How To Convert From A C Corp Structure To An LLC in US

How To Convert From A C Corp Structure To An LLC in US

Numerous business structures exist in the US. The United States offers various business structures for business owners to choose from. A corporation and an LLC (Limited Liability Company) are among the most popular. However, if you face any issue relating to your C corporation and wish to convert it into an LLC, then blog is for you. 

Understanding the Difference

It is important to understand these two business entities first. A C corporation is a legal entity that pays taxes at the corporate level. An LLC (Limited Liability Company) suits entrepreneurs with less rigid rules and regulations. Converting into an LLC from a C corporation is due to avoid double taxation. Only the members are liable for everything in an LLC. learn more about company formation in the USA

Reasons for Conversion

There might be numerous situations where you will feel to convert your C corporation to an LLC. let’s check out the different situations for the same: 

 1.  Tax benefits

An LLC formation in the USA is structured in a way that can give you more tax-lived policies. You can spread the profit and losses among the members of an LLC. In this way, you do not have to pay corporate tax. You can reduce your tax rate by converting a C corp to an LLC.

 2.  Informal ownership structure

An LLC has more flexibility in business, which is not the case in a C corporation. There are no restrictions in appointing owners to the business. If you don't like paperwork, an LLC is a perfect fit for you. An LLC formation in the USA is beneficial for you because it has fewer formalities. 

 3.  Independent of investors

Decision-making is an important feature of business. Investors may have a say in a C corp company in the US; however, if you want to be free from investors' and shareholders' interference, shift to an LLC.

 4.  Control over management

If you convert a C corp to an LLC, you will have power over the business management. You will not have to discuss with the shareholders for day-to-day decisions. 

Conversion Process

There are three ways a C corp can be converted into an LLC in the US, which are discussed below:

 1.  Dissolving the corporation and forming a new LLC

This is a situation to change your C corp to an LLC, which is a lengthy process and might charge you more. For this purpose, you must do a new LLC formation in the USA and transfer the assets and liabilities. You have to exchange the membership and dissolve the corporation. This situation is applicable to situations where you are not allowed to convert a corporation into an LLC.

 2.  Merging of the corporation with an LLC

You will be asked to engage in a "statutory merger," which a new LLC formation in the USA and merging the former corporation with the existing one. For this situation, you must establish a new LLC, prepare the merger plan, and get approval from all the stockholders. In the next step, exchange the stock and file the merger certificate with the Secretary of State. You are ready to dissolve the corporation. 

 3.  Converting a corporation into an LLC

The conversion process of a C corporation to an LLC is a new venture in the US. Prepare the documents, including the conversion plan and approval from the shareholders and investors. In the next step, complete the conversion form at the Secretary of State's office and clear the payment. There are only a few states that allow corporation conversion to an LLC.

How Can We Help?

Some states in the US offer the conversion process of a business structure. Any business consultancy is of help. Business Setup Worldwide is an experienced company setup consultancy. You can streamline your business with us. You just have to contact us, and we will cover the rest.