S Corporation Conversion to LLC

By Jeffry Olson, J.D.

S Corporation Conversion to LLC

By Jeffry Olson, J.D.

Converting an S corporation to a limited liability company (LLC) is a legal possibility. Because LLCs are a creation of state law, the process for converting an S corporation to an LLC varies by state. If your state provides a process for the conversion, it is important to comply with those requirements. If your state does not provide a specific process, it is still possible to convert your S corporation to an LLC.

Man at desk looking at document

Statute Regulated Conversion

If your state has rules for converting your S corporation to an LLC, the Secretary of State or other business authority typically has forms available in person or on its office's website for conversion. In this case, the process is simple. Complete the form and file it with your state's business authority. Most states allow you to do this through the mail or online. When the state processes the paperwork, your business's conversion to an LLC is official.

Merger

Even when your state does not provide rules or a statute for converting your S corporation to an LLC, merger is an option. To accomplish a merger, first create a new LLC. You can do this through the state agency that regulates businesses or with the help of an online service provider. This LLC will become your converted business, so plan accordingly. For example, the name of the new LLC will be your business name going forward, as will the registered agent and business address. You then merge your existing business into the LLC, declaring that the new LLC is the survivor of the merger.

It is wise to dissolve the S corporation after the merger is complete. This avoids any confusion on the part of customers and creditors and prevents future problems.

Merger is available in all states and is the only option available for converting an S corporation to an LLC if your state does not provide for the simple conversion process described above.

Planning and Executing Conversion of an S Corporation to an LLC

As with all significant corporate decisions, the board of directors must approve the conversion of an existing corporation into an LLC. Follow all procedures required by the corporation's bylaws or articles of incorporation. With such a major corporate change, it is also wise to consult with all shareholders, even if not required by the corporation's governing documents.

Consult with an accountant or other tax professional. Consider all tax consequences of converting your S corporation to an LLC. Also, determine what steps the new LLC will need to take to comply with the law and best business practices.

Converting an S Corporation to an LLC

Conversion of an S corporation to an LLC is possible in every state, but the process varies. Some states have a statute specifically enacted for the purpose of allowing conversion of an S corporation to an LLC using a simplified process. All states allow this conversion through a business merger. With proper planning and following the required process, an S corporation can successfully convert into a new LLC.

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.