Hi, I’m attorney Elizabeth Potts Weinstein. Today, we're going to discuss how to convert an LLC to a corporation or a corporation to an LLC. This guide focuses on changing the legal entity of your business within the same state, not on relocating or altering tax status.

Understanding the Basics

This conversion process does not involve changing the tax status of your business. For example, an LLC can be taxed as a sole proprietorship, partnership, S corporation, or C corporation. Similarly, a corporation can be taxed as an S corporation or C corporation. The focus here is on changing the legal structure of your business entity while remaining in the same state.

Steps to Convert Your Business Entity

1. Review Tax Implications

Before starting the conversion process, consult with your tax advisor or accountant. The tax implications can significantly impact your decision and timing. For instance, an LLC taxed as a sole proprietorship cannot maintain that status when converted to a corporation; it must be taxed as an S corporation or C corporation.

2. Obtain Approval from Owners

The conversion requires approval from the business owners:

• LLC: Approval from members (and possibly managers).
• Corporation: Approval from directors and shareholders.

Ensure that all decisions are documented and approved by the relevant parties.

3. Create a Plan of Conversion

The requirements for a plan of conversion vary by state. Some states have detailed requirements, while others are more flexible. Check with your state’s Department of Corporations or Secretary of State for specific guidelines.

4. File Necessary Documents with the State

You will need to file various documents to formalize the conversion:

• Formation Documents: Create the initial formation documents for the new entity (e.g., Certificate of Formation for the new corporation).
• Conversion Forms: Submit the required conversion forms, which may vary in complexity depending on your state.

State-Specific Examples

California

• File online via BizFile.
• Forms include business name, address, registered agent, and other details.

Nevada

• Use a packet for conversion, exchange, or merger.
• Separate forms for Articles of Conversion and charter documents for the new entity.

5. Update Your Tax Status with the IRS

Notify the IRS of your new business entity. This might involve changing your tax status or simply updating your business name.

6. Update Business Information Everywhere

Update your business information wherever it is listed:

• Sales tax filings
• Business licenses and permits
• DBA filings
• Bank accounts, merchant accounts, credit cards, loans
• Contracts
• Website and online presence

This step is crucial to ensure all legal and financial records reflect your new business entity.

Conclusion

Converting an LLC to a corporation or vice versa involves several critical steps. Always consult with legal and tax professionals to ensure a smooth transition. If you have any questions, feel free to leave them in the comments below. Don’t forget to like this video and subscribe for more helpful content.