Legal Question in Business Law in California

Re: Forming a corporation from existing unincorporated business?

What kind of a lease did the two of you sign to get the business started? Did you lease a business premises, or machines, or software, or what? Since you mention the lease, maybe you have reason to think it is a significant factor in setting up your corporation.

Next, 'being named in the new corporation' can have numerous meanings. Newly-formed corporations usually name (1) one or more incorporators; (2) one or more initial directors; (3) a registered agent for service of process; (4) a president or CEO, a corporate secretary and a treasurer or chief financial officer. Also, (5) they decide who will be initial stockholders.

In California, a corporation must have all three officers listed in (4) above, but one person can hold all three offices at the same time. There must be at least as many directors as there are shareholders, up to three, but husband and wife are treated as one for this rule.

So, it is perfectly possible for one person to name herself to all corporate offices and fill all the required roles. This is in fact rather common.

Now, as to the lease. It very likely will be necessary for the two of you, as co-lessees of whatever you leased (be it a building, a machine, intangibles like patent rights or software) to work with the owner/lessor to assign the lease to the new corporation. You should first read the lease to see if assignments are permitted, or if you need the lessor's prior approval.

The lessor is currently in a pretty strong position, with both of you as responsible parties including one with a high-paying job. The new corporation will not have a credit rating, so the lessor will probably permit the assignment of the lease only with an on-going guarantee from both of you as well as the promise of the corporate assignee to make the lease payments.

After the corporation is formed, be sure to transfer the assets of the proprietorship to the corporation by use of written bills of sale, and to capitalize the corporation by putting some cash in, and having the corporation issue stock in exchange for the assets and cash.

Re: Forming a corporation from existing unincorporated business?

That is a question for your tax adviser, not counsel. You appear to also need legal advice and help in setting up the corporation properly. You have decisions to make about what form of corporation to use, and other issues. Feel free to contact me if you decide to do so.