1. Home
  2. Legal
  3. Converting Business Entity to a Corporation

Converting Business Entity to a Corporation

What are the op.ons in conver.ng from a partnership or LLC (partnership) to a corporate en.ty status?

As stated above, conversion from a partnership to a corporate status can be done by liquida4ng (dissolving) the current business en4ty or by transferring ownership of the current en4ty over to the corpora4on. Here is a breakdown of the op4ons:

• Liquida4on Op4on – Liquida4on requires the partnership to wind down opera4ons, distribute its assets, and dissolve the en4ty. Distribu4ng assets can be done in two ways. First, aaer paying off all liabili4es, the partnership can distribute the remaining assets to the partners. The partners are then free to undertake the process necessary to organize the new en4ty. This may include contribu4ng the assets received from the liquida4on of the partnership (cash and property) to the new corporate en4ty. Second, the partnership may liquidate by contribu4ng partnership assets to the new corporate en4ty. The partnership receives corporate stock for the contribu4on. The partnership is then dissolved and the corporate stock assets are distributed to the partners.

• Note: The second method is not available if the new corpora4on elects S status. Remember, all owners of an S corpora4on must be real people. The partnership cannot own an interest in the S corpora4on without jeopardizing its S status.

• Merger Op4on – The new corpora4on acquires the ownership interest of the partners in exchange for an ownership interest in the new corpora4on. The result is that the new corpora4on owns the partnership and all of its assets. The corpora4on can then wind up the affairs of the partnership in the manner most advantageous to the corpora4on. This could include transferring contracts, property, and other assets. The partnership becomes one with the new corpora4on.

 

Was this article helpful?

Related Articles

Add A Comment