Subsequent Reorganization or Change in the Tax Status of the Business. If the business is being terminated because the owner wishes to do business under a different type of entity (such as converting a sole proprietorship to an S corporation), special issues might need to be addressed. For instance, when an S corporation terminates its election and becomes a C corporation, adverse tax consequences often result. Likewise if the shareholders of a C corporation elect to have it taxed as an S corporation, it may be subject to adverse tax consequences requiring the corporation to be subject to various entity level taxes that can be significant. Also, certain assets of the business may not be transferable; for example, a contract that the business has entered into might or might not be transferable if the business is terminated and reorganized. Many other issues could arise when a business is terminated and begun again under a different form of organization. Although generally speaking an owner is permitted to change the form of his or her business at any time, a business owner is advised to seek professional assistance when considering changing the form of his or her business to avoid unintended consequences. Extent of Government Regulation Certain types of government regulation will apply to the business regardless of the form of organization. Licenses or permits will be required of all business entities conducting the regulated activity. Note that businesses operating in multiple jurisdictions (whether cities, states or counties) should inquire about licensing requirements imposed by each of those jurisdictions. This is equally true of businesses using the Internet. Federal, state and local consumer protection laws regulate business relationships with the public, without regard to the form of organization. Every business that hires employees will be required to comply with certain federal and state labor and tax laws governing the employment relationship. The following paragraphs identify the major differences in the extent of regulation for each type of business organization. Sole Proprietorship. The sole proprietorship, as a form of business organization, is not generally regulated by the state. Other than tax filings and specialized reports applicable to certain kinds of businesses (e.g., hazardous waste generators), no special governmental filings or reports are required, making the sole proprietorship the least restrictive, most private form of organization. Partnership. A general partnership, like a sole proprietorship, operates with relatively few governmental controls. RUPA provides statutory rules for basic questions of partnership management and relationships between the partners and third persons, but most issues are determined by the partnership agreement. No special partnership reports or filings with government entities are required, but an assumed name certificate may be required, depending upon the partnership name. Limited partnerships, limited liability partnerships and limited liability limited partnerships must file with the Secretary of State on a yearly basis in order to retain their special status. Corporation. Rules governing the corporation are established by laws of the state of incorporation and the corporation’s articles of incorporation. These rules are more formal and complex than those governing partnerships and limited partnerships. In addition to complying with laws and regulations applicable to similarly situated businesses, any corporation that issues registered securities will be required to make periodic filings with state and federal regulators and must comply with other reporting requirements. Tax laws applicable to corporations generally are more complex than those applicable to proprietorships or partnerships and specific statutory procedures apply to dissolving the corporate entity. Most governmental filings are public
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