Converting your LLC to a California Corporation is not as complicated as it seems, but there are some things you need to know about how this type of conversion works.
The following article will take you through the process step-by-step so that your business can run more smoothly and avoid any confusion regarding the conversion's legality.
But first, why should you even convert in the first place?
An an LLC Be Converted to an S Corporation in California?
Yes, an LLC can be converted to an S Corporation in California. To reach S corporation status, your limited liability company must meet certain conditions which you can find in the California Corporations Code. This involves filing the appropriate conversion documents with the California Secretary of State.
Upon conversion, the LLC's business structure, including its ownership and management, transforms into an S Corporation. The corporate directors now oversee the company's affairs, and LLC membership interests are exchanged for S Corporation shares.
This conversion allows the entity to potentially benefit from the favorable tax treatment of S Corporations, including the pass-through taxation of business profits.
Why Convert a California LLC to a Corporation?
There are a few reasons why you might want to convert a California LLC to a corporation.
- To get the liability protection of a corporation.
- To make it easier to raise money from investors.
- To have a more professional appearance for customers and vendors.
- To make it easier to transfer ownership of the company.
- To avoid having to file multiple tax returns (one for the LLC and one for the corporation).
- To take advantage of certain tax benefits that are only available to corporations.
- To protect your business from lawsuits.
- To give your company a longer life span.
- To make it easier to manage your company's growth.
- To establish a separate legal entity for your company.
If you find yourself nodding in agreement to any of the reasons above, then it might be time for you to convert your LLC to a corporation. Let's know what the steps needed to convert your business entity are.
The Steps Involved in Converting Your LLC to a Corporation
- Choose a corporate name and file a corporate name registration with the Secretary of State.
- Prepare a certificate of conversion that contains the LLC's name, its principal place of business, and an agreement from each member agreeing to the conversion.
- Prepare the entity's form of organization (for example, "a California stock corporation").
You must also know that to convert. There are three ways you can do things, statutory conversion, merger, and nonstatutory conversion.
3 Different Ways to Convert an LLC to a Corporation
As a business owner, you have three options when converting your California LLC to a corporation.
Statutory Conversion
This is the most common way to convert an LLC to a corporation, and it's also the simplest.
With statutory conversion, the California LLC simply becomes a corporation as is, without having to merge with or take over any other businesses. This option is available to all business in California.
Merger
For your limited liability company to merge with a new corporation, the business entity must be dissolved, and all of its assets and liabilities must be transferred to the corporation. This option is only available to California LLCs with a multi-member structure and not a single-member LLC structure in California.
Nonstatutory Conversion
This is the most complex way to convert an LLC to a corporation, and it's also the least common. With a nonstatutory conversion, the LLC becomes a corporation by taking over another business.
This option is only available to California LLCs with more than one member, and the other business must be willing to merge with the LLC.
To ensure that your conversion is successful, it's always best to seek legal advice from an attorney specializing in corporate law before filing any necessary paperwork with the Secretary of State.
California Tax Requirements for Converting an LLC to a Corporation
As a business owner, you must put into consideration the tax implications of conversion.
You will need to file new articles of incorporation with the California Franchise Tax Board and Internal Revenue Service once your limited liability company has been officially converted to a corporation to change your tax status.
This document will outline the new corporate tax information for your company. You may also be subject to other taxes, depending on the size of your company and how it operates.
Converting your limited liability company to a California corporation can simplify some aspects of running your business, especially when it comes to taxes and liability issues.
Additional Steps To Complete Conversion
Once you have filed your articles of incorporation and paid the necessary tax fees with the California Franchise Tax Board, there are some additional steps you will need to complete before your company is officially converted:
- File a Statement of Information. This document must be filed to the Califonia Secretary of State's office within 90 days after filing your articles of incorporation, and it provides information about your corporation to the public.
- File an Article of Incorporation. Which includes a declaration of conversion, must be filed with the California Secretary of State. This article must comply with the provisions outlined in the California Corporations Code. Only domestic and foreign LLCs are covered by this legislation.
- Apply for an Employer Identification Number (EIN). If you don't already have one, you will need to apply for an EIN when your corporation is formed to do things like open bank accounts and file tax returns.
- Notify your customers and suppliers of your new corporation. Once your company is officially converted, you will need to notify any customers or suppliers who do business with you of your new corporate status.
- You may also want to update your branding and marketing materials to reflect your new company name and logo.
FAQs
Can You Convert California Limited Liability Company to a C-Corporation California?
Yes, you can convert your LLC to a C-Corporation in California.
Can an LLC Convert to Another Business or Another Foreign Entity?
No, an LLC cannot convert to another entity or other foreign business entity. The only exception is if the LLC is converting to a C-Corp and the other entity is willing to merge with the LLC.
What Are the Tax Requirements for Converting a Limited Liability Company to a C-Corporation in California?
You will need to file new articles of incorporation with the California Franchise Tax Board once your LLC has been officially converted to a C-Corporation.
Conclusion:
Converting your LLC to a corporation is not an easy process, but it can also be beneficial for your business.
By understanding the tax requirements and taking the necessary steps, you can ensure a smooth transition for your company.
If you have any additional questions on how to convert LLC to Corp, please seek legal advice from a law firm or an attorney who specializes in corporate law.
