Sole Proprietor Status to S Corporation
Technically, since a sole proprietorship is not considered separate from the business owner, it is not regard as a stand alone legal entity. Therefore it is not necessary or possible to actually “convert" to an S corporation.
Instead the sole proprietorship would simply no longer exist and the new corporation would assume daily business functions. Some states require a certificate of formation while all states require the filing of the Articles of Incorporation with the Secretary of State. These documents will include the corporation's name, officers, board of directors, stockholders, purpose of the corporation, establshment of the annual meeting, and any other essential information as required by the laws of the incorporating state.
Most states have a requirement for a person to receive process notices or legal notices on behalf of the corporation. This individual is often referred to as the “statutory agent" and is usually a corporate officer or in some cases the legal representative for the corporation.
There are potential tax and liability considerations that should be addressed prior to filing for the subchapter S designation. This would include any loss recapture as a result of the incorporation as well as an analysis of individual liability from activities prior to the incorporation.
Any creditors that held debt under the sole proprietorship will have to agree to convert the debt to the new corporate entity. Otherwise, it will remain the sole responsibility of the individual and all personal obligations remain intact. All existing business contracts should also be examined and potentially rewritten if there are provisions prohibiting reassignment to a new or different entity.
The restrictions and requirements for an S corporation are relatively simple. These include limiting the number of shareholders to 100 as well as dividing disbursements equally as a percentage of ownership.