Legal Question in Business Law in California
Subsidiaries
I have a sole proprietorship business. I have started a separate corporation recently in California.
How do I make the sole proprietorship business a susidiary of the corporation. Do I need to file special papers with the secretary of the state? Do I need separate bank accounts or can I merge two accounts?
5 Answers from Attorneys
Re: Subsidiaries
The sole proprietorship would not be a "subsidiary" of the corporation. It sounds like you're trying to merge your businesses? I'd be happy to chat with you about the legal side of business planning, but the question did not adequately describe your goals. You are welcome to call or email.
Re: Subsidiaries
As in most cases, it depends upon the nature and form of the corporation. Do your incorporation documents allow for the type of business that the sole prop operates? Does the Corp have multiple shareholders? You may be able to merge the two operations under the corp as a DBA. There also may be tax implications. Feel free to contact me to discuss.
Re: Subsidiaries
You need far more advice than you asked for. It's time you got professional about running the business to avoid serious legal liabilities and tax problems. You would have to properly document within the corporation and other business entity the acquisition and transfer of assets and business, do the necessary tax and regulatory filings with the city, state and fed agencies, etc, etc. You appear to need legal counsel to help you handle these issues, and tax advice on whether and how to do so. Feel free to contact me if serious about getting this done right.
Re: Subsidiaries
Your question is very valid and wise to ask ahead of time. However, to give you the complete answers you seek here, would take more time than this forum would allow us attorneys to write you on. Our Law Firm specializes in the areas of corporation start-up you are seeking the most help in, as well as providing you with additional start-up funding and/or expansion capital (at no upfront cost to you) that are unknown to most businesses trying to do the exact same things you are trying to do herein. For a free consultation, contact our Law Firm directly, via phone or email, with your request.
Re: Subsidiaries
I join the other attorneys in suggesting you get a lawyer or CPA to give you basic counsel here.
A sole proprietorship is something you do, an activity, like playing golf or investing in stocks. It is not a separate entity as are a partnership, LLC or corporation, and thus cannot be a subsidiary nor can it be merged.
This is not to say you can't sell your proprietorship business to your corporation; indeed, you can, and it happens all the time - it's the process by which proprietorships turn into incorporated businesses - but there is no merger and the acquired business isn't a subsidiary, it's just a bunch of assets (and usually some liabilities) that the corporation has acquired.
Most corporations formed these days can start, acquire or operate any lawful business except the business of a bank, trust or insurance company. Note your Articles of Incorporation. There are also limitations on the practice of certain professions such as medicine or law by corporations - a special kind of corporation called a professional corporation is required.
You (often) don't need to file any papers.
Whether you have a separate bank account is up to you, but any banking done by the corporation should be done through one or more corporate accounts.
The process of placing a proprietorship business into a corporation is rather simple. You just sell the business to the corporation. This will require some documentation, and whether it is extensive or quite minimal depends upon factors such as whether the corporation has other shareholders, and how complex your sole proprietorship business is. Basically, it can be done by a bill of sale from you to the corporation, specifying what assets the corporation is acquiring, what liabilities it is assuming, what the price is and how the corporation will pay you. Cash or stock or a mixture is typical.
Other things to note: (1) California has a bulk transfer law that protects creditors in certain business transfers; see Commercial Code sections 6101 to 6107. (2) If your proprietorship has employees, long-term contracts, leases, or accounts with suppliers and customers, each one should be handled separately with the third party involved. (3) Any permits and licenses in the name of the proprietorship need to be transferred. (4) If the proprietorship was using a registered fictitious business name, and/or the corporation will use a fictitious business name, (re)registration will be necessary. However, the corporation's name is NOT fictitious and does not require registration.
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