It is possible to change an LLC to a corporation, and it’s a simple process in many states. But if you only want to become a corporation for its tax advantages, you can also remain an LLC and elect to be to be taxed as an S corporation. LLCs and corporations are types of business entities.
How does a LLC become a S corporation?
The two processes are different: To elect Corporation status, the LLC must file IRS Form 8832 – Entity Classification Election. An S corporation is a type of corporation, not a separate type of business. A business that is already a corporation files Form 2553 to elect to be an S corporation.
What’s the difference between a LLC and a C corporation?
“S corporation” and “C corporation” refer to the way a corporation is classified for income tax purposes. Both LLCs and corporations limit their owners’ personal liability for business obligations, but they differ in their ownership and management structure.
Who is the best person to convert a corporation to a LLC?
A good tax advisor can evaluate the tax you can expect to pay as a result of converting as well as the future benefits to your business. He or she can also advise you on alternatives to converting, such as choosing S corporation taxation. If you want to convert a corporation to an LLC, LegalZoom can help.
Can A S corporation be merged into a LLC?
In some states, you must first form your LLC and then merge the S corporation into the existing LLC. This transaction can be complicated. A shareholders’ resolution will need to be passed by the S corporation authorizing the conversion.
What are the disadvantages of converting a LLC to a corporation?
One of the biggest disadvantages of conversion is that a “corporation is subject to double taxation—with both the company and its shareholders paying taxes on profits,” Sundin says. However, if your business qualifies as an S corporation, profits pass through to shareholders’ personal tax returns, and the corporation avoids double taxation.
