How To Convert From An LLC To S Corp

If you’re a small business owner, you’ve probably considered whether it makes sense for your company to convert from an LLC to an S corporation. Perhaps you’ve even decided that the time has come for this change. But if so, how do you make the transition?  

This article provides information on how to convert from LLC to S Corp, including the use of corporate creation services to ease your conversion.

You should be able to know how an LLC differs from an S Corp and what it entails for your business to become a corporate entity.

LLC Vs. S Corp

LLCs are essentially pass-through entities: they don’t pay corporate income tax but instead pass their profits and losses to their owners’ income tax returns.

Owners of LLCs can decide whether to file as sole proprietorships or partnerships (and thus be responsible for paying self-employment taxes) or corporations (and thus not have to pay self-employment taxes).

S Corps are pass-through entities, just like LLCs. However, S Corps are taxed at the corporate level rather than at the individual level.

This means that if your company makes a profit, it pays taxes on those profits at the corporate level. If your company makes a loss in any given year, however, you won’t have to pay any additional taxes beyond those paid by your company.

While both have their benefits and drawbacks, you decide which one you want. But since you’re here to know how to convert from an LLC to S Corp,

Here Is Your Guide To Convert From An LLC To S Corp:

1. File Articles of Incorporation With Your State

To begin converting your LLC to S corp, you must first file articles of incorporation with your state. You can do this online and pay a fee to file them.

In addition to filing with the state where your business is located, you should also consider filing in other states where co-owners or officers might be located (if they live out of state). This will ensure that you are covered in every jurisdiction that matters.

Once you have filed articles of incorporation, it’s time to move on. However, before moving on ultimately from this section, it’s essential to review some important information about filing articles of incorporation:

You must file articles of incorporation before making any other changes related directly or indirectly by law, such as changing the name or purpose or intent behind forming your company.

So, keep that in mind when making those decisions later down the line since many companies have already taken advantage of the opportunity to capitalize upon name recognition value.

This means that if someone has already registered and trademarked something similar sounding like yours, then maybe try something slightly different.

2. Hold A Special Meeting Of Stakeholders

Once you’ve decided to convert, you need to set up a special meeting of shareholders. The special meeting should be called no later than 30 days before the conversion date. This gives your company time to prepare for the transition and ensure all necessary documentation is in place.

The agenda of your special meeting will depend on what type of business entity you are converting from and whether or not there’s any dissent among shareholders regarding the conversion decision.

If there’s dissent regarding whether or not to convert, then everyone involved must understand why this type of conversion makes sense for their particular situation and that they agree on what kinds of benefits can be expected.

3. Adopt A Shareholder Agreement

A shareholder agreement is an essential document for any LLC. It’s a binding contract between your company and its shareholders, which sets out how decisions are made and how profits are distributed among them.

If you’re an LLC with multiple members, you’ll need to create one of these before converting to S Corp status.

It’s important to note that the IRS doesn’t require a shareholder agreement, but it can help keep things running smoothly once you’re in business together. So, if you’re unsure whether or not one’s necessary, be certain that they usually are.

Your agreement should include rules about voting powers and decision-making processes; these should be clearly defined so everyone knows who has the final say when there’s conflict within the company (and what happens when conflicts arise).

It should also outline how profits will be divided among shareholders each year (this varies depending on how much work each person does). Even if some people own more stock than others, this shouldn’t result in unequal payouts or opportunities for compensation outside of what other members receive.

4. Adopt The Appropriate Bylaws For A Corporation

The bylaws are a set of rules that govern the corporation’s operation. The shareholders may adopt the bylaws, or they may be included in your articles of incorporation.

The laws do not require any particular provisions for corporate bylaws, but it’s recommended that you adopt them.

It would help if you also considered adopting a code of ethics for your company and creating a compensation policy for employees, as well as setting up an employee handbook that outlines benefits and procedures for hiring, firing, and reporting problems to management.

5. Make The Change For Bookkeeping Purposes

After making sure you’re ready to convert, it’s time to do the actual conversion. You’ll need to:

• Change the LLC name to your S corporation name.
• Change the LLC bank account to an S corporation bank account.
• Change the LLC address (if different from your address) and phone number(s) on official documents and correspondence and in any online accounts for payment or billing information such as credit cards.

Get a new tax ID number from the IRS if you aren’t using a business license/tax ID number from your state government.

You May Also Check: Getting A Tax Refund: Our Practical Guide For Business Leaders

6. Obtain An EIN From The IRS

Once you’ve completed the steps above, it’s time to get an Employer Identification Number (EIN) from the IRS. An EIN is a unique number that identifies your business and allows you to file taxes.

You can apply for an EIN online or by mail. If you file online, the process is quick and easy; select ‘apply by phone or ‘apply by mail’ and follow the prompts.

If you prefer a more personal touch, however, there’s absolutely no shame in doing this over the phone or in person at one of their many offices.

While applying for an EIN by mail may seem like a more straightforward option than going through all those complicated steps above, it takes longer because you need to send copies of documents proving your identity (like proof of address) and pay the company registration fee gradually rather than all at once, as most other states require when incorporating.

Conclusion

Converting from an LLC to an S corporation can be a big decision, but it’ll pay off in the long run. You can benefit from all the advantages of being a corporate entity by making sure you submit the necessary paperwork to the state and that your business is set up properly. Some of the advantages include saving some money on self-employment taxes.

Read Also:

• Getting A Tax Refund: Our Practical Guide For Business Leaders
• What Are the Main Reasons to Form an LLC When Starting a Business?
• What Is The Difference Between A Personal And Business Checking Account?