How to Change From an LLC to a Sub S Corp

By Joseph Nicholson

Whereas an LLC, or limited liability company, is a business entity formed under state law, a subchapter S corp is a tax code designation recognized by the IRS. It is possible to change your LLC’s tax treatment to that of an S corp without converting your business to a corporation for other purposes. Alternatively, you could incorporate a new business and transfer the LLC’s assets.

Whereas an LLC, or limited liability company, is a business entity formed under state law, a subchapter S corp is a tax code designation recognized by the IRS. It is possible to change your LLC’s tax treatment to that of an S corp without converting your business to a corporation for other purposes. Alternatively, you could incorporate a new business and transfer the LLC’s assets.

S Corp for Tax Purposes Only

Step 1

File Form 8832 with the IRS to have the company taxed as a corporation. By default, the IRS treats single-member LLCs as sole proprietorships and multiple-member LLCs as partnerships. The members of an LLC can unanimously elect to be taxed as a corporation by filing this form. In some situations, this designation can be applied retroactively to previous tax years.

Ready to start your LLC? Start an LLC Online Now

Step 2

Make changes necessary to meet S corp qualifications. The IRS defines corporations eligible for S corp treatment as domestic companies with no nonresident alien members, having fewer than 100 total members/owners and only one type of stock -- ownership units. Additionally, other business entities except for tax exempt entities cannot be owners of the company and certain types of financial institutions cannot be S corps. IRS Form 2553 details the specifics for qualifying as an S corp.

Step 3

File Form 2553 with the IRS to elect for S corp treatment. If you file the form with your individual tax return, the election can be effective for the tax year for which you’re filing the return. Otherwise, the election will not be effective until the following tax year unless the form is filed within 2 months and 15 days from the start of the company’s tax year.

Conversion or Merger

Step 1

Submit a business entity conversion form to the same state agency that processes business entities, if available. Where available, this single form dissolves the LLC, incorporates a new business and transfers the assets to the new corporation -- an "automatic" conversion.

Step 2

Effectuate a merger. Where a single conversion form is not available, incorporating a new company and merging the LLC into it achieve the same basic effect. But how the assets or interests of the LLC reach the new company will affect the tax basis of the shareholders and have other tax implications..

Step 3

Submit Form 2253 to elect for S corp taxation. Once you've incorporated your new business, which must meet the S corp qualifications, you can elect to be taxed as an S corp by filing the appropriate form with the IRS.

Ready to start your LLC? Start an LLC Online Now
How to Change an LLC Filing as an S Corp to a Sole Proprietor

References

Resources

Related articles

How to Convert an LLC to a Corporation in Georgia

Converting an LLC to a Georgia corporation requires filing three documents with the Georgia Secretary of State: certificate of conversion, articles of incorporation and Data Transmittal Form 227. Although the process of converting is relatively simple, the question of whether your LLC should convert to a corporation can be complex. After converting, you will have to change your business operations to include ongoing compliance with the Georgia’s corporate law and there could be adverse tax consequences. Consulting with an attorney and tax adviser before converting is essential.

How to Become an LLC Business

The choice of business structure is one of the first and most important business decisions a new owner can make, but the decision is not set in stone. If you are running an existing business as a sole proprietor, partnership or corporation, you may choose to convert the business into a limited liability company. An LLC is a hybrid business structure, providing the limited liability features of a corporation while maintaining the ease and flexible management style of a sole proprietorship or partnership.

How to Change the Name of an LLC With the IRS

A limited liability company, or LLC, is a form of business association that combines the pass-through taxation and flexibility of a partnership with the limited liability of a corporation. The Internal Revenue Service does not recognize LLCs for the purposes of federal taxation, instead classifying them as a corporation, sole proprietorship or partnership. If you have changed the name of your LLC, reporting your name change to the Internal Revenue Service generally only requires indicating this on the company’s yearly tax return.

LLCs, Corporations, Patents, Attorney Help

Related articles

How to Change the Fiscal Year for a Corporation in Massachusetts

If you decide to change a fiscal year for your Massachusetts corporation, and the change involves an amendment to your ...

How to Transition an LLC to a Corporation

Electing to convert a business from an LLC to a corporation is subject to the laws of the state where the limited ...

How to Notify Florida Department of Revenue of a Company Name Change

If your company does business in the State of Florida, you need to notify the Florida Department of Revenue when you ...

How to Convert to S Corp From Sole Proprietor

A sole proprietor may benefit from converting to an S Corporation. While a sole proprietor is personally liable for ...

Browse by category
Ready to Begin? GET STARTED