Starting your own company may have been one of the most joyous times in your life. You had this idea in your head for many years, and the day your ideas became reality will be one that you always remember. Of course, as your business continues to grow, you likely understand that what worked when you first opened your doors may no longer work for the good of the company.
When you first formed your business, you chose to create a sole proprietorship because it best suited the needs of your small business. Now, you may think that you need to change your business entity to fall more in line with the direction your company has moved and to protect yourself and your business from financial pitfalls. Fortunately, you can change your type of business if you feel it is necessary.
Altering your sole proprietorship
As mentioned, a sole proprietorship may have fit your company needs, and it often suits many fresh businesses. In general, if another entity has not been chosen and registered, your business falls into the category of a sole proprietorship. However, you may want to move forward with a different entity due to various reasons, including the desire for liability protection, due to hiring more employees or bringing in a partner.
When changing your business type, you will need to follow the correct steps. When it comes to transferring from a sole proprietorship to a limited liability company or partnership, you will need to register your business with the state of Arizona under the entity type you have chosen. Additionally, you will need to create the appropriate operating agreements or partnership contracts.
When moving to a corporation, you will also need to register your business with the state, but you will need to carry out other tasks as well. These tasks include creating corporate by-laws, appointing shareholders and officers, and ensuring that all the other necessary paperwork has been filed.
What about an S corporation?
If you want your sole proprietorship to turn into an S corporation, you will need to take the steps mentioned for becoming a standard corporation first. Once this process takes place, you will reach a point at which you can choose to become an S corporation, which involves requesting this type of business status from the Internal Revenue Service.
To ensure that any change in business type goes correctly, you may want to take the time to review your current business affairs with an attorney and discuss your options for allowing your business to become the entity that would best suit its needs.