Can I Convert an LLC into a Corporation?
Do you have an LLC? It’s not always easy to choose a legal structure for your business. There are many factors to consider, including the size of your business, the number of employees, the probability of lawsuits and other liability issues, and your overall goals. However, even if you weighed all of these factors and made the best choice for your business by selecting an LLC, it is possible that your circumstances and needs can change. In that case, you may need to consider converting to a different legal structure, such as a corporation.
Reasons to Convert an LLC to a Corporation
The most common reason to convert an LLC into a corporation is growth. If your business has experienced a huge amount of growth such that you want to begin selling shares of your company to outside investors and/or offer stock options to employees, a corporation is the only business entity that allows you to do this. You are unable to sell shares or provide stock options to employees if you have an LLC. Additionally, while you can use LLCs for franchises, a corporation is generally a better option for a company that has multiple locations. If you have a lot of employees, corporations are also beneficial in that they allow certain health insurance expenses and other employment-related expenses to be deducted from the corporation’s taxable income.
Consider Double Taxation
One thing to consider is that corporations are subject to double taxation, whereas LLCs are not. This occurs because the corporation itself is taxed on its profits by the state and federal government, and then the shareholders are also taxed on any profits they have made from their shares in the company (which the company has already been taxed on). One way to avoid this is by filing as an S-corporation. If you would like to learn more about this option, be sure to talk to a business attorney.
How to Convert an LLC to a Corporation
Luckily, it is not difficult to convert an LLC to a corporation with the help of an experienced California business attorney. California allows for a statutory conversion, so that your existing LLC can be converted into a corporation by simply completing and filing a form with the California Secretary of State. Otherwise, you may have to complete a statutory merger, which is a more complicated process and involves taking a vote of all LLC members.
Being Taxed As An S-Corporation
It should be noted that if you are an LLC that wishes to be taxed as an S-corporation without actually converting to a corporation, you may simply select the S-corporation filing option on the IRS paperwork when you file your taxes. However, this will not change the legal structure of your business, it is simply a tax filing status.
Contact Coepio Legal, Inc. Today
If your business has experienced significant growth and you are ready to convert from an LLC to a corporation or another kind of business entity, the experienced business lawyers at Coepio Legal, Inc. are ready to help. Contact us today to schedule a consultation and find out how we can help you meet your business goals.
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