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Converting a LLC to a S-Corp or C-Corp

If you formed your business as a limited liability company (LLC) and the structure no longer works for you, you may want to consider converting your LLC to a S-corp or C-corp. The conversion process differs state by state, but below are some general considerations.

The LLC has a different tax status from corporations. The conversion process for a LLC that is taxed as a partnership is different from one that is taxed as a corporation. Thus, you should confer with a knowledgeable attorney to discuss your options.

Below are three primary ways you can convert a LLC to a S-corp or C-corp:

Statutory Conversion

There are a few states that provide a streamlined process for converting a LLC to a corporate entity. You will be required to complete the necessary paperwork and file it with the secretary of state. When the conversion has been approved, the assets and liabilities of the LLC will automatically be transferred to the new corporate entity. The members of the LLC become stockholders of the corporation. If statutory conversion is an option in your state, it is usually the most affordable option.

Statutory Merger

If you live in a state where statutory conversion is not available, you can form a new corporate entity and merge the LLC with the new S-corp or C-corp. The LLC members will exchange their membership rights for shares of stock via a formal merger agreement. You will most likely be required to file paperwork with the state to officially dissolve the LLC once the merger has been finalized.

Non-statutory Merger

Non-statutory merger is a more complex means for converting a LLC to a S-corp or C-corp. You must form a new corporation and file all the necessary paperwork to transfer the assets and liabilities of the LLC to the new entity. The members of the LLC must also exchange their membership rights for shares of stock before the LLC is liquidated.

All of the above options involve a variety of legal matters that require the advice and guidance of an experienced business lawyer. If you are interested in learning more about converting your LLC to a corporate entity, contact the legal team at The Swenson Law Firm for assistance.

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