How to Change from a Partnership to a California Corporation

change-300x200Many of the world’s most successful businesses began as garage-based partnerships. A family selling grandma’s cakes from its home in 2010 may have a national following by 2015. Unless you’re already a national corporation, most California-based businesses begin as partnerships or sole proprietorship’s.

There’s a purpose behind every business entity offered by the State of California. Partnerships can be limited, as they often fail to offer the same level of legal protection as corporate entities. If you’ve outgrown your partnership and are looking to incorporate or form a business in California, the renowned business entity attorneys at Structure Law Group can help. We’ll review your business plan and advise you on all stages of entity selection and formation, including choosing a corporate entity that is suited to your business.  We will also help prepare and file your conversion paperwork, if needed. To schedule your free consultation with a California business attorney, call us today at 408-441-7500 or contact us online.

The Difference Between Partnerships and Corporations

Some of the main differences between partnerships and corporations are taxation and personal asset protection (or limited liability). Partnerships are not taxed as separate business entities. Instead, income and losses from a partnership are allocated to the individual partners in proportion to their ownership percentages. Partnerships are also easier to form, cost less to maintain, and can provide greater business flexibility to the partners. But, Partnerships fail to provide legal protection on your personal assets. You can be sued in your individual capacity as a partner and are personally responsible for all business debts. Growing businesses typically acquire greater legal exposure. For this reason, many partnerships convert to corporations.

Corporations, such as California C-Corporations, are generally more expensive to maintain. However, they have the following benefits:

  • Shareholders are not liable for businesses losses.
  • Shareholders generally are not individually liable for the corporate entity’s actions.
  • Transfer of ownership can be simple and does not dissolve the corporation.
  • The life of the corporation is perpetual and does not dissolve based on the actions of a single owner.

California also offers S-Corporations, which many former partnerships convert to. The experienced business attorneys at Structure Law Group can help you decide on the best corporate form for your growing partnership.

Converting a Partnership to a California Corporation

In addition to incorporating a new corporation in California, California permits any general or limited California partnership to convert to any California corporate entity. In order to convert, you must do the following:

  • File Articles of Incorporation that include a statement of conversion and
  • Pay a $150 filing fee which the California Secretary of State changes from time to time.

The legal process can appear simple, but you must do much more in order to protect yourself. Drafting bylaws and corporate contracts needed to run your California corporation are essential. You must decide how much stock to issue and what classes to issue them in. You must have a registered agent, domestic corporate address, and a plan for how your corporation will be run. We can help you every step of the way at Structure Law Group.

Contact a California Entity Conversion Attorney Today

Converting a partnership to a corporation in California is deceptively simple. You can avoid shareholder lawsuits and tax complications early on by converting your partnership with the help of the experienced business attorneys at Structure Law Group, LLP. Call us today at 408-441-7500 or contact us online to schedule your partnership conversion consultation.