online legal document provider to prepare and file the articles of incorporation for you.

Step 4

Capitalize your interest in the corporation by transferring the sole proprietorship’s assets to the corporation. The sole proprietor’s assets are your initial investment in the corporation. To transfer land, you will need to draft a deed signifying that you transfer the land from yourself to the corporation. You generally must file the deed with the recorder’s office in the county where the property is located. For personal property, execute a bill of sale. The bill of sale should show what you received from the corporation in exchange for the property. Generally, you will receive shares of stock.

Step 5

Apply for an Employer Identification Number. This number is how the corporation identifies itself to the IRS on its tax return; it is the equivalent of a person’s Social Security number. You can immediately obtain an EIN for your corporation by completing an online form on the IRS website.

Ready to incorporate your business? Get Started Now
How Do I Become Incorporated in California?
 

References

Resources

Related articles

How to Obtain a Copy of a Filed Sub S Corp Election

An eligible corporation or entity can elect to be an S Corporation by filing Form 2553 with the Internal Revenue Service. Within 60 days of filing Form 2553, the IRS will send the corporation a ruling letter that states whether its election to be an S Corporation has been approved or rejected. If approved, a corporation needs to keep a copy of its filed Form 2553 in its company records since the corporation will need the form to file its taxes. If the corporation misplaces its Form 2553, it must request a copy from the IRS.

How to Form an S Corporation in Wisconsin

An S corporation is a regular corporation, or C corporation, that has filed a special tax election with the IRS. Therefore, in order to form an S corporation in Wisconsin you must first form a C corporation by filing articles of incorporation with the state. Then, you can make your tax election with the IRS. Wisconsin allows you to file your own paperwork with the Wisconsin Department of Financial Institutions to form your corporation, or you can use an online documentation service to prepare and file your paperwork.

How to Set Up an LLC in Illinois

In Illinois, forming a limited liability company (LLC) requires submitting forms to the secretary of state's Department of Business Services. Passed in 1992, the Limited Liability Company Act allows one or more persons to set up LLCs in the state. The forms needed to establish an LLC can be downloaded from the secretary of state’s website. You can also file online.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Form an S Corp in New Jersey

A S corp is just a C corp that makes a special election to have its income and losses taxed directly on the ...

How to File Articles of Incorporation in California

To register your new corporation with the state of California, you must file the articles of incorporation with the ...

How to Incorporate Doctors

Incorporation refers to the process of forming a corporation. While some states allow doctors to form limited liability ...

How to Sign a Corporate Letter With a DBA

Corporations can use a fictitious business name, also known as a "doing business as" or DBA, for a variety of reasons, ...

Browse by category
Ready to Begin? GET STARTED