If business is booming and your startup LLC has grown significantly, it may be time to look into converting into a corporation. There are many reasons that you may want to change your company’s structure, and doing so will help you gain the benefits of a new structure.
Some of the common reasons why people switch their LLCs to corporations are to join a startup accelerator, raise money from venture capitalists or to give equity to their employees. All of these, as well as other, reasons for turning the business into a corporation are excellent.
How do you convert your LLC into a corporation?
You will need to take your business through the conversion process. If your business is registered only in one state, then it will be easier to convert it than if you have it registered in more than one.
You need to formally change your LLC to a corporation through a formal conversion process. This involves filling out forms, paying fees and handling other legal documents. You also need to decide which conversion method you want to use. There are three primary forms:
- Statutory conversion, which is streamlined and makes your LLC members into shareholders
- Statutory merger, which merges your LLC with a corporation instead of converting it directly
- Nonstatutory conversion, which requires you to assign assets, liabilities and interests with multiple legal agreements
With the state, you have to file the articles of incorporation for the new company. For tax purposes, you can ask the Internal Revenue Service to tax you as an S corporation by filing Form 2553 once you have your LLC classified as a corporation.
Don’t be afraid to ask for help with this new business structure
The process of conversion can be tricky, and you want to make sure that you do everything correctly to make sure you get the tax benefits and other perks of converting your business. Your business attorney can help you complete the forms you need and give you more information about the types of conversion that may work best for your business as it grows.