Q: I incorporated my sole proprietorship recently, but I believe that may have been a mistake. What are the steps to change my business structure to an LLC?
Thanks to one of our Idaho clients for that question! The Gem State allows businesses to change from corporations into limited liability companies (and vice versa) through a few different methods—but the easiest way is filing to convert your corporation into an LLC online. We’ll show you how it’s done in this short guide.
How to Convert a Corporation in Idaho
“Conversion” is the statutory term for changing a company from one kind of business entity into another—in this case, a corporation into an LLC. Under ID Code § 30-22 Part 4, an Idaho corporation can convert to an Idaho LLC if a plan of conversion conforms to company bylaws and state law, and is approved by corporate shareholders.
Afterwards, the conversion can be filed as an amendment online through the Idaho Secretary of State’s SOSBiz website, or a physical conversion document can be submitted for an additional fee.
Drafting a Plan of Conversion
When you decide to change your corporation to another type of business, you’ll need to draw up a plan of conversion—an internal document defining the terms of your company’s conversion. You’ll need to to write and approve this plan before filing anything with the Idaho Secretary of State.
Per ID Code § 30-22-402, the plan of conversion must contain:
- The name of the business and its original type of entity
- The new name of the business after conversion, jurisdiction where it will be formed, and new entity type
- The means any interest in the original entity will be converted into interest in the new entity (if any)
- The proposed way the conversion will be entered into public record
- The full text of private rules of the new entity (namely, the bylaws of the corporation converted into the operating agreement of an LLC)
- Any other terms or conditions required in the original entity’s bylaws, or any other changes not prohibited by the bylaws.
Approving the Plan of Conversion
You need approval via a majority vote of shareholders before you can convert your corporation to an LLC—unless your bylaws dictate approval through other means—such as by the corporate board of directors or a set number of shareholders for quorum.
Once your conversion plan is approved, you may proceed to file your conversion documents.
Filing for Conversion with the Idaho Secretary of State
To convert your Idaho corporation, log in to SOSBiz and select “My Records” in the left navigation menu of your dashboard. Choose the company you wish to convert, and then select the option “File Amendment.” Follow the steps, upload the required documentation and pay a $30 fee—your conversion is now filed. Within seven to ten business days, your corporation will legally be an LLC.
Alternatively, you can submit a paper amendment form to the Idaho Secretary of State (Articles of Amendment – General Business), but you’ll need to pay an additional $20 for a physical filing and may experience slower turnaround times as your amendment is manually processed.
After Converting Your Idaho Corporation to an LLC
When converting your Idaho corporation into an LLC, there are a few other matters you should bear in mind:
Should I write an operating agreement?
Because your corporate bylaws will no longer hold sway, you’ll need to write an operating agreement for your LLC. Your LLC’s operating agreement establishes the internal operations of your company, including how the LLC is managed, how profits are handled, and how to resolve issues between members.
Do I need a new EIN?
Not necessarily. According to the Internal Revenue Service, only corporations that convert to LLCs with default partnership tax status must get a new EIN.
If your corporation already had an EIN, and you plan for your newly-converted LLC to maintain C-corporation or S-corporation tax status, then your previous EIN registration should still apply. And if your new LLC will be taxed as a sole proprietor, you are not required to have an EIN, but you may use one for banking or state tax purposes. However, you will need to notify the IRS of your company’s change in status by filing Form 8832 (Change of Entity Type).