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California Business Entity Restructure San Diego

California Business Entity Restructure San Diego Summary

As your business grows and changes, so too must your business entity grow and change. There are several reasons a California business entity restructure by San Diego Corporate Law may be necessary or advisable. Some of the most common reasons for a California business entity restructure by San Diego Corporate Law are:

• Compliance with laws and regulations for professional corporations;

• Changing tax structure after changes in tax laws or ownership;

• Changing entity type to accommodate changes to management structure;

• Consolidating a multi-state organizational structure into a single state;

• Establishing domicile in a different state to take advantage of more favorable laws; or

• Changing entity type in advance of a merger, acquisition, or investment.

Regardless of the reason for the California business entity restructure, San Diego Corporate Law can assist with the examination and analysis of the factors and choices to assist with selecting what, if any, changes would prove to be the most beneficial before expertly executing the restructure to make the necessary or advisable changes.

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California Business Entity Restructure San Diego Details

The following are some specific examples of common California business entity restructures San Diego Corporate Law provides for its clients:

Compliance with Laws and Regulations for Professional Corporations

The most common California business entity restructure San Diego Corporate Law provides is to assist professionals in complying with the laws and regulations for practicing their profession in corporate form. Entities formed for professional practices often contain errors that make the practice of a profession in the entity a violation of the California Corporations Code, the California Business and Professions Code, and/or the regulations established by the board governing the practice of the profession. Two of the most typical errors in establishing a business entity for a professional practice in California are organizing as a limited liability company (LLC) or forming a general stock corporation instead of a California professional corporation. The following professions may not operate as a limited liability company (LLC) or general stock corporation in California, and must instead operate as a California professional corporation if operated in corporate form:

Accounting (see California Business and Professions Code §§ 5150–5158);

Acupuncture (see California Business and Professions Code §§ 4975–4979);

Architecture (see California Business and Professions Code §§ 5610–5610.7);

Chiropractic (see California Business and Professions Code §§ 1050–1058);

Clinical Social Work (see California Business and Professions Code §§ 4998–4998.5);

Dentistry (see California Business and Professions Code §§ 1800–1808);

Law (see California Business and Professions Code §§ 6127.5, 6160–6172);

Marriage and Family Therapy (see California Business and Professions Code §§ 4987.5–4988.2);

Medicine (see California Business and Professions Code §§ 2402–2417);

Naturopathic Doctors (see California Business and Professions Code §§ 3670–3675);

Nursing (see California Business and Professions Code §§ 2775–2781);

Optometry (see California Business and Professions Code §§ 3160–3167);

Osteopathy (see California Business and Professions Code §§ 2402–2417, 3600);

Pharmacy (see California Business and Professions Code §§ 2402–2417, 3600);

Physical Therapy (see California Business and Professions Code §§ 2690–2696);

Physician Assistants (see California Business and Professions Code §§ 3540–3546);

Podiatry (see California Business and Professions Code §§ 2402–2417);

Psychology (see California Business and Professions Code §§ 2907–2913, 2995–2999);

Registered Dental Hygienist in Alternative Practice (see California Business and Professions Code §§ 1925, 1967-1967.4);

Shorthand Court Reporters (see California Business and Professions Code §§ 8040–8047);

Speech-Language Pathology and Audiology (see California Business and Professions Code §§ 2536–2537.4); and

Veterinarians (see California Business and Professions Code §§ 4910–4917).

In order to comply with the California Corporations Code, the California Business and Professions Code, and/or the regulations established by the board governing the practice of the profession, the business entity must be brought into compliance. Sometimes it is more cost effective to dissolve and wind-up the non-compliant business entity and form a new, fully compliant California professional corporation, but often it is possible to either convert the limited liability company (LLC) into a California professional corporation or amend and restate the articles of incorporation, draft professional bylaws, and make other amendments required for the business entity to be fully compliant for the profession practiced.

Changing Tax Structure

Another common California business entity restructure San Diego Corporate Law provides is to its clients is a change in tax structure. For most actively operated small and medium businesses, electing to be taxed under IRC Subchapter S (S-Corp) will be the most tax efficient. However, when Subchapter S (S-Corp) taxation no longer makes sense (perhaps appreciating assets will be purchased and access to capital gains taxation would be advantageous) or Subchapter S (S-Corp taxation is no longer possible (e.g., a non-qualifying person or entity will become an owner), a change of tax structure will be advisable or necessary. While any change in tax structure will trigger some accounting changes, from a corporate legal standpoint the change is not necessarily a major undertaking. For example, for a corporation to elect tax treatment under Subchapter S (S-Corp) or for an S-Corp to abandon the election, all that is likely to be needed is the approval of the shareholders, the approval of the board of directors, and the acceptance of the change by the taxing authorities. However, if electing or abandoning Subchapter S (S-Corp) taxation, corporate taxation, or partnership taxation for a limited liability company (LLC), not only will the change require accounting changes and the consent of members, managers, and the taxing authorities, but the change may also require significant amendment, if not replacement, of the operating agreement to ensure the operating agreement adequately provides for the the newly adopted tax treatment.

Changing Entity Type to Accommodate Management Structure

If the current management structure of a business entity is creating conflicts or inefficiencies, another type of California business entity restructure San Diego Corporate Law provides to its clients is a change of entity type via an inter-species merger. While the flexibility of member-managed limited liability companies (LLCs) is attractive in theory, often when all members are responsible for management no member is accountable for management, and management decisions become unilateral and conflicts among co-owners flourish. Conversely, a sole owner of a business may find that the multiple tiers of management provided by a corporation (e.g., shareholder, board of directors, and corporate officers) are not necessary and the ability to make business decisions rapidly without shareholder or board of directors approval (especially if the individual is the sole shareholder, sole director, and holds all officer positions) and thinks a single member limited liability company (SMLLC) taxed in accordance with IRC Subchapter S (S-Corp) would provide the flexibility desired without abandoning the tax advantages of the S-Corp form. Changing entity types is generally a significant undertaking, and is often more expensive than the dissolution of one structure and the formation of a new structure. However, the key benefit of the inter-species merger over dissolving one entity and forming another is the continuity of existence of the business and not having to assign contracts and leases (if such assignments are even possible under the terms of those agreements).

Consolidation of Multi-State Organization

Founders of business entities form those entities in various states for various reasons. However, sometimes the good reasons to form a Delaware corporation or Nevada LLC at startup turn out not to be important considerations for the business. A California based business with a business entity formed outside of California must register for the authority to transact business in California, thus subjecting the business to the laws and taxes of multiple jurisdictions. When it is time to simplify and cut costs, a California business entity restructure San Diego Corporate Law provides to its clients is the consolidation of a multi-state organization (generally an interstate merger, when possible) into the California business entity most favorable for the management and taxation of the business.

Interstate Merger — Changing State of Domicile

The opposite of the need for a consolidation of a multi-state organization is a California business entity restructure San Diego Corporate Law provides to change the jurisdiction of incorporation from California to another state. This is most commonly completed when a specific advantage of the laws of a jurisdiction other than California outweigh the cost and complexity of operating as a multi-state organization. As with consolidations inter-species mergers used to change entity types, interstate mergers are often significant undertakings, and is often more expensive than the dissolution of the California entity and the formation of an entity in a new state, however, the key benefit of the interstate merger is the continuity of existence of the business and not having to assign contracts and leases (if such assignments are even possible under the terms of those agreements). Of note, it is also generally possible to complete interstate, inter-species mergers (e.g., California LLC to Delaware corporation).

Changes Prior to Merger, Acquisition, or Investment

A California business entity restructure San Diego Corporate Law provides to its client is changes in tax structure, interstate merger, inter-species merger, or other changes prior to a merger, acquisition, or investment, generally at the request of the acquiring company. Sometimes the requested changes are the preferences of the acquiring company (e.g., jurisdiction of corporation), while other times the changes are required to complete the transaction (e.g., the identify of S-Corp shareholders is restricted, thus a change in tax structure or inter-species merger may be required prior to accepting an investment from a limited partnership).

Do you need to restructure your business entity?

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Schedule a Consultation: 858.483.9200