Converting an LLC to AC Corp

When converting an LLC to a C corp, there are many things you need to know. Forming your business with an LLC is a fantastic way to get your foot in the door with business structure. Converting your LLC to a corporation is the next logical step in your business growth.

Converting LLC to Corporation Overview

When business owners form an LLC, it is often due to their flexible nature as well as providing protection of owner liability. If you are looking to grow your business, you need to be able to raise money and provide stock options to employees. This is when forming a corporation is appropriate. A corporation can also help save money on your taxes.

When you are ready to take a big leap to a corporation, keep in mind that the process is fairly simple in just about every state. However, you need to be certain you understand the two different types of entities as well as the benefits you receive from converting. Before you get started, you must get advice on taxes to make sure you are on the up and up when it comes time to file.

The nature and purpose of your business has a big impact on your decision to form as an LLC or as a corporation. With time, your business has the potential to grow and transform, so it makes sense to convert your business. The transformation from LLC to corporation is complex and is comprised of many tax and legal issues. It is best to work with an attorney during this conversion.

Difference Between LLC and Incorporated

LLCs and corporations are similar in that they provide personal liability protection in the same way. However, there are significant differences with regard to ownership, governing the business and taxation.

  • Corporations can remain in existence for a long time. They have firm ownership and are managed in a structured way
  • Corporations provide shares to shareholders that pay them for their portion of ownership in the business
  • Shares of a corporation are simple to transfer from owner to owner, with is attractive to investors
  • LLCs are a more recent business structure. They have no management requirements or standards of ownership. They are also not required to provide as much detailed recordkeeping or recording

It can be harder to transfer LLC owners than corporate shares. The owners of LLCs are in charge of who they want as a member of the business

  • LLCs are more popular with small businesses
  • Corporations are more stringent with taxation
  • Corporations are going to be taxed as C corps. This means they are taxed on the amount of profit made. Shareholders have to pay personal income tax on their dividends
  • Corporations can also be taxed as S corps
  • S corps are not required to may corporate tax. Their entire profit is passed to the shareholder’s own personal taxes
  • The lack of double taxation results in saving money in tax payments
  • An LLC can opt to be taxed like corporations
  • They can also opt to pay taxes as sole proprietorships and partnerships, meaning the money made and lost will go straight to personal income taxes

Reasons in Converting from LLC to a Corporation

One of the most common reasons for converting a business from an LLC to a corporation is to entice investors. LLC ownership means it can be harder to move the business from one member to another. This is why investors are more attracted by investors. If you plan to one day utilize venture capital or provide stock in your business, incorporation is necessary.

Another reason is to provide compensation through stocks. A startup business with no cash on hand can use stock in the company to pay the shareholders who got the business up and running. You will also be able to provide your employees with stock options in the business once you are fully established, which is another good reason to incorporate. This is easier to accomplish with corporate stock instead of LLC membership.

Incorporation also decreases self-employment tax. The owners of the LLC are treated as if they are self-employed. This will require the payment of Medicare and Social Security taxes on all the business profits as well as the member’s own salary.

If you need help with converting an LLC to aC corp, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.