My husband just took over a small business/food as a sole proprietorship. We would like to limit our liability, and was wondering what avenue to take - keep as sole propretorship or convert the small family business to an S corporation? I want to protect my assets just in case if a problem ever arises. I have no financial ties with his business and would like to keep it that way. Also what is the average cost to have an attorney incorporate an existing sole proprietorship.
5 Answers from Attorneys
A sole proprietorship offers little to no protection for the owner and may subject the spouse to liability in some cases. What type of entity should be formed and its tax status depends on numerous factors. It is important that all of the documents are properly drafted, executed and filed; and certain procedures are properly taken to insure adequate protection. A mistake could be costly.
Attorney fees are typically very reasonable in matters such as this. I apologize, but I am unable to quote you a price in this forum. Please feel free to have you husband call me for a free initial consultation.
The best way to limit your liability and to maximize you tax benefits is to either set up a corporation (C or S, depending on certain factors) or an LLC. We regularly set up California corporations and LLCs and charge a flat rate to do so. Please give me a call at 949 436 5212, and we can discuss your options.
As the previous attorney correctly notes, a sole proprietorship does not offer limited liability protection. So naturally you are thinking about forming a S corporation. A S corp, or a LLC for that matter, which does provide limited liability protection. However, California charges $800 a year for any entity that offers limited liability protection. Of note, most business clients I have had opted for a LLC rather than a S corporation because there is less paperwork involved.
Please call my office if you have any questions.
As a Franchise Attorney I agree with the other attorney answers. If you do go the corporate route, you need to make sure you follow all corporate formalities on a regular basis, there is adequate capitalization, etc. Otherwise, the "corporate veil" can be pierced and you can be pursued individually. Business liability insurance is always a prudent and cost-effective way to deal with risk regardless of the entity form you ultimately select. Consult with a good business or franchise attorney in your area for specific advice.
Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.
Franchise Foundations, a Professional Corporation
While it is possible that an LLC would be a viable form, it almost always is tax disadvantaged for conversion of a sole proprietorship. An S corp is almost always the way to go. Conversions of sole proprietorships cost a bit more than a simple initial incorporation, because the existing business must be rolled into the new corporation. Still, for a small business with modest assets and obligations it can be fairly inexpensively. My firm does the incorporation for a flat fee that is below the average for this market. The conversion work would be on an hourly basis, but we could quote you a very reasonable "not to execeed" price once we have a chance to go over the existing business and identify the work that would be needed to transfer the assets and liabilities. We would use junior attorneys and paralegals as much as possible to keep your fees to a minimum. If you would like to discuss what we could do for you, please contact us via email or phone.
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