How to Change from an LLC to a Sub S Corp.

By Larissa Bodniowycz, J.D.

How to Change from an LLC to a Sub S Corp.

By Larissa Bodniowycz, J.D.

If you started your business as a limited liability company (LLC) but have since decided that it is better for your business to run it as an S corporation, or S corp., it is possible to make the change. Depending on your state, you can effectuate this change through a conversion or merger.

Group of coworkers sitting around a tablet

If you only want your LLC to be taxed in the same manner as an S corporation, you can remain an LLC but file Election by a Small Business Corporation (Form 2553) with the Internal Revenue Service (IRS) for your existing LLC.

Follow these steps to change your LLC into an S corporation.

1. Determine options in your state.

Many, but not all, states offer LLCs the ability to "convert," or change, to a corporation by filing paperwork with the state business authority, often the Secretary of State. If this is not an option in your state, you can create a new corporation and merge the existing LLC into the new corporation. Check your state business authority's website to see what options are available in your state.

When determining your options for changing your business structure, you should also make sure your business meets IRS requirements for an S corporation, such as having fewer than 100 shareholders, or LLC members before conversion.

2. Approve the change from LLC to corporation.

Before you can convert your LLC to a corporation or merge it with a corporation, your LLC must vote to approve the change and a plan for how the change will take place. State law and your LLC's articles of organization govern who votes and what percentage must be in favor of the change for it to move forward.

Once the LLC owners, called members, vote and approve the change, you should memorialize the approval in LLC meeting minutes, including details such as whether the vote was held at a meeting or approval came through written consent if no meeting was held.

3. File the necessary paperwork and draft corporate documentation.

If you are changing from an LLC to a corporation through your state's conversion process, you must file a statement of conversion, or similar document, filing fee, and any other documents required in your state.

If you are making the change through a merger, you need to form a new corporation by filing articles of incorporation and the required filing fee with the state agency that regulates businesses. You also need to file paperwork and, if required, a filing fee to dissolve the LLC once you complete the merger and corresponding asset transfer.

Because both approaches to changing to a corporation create a new corporation, you must draft governing and record-keeping documents for the corporation. Bylaws, shareholder agreements, and meeting minutes are a few documents you may need to prepare.

4. Submit S corporation election.

Your new corporation, whether created through conversion or merger, will be taxed as a C corporation by default. To deviate from this default rule and have the corporation taxed under Subchapter S of the Internal Revenue Code (as an S corp.), you need to file Form 2553 with the IRS. There are time limitations for electing S corp. status, so the best practice is to file the election as soon as you form the new corporation.

These steps provide an overview of the actions you need to take to change from an LLC to an S corporation, however, it is recommended that you consult an online service provider or an attorney to assist you. Because the details of the process vary depending on the attributes of your LLC and the law in your state, working with a small business attorney or legal service provider helps ensure accuracy and validity.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.