Converting an LLC to a C-Corp: A How-to Guide

September 15, 2021

Is it time for you to convert an LLC to a C-corp? It’s true that LLCs are easy to launch, and keeping this business structure for as long as you can may save you a lot on taxes initially.

But what happens when your company starts turning profits or wants to go public? A variety of factors might make the C-corp structure preferable at this stage.

Read on to discover the benefits of converting an LLC to a C-corp and how to do it.

Can You Convert an LLC to a C-corp?

If you are an LLC owner looking to switch to C-corp, your first question will probably be: Is converting an LLC to a C-corp even possible? The answer is, yes, it is totally possible! All you have to do is find yourself a law firm that will handle all the necessary legal processes for you.

Creating efficient corporate bylaws unique to your company is an essential part of the conversion journey. But it is also one that requires a seasoned lawyer who has relevant knowledge in the field. So, if you think your company is ready to transition, call Gordon Law Group for help with this process!

Gordon Law Group will help you every step of the way to ensure your company makes a smooth transition and avoids legal problems.

Why Should You Consider Converting Your LLC to a C-corp?

Are you looking to expand your business? If you answered yes, then converting your LLC to a C-corp might be advantageous or even necessary at this point.

If you wish to bring in venture capital, then transitioning into a corporation is sometimes mandatory. That’s because—for the most part—many investors prefer the C-corp structure; it’s more widely used for outside investment. So much so that venture capitalists may quite literally insist your company converts!

A limited liability company, LLC, can make it more difficult (though not impossible) for investors to receive equity and does not allow retail investors to purchase shares on the stock market. So if you’re aiming for an IPO, you will need to convert your LLC to a C-corp first.

Finally, let’s consider the tax implications.

An LLC’s automatic pass-through taxation causes losses and profits to go through the business to the members’ individual income tax returns. Not exactly a problem when the gains are low; tax savings can be an advantage at this stage. But when the LLC turns an enormous profit that goes straight to your personal income, your tax obligation will immediately soar.

So while a C-corporation is subject to double taxation, your overall tax liability can still be less than with pass-through taxation.

Hence, it can be beneficial to adapt to a C-corp business structure once the income hits a high bracket.

How to Convert an LLC to a C-corp

There are two primary processes for converting: statutory conversion and non-statutory conversion. Statutory conversion is a relatively newer and streamlined process offered by many states. Non-statutory conversion is more complicated and somewhat outdated. 

The general steps you need to take for statutory conversion—the most popular method—are:

  • Draft a conversion plan and have the LLC members approve,
  • Pay the filing fee and file for a conversion certificate with the Secretary of State

Regardless of the route you choose, handing over the conversion process to an experienced attorney will give you peace of mind.

You do not need to look any further, as our team at Gordan Law Group has helped countless national and international clients in navigating this process successfully. Even if you are unsure about the best conversion process in your case, we will help you make the best choices with long-term benefits.

Tax Considerations for Owners

In some cases, converting from one business structure to another can create a tax headache. But forming an LLC and then converting to a corporation is essentially a tax-free process per state laws.

However, if you miss the technicalities and the best time to convert, you may end up paying a much higher income tax for the taxable year.

Call Gordon Law Group to help you  minimize tax liability for your unique situation.

Converting an LLC to a C-corp is a straightforward task, especially if left to a knowledgeable attorney. But if handled wrong, it can lead to damaging consequences.

Need professional guidance to make the switch? Call Gordon Law Group to help you do it right!

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