The process of converting an S-corp to an LLC depends on the type of business entity you’ve registered as an S-corp. Here’s what to know:
Can I change an S-Corp to an LLC?
In short, yes. However there are really two questions here. Since “S-corp” is not an actual business entity but a tax election, your business is probably already registered as an LLC or a corporation with your secretary of state, and registered as an “S-corp” with the IRS. So the question really depends on whether your current business entity is an LLC taxed as an S-corp, or a corporation taxed as an S-corp.
For more on S-corps, check out Northwest’s page: What is an S-corp?
What does it mean to be taxed as an LLC?
By default, a limited liability company (LLC) will be taxed as partnership, or if it is a single-member LLC (SMLLC) as a “disregarded entity.” One of the benefits of forming as LLC is that LLCs are not subject to corporate tax—however, neither are S-corps. If you’re considering converting a corporation taxed as an S-corp to an LLC, you may want to consult a business attorney or CPA first to make sure the conversion is actually worth your while.
How do I change my S-corp to an LLC?
If you have a Corporation with S-corp status and you’re hoping to convert your business entity to an LLC, you’ll have to file new formation documents with your secretary of state. There are two possible options:
- Entity formation / dissolution – First you would Start an LLC in your state, then transfer the assets from your corporation to your new LLC, and dissolve your corporation.
- Statutory conversion – Statutory conversion is the state-assisted process of transferring your state’s formation documents from one entity type to another. This is usually a more affordable and efficient option, however not all states offer statutory conversion.
Either way, you’re also going to have to contact the IRS to inform them of your new business entity and tax status, and get a new EIN.
How do I get rid of my LLC’s S-corp status?
If you already own an LLC, reverting back to being taxed as a partnership or a “disregarded entity” instead of an “S-corp” is quite simple. You’ll need to file two documents with the IRS: a Statement of Revocation and Entity Classification Election (Form 8832).
Tax decisions can be tricky. Whatever you’re leaning toward, it’s a good idea to consult with a tax attorney or a CPA to make sure you’re making the right decisions for your business.