Filing the proper paperwork to establish your own business can often feel like a step in the right direction, whether it be a LLC, a S corporation, or a C corporation. But suppose you registered your business as an LLC or corporation, and after having some experience under your belt, you realize that you should’ve chosen to register as a C or S corporation. What should you do?
Here are a few steps that you will need to follow to change your LLC to a corporation:
Determine the liability and tax implications that will follow your re-filing. For instance, if an LLC converts to a corporation, it may have negative tax implications if this transformation leads to a liquidation of the LLC, generating a taxable event.
Dissolve the LLC. “The principal members must agree and vote to dissolve the limited liability company and follow the procedures set forth in the LLC’s operating agreement,” explains Richason. “In the event the operating agreement does not specifically state how the LLC should be dissolved, follow your state’s LLC dissolution laws. Write and file the Articles of Dissolution with the secretary of state’s office.”
Create and register your new corporation. Meet with an attorney or CPA to write your new Articles of Incorporation. File the new document with the secretary of state and register the corporation’s name with the corresponding agency in charge of accepting fictitious or DBA names. “If you have already classified your LLC to be taxed as a corporation, you do not need to refile Form 8832,” advises Nicholson. “However, if your LLC was previously being taxed as a partnership or sole proprietorship, you must file Form 8832 and mark box 6a to elect taxation as a corporation. If your LLC is a foreign entity, you cannot change your LLC into an S-corporation.
Transfer all licenses and permits from your former LLC to your new corporation. Contact all licensing and permitting agencies of the former LLC and request how to transfer the licenses and permits to the newly established corporation.
In addition, it is important to note that each state has its own requirements regarding state taxes and fees, information that is mandatory to be in your Articles of Incorporation, record-keeping guidelines, and other important documents. Before you file any paperwork, contact a business lawyer to get an expert’s opinion on whether converting the LLC to a corporation is best for your company and ensuring that all of your legal documents are filled out properly to prevent future penalties and restrictions.