It's usually the other way around. People want to convert their Sole Proprietorship to an LLC. But in some circumstances an LLC may simply not be necessary or not permitted. For example, the following types of CA-licensed businesses cannot be LLCs: private security companies, barbers, interior designers, massage therapists, guide dogs for the blind, and many more.
Can I convert my LLC to a Sole Prop? Short answer, yes. Well... sort of. There's no conversion per se because you have to end one entity and then start the other. You first dissolve the LLC, wind it up, and file a certificate of cancellation. Then you take residual assets and goodwill from the LLC and apply them to your sole prop. In other words, you cancel the LLC and start your sole prop.
Dissolving the LLC. Dissolution is the formal process of ending your LLC. There should be a designated method for dissolution in the operating agreement. If not RULLPA has alternative default methods such as majority vote of the members. See Cal. Corp Code Sec. 17701.01.
Winding Up. This is the part where you tie all the loose ends of the business. You can elect one or more members to wind up the LLC business, which includes prosecuting or defending any pending actions by or against the LLC, disposing of LLC property, and dividing the LLC assets among the members, among other matters.
Certificate of Cancellation. The final step is to file a certificate of cancellation with the CA SOS, which includes (i) the name of the LLC, (ii) the SOS filing number, and (iii) a statement that you have filed or intent to file the final tax return with the Franchise Tax Board.
"Converting" to sole prop. Once you have dissolved, wound up, and cancelled the LLC it ceases to exist. You can take any residual assets that belonged to the LLC (and now belong to you) and use them in your new venture as a sole prop. Just make sure you have enough insurance to cover your liability exposures.
Possible situations where this could happens. John Doe starts a dog walking business and forms an LLC. He has a bank account, several vehicles, and other assets that belong to the dog walking business. Soon the dog owners start asking John to check on the their homes while they're away. The home check business picks up John finds its much less work for much more money. He decides to start a private security company and gets licensed in CA. John now wants to simply change the LLC name but do private security, but he can't. He must first dissolve the dog walking LLC and transfer all the assets to himself or the new private security business.
If you are a commercial renter and your business has been mandatorily closed as a result of the COVID-19 pandemic, you may be wondering if you still have to pay rent.
Short answer: it depends.
In March, several Bay Area counties including San Francisco and Marin adopted the Shelter in Place ordinance, of which Section 3 states: “All businesses with a facility in the County, except Essential Businesses as defined below in Section 10, are required to cease all activities at facilities located within the County except Minimum Basic Operations, as defined in Section 10.”
If your business is considered “non-essential” and has been ordered completely closed by law due to COVID-19, and you are unable to use the premises whatsoever, then you can likely argue successfully that you should not be required to pay rent for a building that you are not using. But if your business is not classified as non-essential and you can use the premises for some kind of profit while still respecting the 6-foot social distancing recommendation, then you will have a more difficult time making this argument.
When you rent a building you are required to make monthly payments for the use of the premises and the landlord is required to provide you access to the premises according to the terms of the contract. But if the law makes it illegal to run your business, your performance may be excused by the doctrine of “impossibility.”
California law excuses performance that has been rendered legally impossible.
“Impossibility of performance” is a term of art. Clearly, it is still humanly possible to run your business and continue paying rent. But under contract law, if performing the contract under the terms of the contract causes you to violate the law, it could discharge your duty to pay rent.
The Second Restatement of Contracts § 264 states, “[i]f the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.”
This means that if supervening law prohibits a performance or imposes requirements that make it impracticable to run your business in such a way that it defeats the purpose of the contract, this generally relieves you from your duty to perform. The fact that you can still theoretically run your business, break the law, and risk the consequences does not bar you from claiming discharge while the law is in place.
Does this mean you can walk away and void the entire contract? No. Unless the law defeats the purpose of the entire contract. You still have a responsibility to fulfill the rest of the lease after the temporary shelter in place is lifted. In other words, this may excuse you from making one or two payments, but as soon as the shelter in place is lifted it’s business as usual.
But it’s not business as usual, we’re in a recession; do I still have to pay rent after the shelter in place is lifted? Yes. Financial difficulty is not an excuse to discharge performance, even to the extent of insolvency or bankruptcy.
What are my options? While the shelter in place is active, a reasonable landlord will try to find creative solutions to retain you as a renter, care for the building in the interim, and even potentially collect partial rent. For example, one solution is to defer payments until the next rental cycle, when the spread of COVID-19 is controlled, the market (hopefully) begins to normalize, and you’re able to reopen your doors again. But if the landlord requires that you pay full rent for a building that you are not using whatsoever, he is receiving a benefit that he has not earned. Vice-versa, if the renter can still use the premises to run basic operations and turn a profit, he probably should pay a pro-rata amount of the entire rent.
The takeaway here is to be reasonable and understanding. Work together to find creative solutions that foster future business growth and community because when this is all over you’re going to want to have an amicable relationship with your landlord and your landlord is going to want to retain you as a renter, especially in an economic downturn. These are difficult times for everybody. Think cooperation not litigation.
*This material is intended for general information purposes only and does not constitute legal advice. Each case requires unique legal analysis of law and facts. For legal issues that arise, the reader should consult legal counsel
First, keep in mind that you’re not just negotiating a salary, you’re negotiating a job offer. A job is so much more than a paycheck. How you spend 30-40 hours of your week will affect and mold you, personally and professionally. A good job creates value in your life, not just money. If you’re merely negotiating a salary you’re likely missing the mark. Ok, let’s negotiate.
(1) It doesn’t hurt to ask, but it can hurt not to ask. don’t be afraid to ask for what you want, so long as it’s a reasonable request. Research the specifics of the job and make a list of all the things that would make the job more appealing to you. Now ask yourself if they are reasonable. In evaluating reasonableness you don’t want to come across as far too ambitious, but also be careful not to undervalue yourself. If you know you can deliver good work you should be adequately compensated.
(2) Salary. In business, numbers should never be arbitrary, this includes salary. The first question I would ask an applicant is, “how did you arrive at that number?” Be prepared to explain the number. In determining this number forget about your past salary, unless your salary was substantial and you want to volunteer it as a bargaining chip. Factors to consider include your unique experience, education, proficiency, personal expenses in taking the job, commute costs, savings goal, travel fund, etc. Actually go through the exercise of running the numbers on a spreadsheet. Note: In California, an employer can’t ask you about your past salary. See Cal. Labor Code § 432.3.
(3) Negotiating Perks. Perks can sometimes mean much more than a salary because they add balance and value to your life. You can negotiate perks like longer vacation time, a bigger signing bonus, a four-day workweek, the ability to work from home once per week, a later daily start time, continuing education, parental leave, etc. List them all and highlight the ones that are really important to you. I personally like continuing education and training as a good negotiation topic because it makes business sense for both the candidate and the employer. Instead of asking for more money, which is harder to sell, ask for that money in monthly training stipends. It’s a great incentive to increase your professional equity while simultaneously helping your employer stay current and relevant. Try to see it from their side and get creative.
(4) Set yourself up for success. You’re being hired to do a job. The better you can do your job the more successful your organization will be. Your employer wants you to succeed, but they may not know your needs. Tell your employer what you need to succeed. For example, if you have to commute over an hour to work because you can’t afford to live closer to work, this will take a toll on you and your performance. So, ask for a raise that will help you live closer to work. Or if you have substandard work tools that are slowing your productivity or making work unenjoyable (e.g., a crappy printer), ask for better tools. Be reasonable in your requests. Everything you ask for needs to have a reason behind it that makes business sense.
(5) Down the road. What’s not negotiable today may be negotiable tomorrow. If the employer is hesitant about offering you a certain perk or salary because they’re not sure that you’re worth the value, pend it for a set future date. Ask for a six-month performance review with your boss for the purpose of a promotion or salary raise. If you’ve performed above the expectations there’s no reason for refusing you the promotion or raise. It’s important to have a set date in writing and in a shared calendar. If you leave it for “later,” it’s easy to forget. This is a very reasonable request because it’s not a loss to anybody but it could be a big gain for you six months down the road.
(6) Show interest. Let them know you’re excited and don’t play hard to get. Have the character to tell the employer you’re interested and willing to perform at your best but you have some reasonable requests that you feel are important to put you in a position to succeed (i.e., salary and perks). Employers don’t want to negotiate with a candidate who is too tentative and irresolute. It can take a lot of time, attention, and money to vet a candidate, only to see them walk away in the end. If an employer feels you’re too unattainable, they may suspend their recruitment for another candidate.
(7) What does your employer want? Finding this out is more part of the interview phase, but knowing this can help you in the negotiation phase. First, it shows that you’re considering the employer’s needs. Second, it’s a great way to show interest in the subject matter of the job, and not just the salary and perks. And third, once you know what the employer wants, it will allow you to better communicate how your strengths and knowledge will help the organization realize its mission and vision.
(8) Counteroffers. Since a job offer is a negotiation process, don’t be hasty to accept the first offer. If the employer gives you a short time frame to accept, ask them for more time to think about the offer. If you do make a counteroffer, make sure it’s in the same communication at the same time. In other words, put them all in one email. You don't want to keep coming back later with something new. This will show the employer that you’re not resolute, which goes to your character.
What is a business entity? A business entity is simply an organizational structure within which your business functions. Try to think of it as a vehicle for your business model. Some vehicles are more appropriate than others to transport certain types of cargo. For example, if you are the sole owner of a small greeting card business that you run out of your home, a basic vehicle like a sole proprietorship is probably the best entity for your business. On the other hand, if you are part of an eight-member partnership, functioning across three different states, and working to deliver professional services, you may need a more robust vehicle that allows for these complexities, such as a Limited Liability Company (LLC) or a Limited Partnership (LP). If the cargo is too heavy and your vehicle too small, this will likely cause friction within your business. Conversely, if your cargo is too light and your vehicle too robust, this could create waste and unnecessary administrative work for you.
What types of business entities can I choose from? The most common business entity is a sole proprietorship. This is also the default entity for anybody who starts a business. A business begins to exist when a person provides services or products for profit. Other types of business entities include:
Can I change business entities down the road? Yes, and it will likely be is likely a smart move. Your vehicle should grow with your cargo. You may find that the entity you’ve been using for years is no longer suitable for your growing business, requiring you to transition to a different entity that serves your new, more complex business needs a little better. For example, five years ago you may have registered a small taco stand as a sole prop making $40,000 per year. But now, you have a partner, employees, and you’re bringing in $150,000 per year. With this business growth, you also have new facts to consider and new considerations to make.
How do I select the best entity for my business? Of the many factors to consider in selecting an entity, focus on three: (1) liability, (2) flexibility, and (3) tax implications.
*This material is intended for general information purposes only and does not constitute legal advice. Each case requires unique legal analysis of law and facts. For legal issues that arise, the reader should consult legal counsel.