How to Convert a C Corporation to an S Corporation With Shareholder Approval

By Terry Masters

A regular corporation, also known as a C corporation, can make an election with the Internal Revenue Service to receive special tax treatment as a small business corporation under Subchapter S of the tax code: The C corporation is then considered an S corporation. This designation changes only how the corporation is treated for tax purposes. The IRS has established a list of requirements that a C corporation must be able to satisfy to qualify for the election. An S corporation can have a maximum of 100 shareholders, none of those shareholders can be limited liability companies, corporations, or nonresident aliens, and it can have only one class of stock. The IRS requires all shareholders to consent to the election in writing.

Step 1

Call a meeting of the board of directors. Vote to bring a recommendation to convert the C corporation into an S corporation to the shareholders for approval. Draft a board resolution memorializing the majority vote, and file the resolution with the corporate records.

Step 2

Call a meeting of all shareholders. Vote to make an S corporation election. This vote must be unanimous. The IRS requires all shareholders to consent to the election in writing. Record the vote in the meeting minutes and file the minutes in the corporate records.

Ready to start your LLC? Start an LLC Online Now

Step 3

Draft an election consent form. There is no specific format for this document. It must simply state that the corporation intends to make a Subchapter S election and when it will be effective. The consent form should be signed by all shareholders and notarized.

Step 4

Download IRS Form 2553, Election by a Small Business Corporation, and the instructions from the IRS website. Fill out the form. The form requests basic information about the corporation, a list of the names, addresses and Social Security numbers of the shareholders and their signatures. It requires the person preparing the form to sign a statement under oath that the corporation qualifies to make the S corporation election.

Step 5

Attach the election consent form to Form 2553 and file them with the IRS. Send it to the business processing center that handles your area of the country by referring to the form instructions. The election is not effective until the IRS approves it. You will receive an approval letter from the IRS indicating the effective date of the election.

Step 6

File an S corporation tax election with the state where your corporation is headquartered. Contact the government tax agency that processes business tax returns. Request an S corporation election form. They will either mail it to you or have it available for download from the state website. Fill it out. Attach the IRS approval letter and submit it to the agency. The state will send you an election approval letter also.

Ready to start your LLC? Start an LLC Online Now
Can You Fill Out a 2553 Before the Articles of Incorporation?



Related articles

How to Change a 501(c)(3) Corporation's Name

A 501(c)(3) corporation, otherwise known as a nonprofit, is an organization that is organized under state law but has a special tax status granted to it by the IRS. These groups are not meant to enrich individuals, but promote a charitable, religious, educational or public safety purpose. Individuals can make donations to these groups and deduct those amounts from their taxable income. If a 501(c)(3) corporation wishes to change its name, it must file with both the state it is organized in and the IRS.

How to File an S Corporation in California

To form a corporation in California, you must register with the California Secretary of State. However, California does not register corporations as "S corporations" -- S corporation status is a taxation category established under the federal Internal Revenue Code. Once California has established your corporation, you may apply for S corporation status with the IRS. S corporation status offers income tax advantages to small businesses. However, not all companies qualify for S corporation status.

What Forms Do I Need to File for an S Corp?

An incorporated business is automatically designated by the Internal Revenue Service as a C corporation for income tax purposes. However, certain smaller corporations can elect to be taxed as S corporations without forfeiting the liability protections that the corporate structure affords to shareholders. Making the initial election requires filing an IRS form. Once S corporation status is granted, the tax forms the corporation must file annually will change.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

What Are All the IRS Filings for an S Corp?

A "C" corporation is a standard corporation, while an "S" corporation has elected a special tax status with the IRS, ...

How to Get an S-Corporation Enterprise

An S corporation is a corporation that has been approved by the IRS to be taxed under Subchapter S of the Internal ...

How to Convert an S Corporation

S corporations elect to pass corporate income, losses, deductions and credit through to their shareholders for federal ...

The Steps in Starting an S-Corp

An S corporation is simply an ordinary corporation that has elected to be taxed under Subchapter S of the Internal ...

Browse by category
Ready to Begin? GET STARTED