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Converting Business Entity to a Corporation

What are the options in converting from a partnership or LLC (partnership) to a corporate entity status?

As stated above, conversion from a partnership to a corporate status can be done by liquidating (dissolving) the current business entity or by transferring ownership of the current entity over to the corporation. Here is a breakdown of the options:

• Liquidation Option – Liquidation requires the partnership to wind down opera4ons, distribute its assets, and dissolve the entity. Distributing assets can be done in two ways. First, after paying off all liabilities, the partnership can distribute the remaining assets to the partners. The partners are then free to undertake the process necessary to organize the new entity. This may include contributing the assets received from the liquidation of the partnership (cash and property) to the new corporate entity. Second, the partnership may liquidate by contributing partnership assets to the new corporate entity. The partnership receives corporate stock for the contribution. 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 corporation must be real people. The partnership cannot own an interest in the S corporation without jeopardizing its S status.

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

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