Changing your business entity type
When the nature of your business changes, it may present a chance for you to change from one business entity type to another:
- Changing a corporation into a limited liability company (LLC). For example, a C corporation with an owner that is not a US citizen wish to become an LLC to take advantage of pass-through taxation. (Because the C corporation has an owner that is not a US citizen, it cannot become an S corporation.)
- Changing an LLC to a corporation. For example, the owners of an LLC may wish to seek venture capital funding and therefore wish to become a corporation.
Why change your business entity type?
Converting a company from one business type to another requires the business owner to follow the procedure required by the company’s state of incorporation. All tax implications should also be weighed and those obligations satisfied. For taxation questions, it is best to seek the advice of an accountant or tax advisor.
The BizFilings Advantage
The BizFilings conversion service helps you by:
- Determining the appropriate process for conversion in the state where your company was formed.
- Obtaining and preparing appropriate state forms.
- Submitting your completed conversion forms to appropriate state agencies.
- Notifying you when the process is complete and shipping any state-approved documents to you.
As a company’s needs change, so can its business structure. A company is not "locked into" its business type for life.
Business Type Comparison Table
Keep in Mind
As your business type changes, so do your annual state requirements. In the case of converting from an LLC to a corporation, you will now be subject to ongoing formalities, such as holding and properly documenting annual meetings of directors and shareholders. You can learn about the requirements for your state of incorporation in our State Guides.
What is a business conversion?A conversion is a filing that is made with the state of incorporation allowing a company to change from one business type to another. For example, if a business was originally formed as a limited liability company (LLC) and the owner wishes to change the structure to a corporation, they may wish to file a conversion as opposed to forming a completely new business.
Is the conversion process the same in all states?No, the process differs from state to state and also depends on the type of conversion, for example limited liability company (LLC) to corporation or corporation to LLC. In the most difficult instance, business owners must create a new company, transfer company assets from the old to the new one, and dissolve the old company. You can contact our Incorporation Specialists to learn more about the conversion process and requirements for your state.
Can I convert my sole proprietorship or partnership to a limited liability company (LLC) or corporation?Yes, but it is not considered a conversion. You need to incorporate your business as a corporation or LLC and transfer the assets of your old company into the newly-incorporated business.
Can I convert my C corporation to an S corporation?Yes, but it is not considered a conversion. An S corporation, or subchapter S corporation, is a standard corporation (C corporation) that has elected special tax status with the IRS. To elect S corporation status, a timely filing of Form 2553 must be made with the IRS. You can learn more about C corporations and S corporations in our Learning Center, for example the article S Corporation vs. C Corporation: A Comparison.
Can I convert my S corporation to a C corporation?Yes, but it is not considered a conversion. Business owners must change their elected tax status with the IRS.
Does converting a company have tax implications?Yes, a change in entity status may require immediate or future tax costs. For example, if you liquidate a corporation in order to form a limited liability company (LLC), there may be tax to both the corporation and its shareholders. If, however, the corporation has losses, there may be no tax upon liquidation. It is best to seek the assistance of an accountant or tax advisor for advice on your particular situation.
Learning about business types
The following Learning Center materials can help you as you evaluate converting your business type:
- Business Type Comparison Table
- LLC vs. S Corp: Which Makes Sense for Me?
- Business Compliance Requirements & Consequences
- State Guides
Explore BizFilings’ services
The following products/services may be required for your new business structure: