Question

Determine two (2) topics that stood out for you, and discuss with the class the main reasons why. Based on the topics covered in this course, summarize the major benefits of forming a corporation. Identify at least three consequences to the corporation, shareholders, or partners of changing the business structure and describe the process involved in changing the business entity

Answer 1

Answer

I) The Major benefits of Forming of a Corporations are described below, 1.Separate Legal Identity:-A corporation exists as a business entity separate and apart from its owners. This means, for instance, that a corporation may sue or be sued in its own name, may own its own property, make its own contracts, pay its own taxes, and have its own rights, responsibilities, and liabilities.

2.Limited Liability :-

Corporations provide limited liability protection to their owners.The owners of a corporation is known as shareholders.Generally , the owners are not personally responsible for the debts and liabilities of the business.Hence the creditors cannot purse owners' personal asset, such as a house or car ,to pay business debts.

In a sole proprietorship or general partnership owners and the business are legally considered the same and personal asset can be used to pay business debts. 3.Unlimited Life – A corporation’s life is not dependent upon its owners. A corporation possesses the feature of unlimited life, meaning if an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business. 4.Transferability of Ownership – Ownership in a corporation is easily transferable. (However, there are restrictions on certain corporation ownership). 5.Raising Capital – Capital can be raised more easily through the sale of stock. Additionally, many banks, when providing a small business loan, want the borrower to be an incorporated business. 6.Establishing Credibility – Incorporating may help a new business establish credibility with potential customers, employees, vendors and partners. II) Entity Conversion    Converting from one type of entity to another can have varying tax consequences depending on the beginning entity and the ending entity. Some conversions may be tax-free to the owners and the entity, but others may trigger income tax consequences. In practice, there are three main conversion strategies: (1) converting a C corporation to an S corporation, (2) converting an LLC to an S corporation, and (3) converting a corporation (C or S corporation) to an LLC. III) The process involved in changing the business entity are explained below step by step. Register with Local and State Agencies:- To convert to a sole proprietorship or partnership, file a DBA or 'fictitious name' registration form with your government agency if you plan to operate under a name other than the owners' legal name. To convert to an LLC or corporation, you must file the articles of incorporation and other paperwork with your state government office. Register with the IRS:- You will most likely need to apply for a new Employer Identification Number (EIN). If you convert to a corporation, you must file for a new EIN, unless you elect to file as an S-Corporation. Corporations converting to sole proprietorships or partnerships also must apply for a new EIN. Reapply for Licenses:- Some states require you to reapply for licenses when your business structure changes. For example, Minnesota requires plumbing contractors to reapply. Spread the Word:- Notify your bank and insurance company of the change. Your bank may require you to transfer assets. Also, make sure you inform everyone you do business with, including suppliers, customers and employees, if the change affects them in any way.