The Basics of a Corporate Conversion

The Basics of a Corporate Conversion

corporate conversion

Whether you are an individual looking to expand your business or a corporate entity, a corporate conversion can provide you with an effective structure for your business. However, before you proceed with a corporate conversion, you should consider the differences between a corporation and an LLC. A corporation has several advantages over a limited liability company, including the ability to pass through gains. However, conversions can have complicated tax implications. A tax professional or corporate attorney should be consulted before proceeding. 개인사업자 법인전환

There are two common types of corporate conversions:

statutory and non-statutory mergers. Statutory conversions are easier to complete. In a statutory conversion, the LLC members are listed as shareholders in a new corporation. The resulting certificate of incorporation will provide that the directors of the new corporation are not personally liable for monetary damages incurred in the breach of fiduciary duty. However, a non-statutory merger requires the formation of a new corporation, transferring the LLC’s assets and property, and issuing corporate shares to the LLC members. These types of conversions may require additional paperwork, but they are less complicated than the statutory conversion.

Non-statutory mergers can be complicated and require the services of a qualified attorney. In addition to the incorporation of a new corporation, a non-statutory merger requires new corporate formalities such as a new minutes, annual reports and regular meetings of the directors. The attorney should have experience with transfers of assets and other forms of corporate reorganizations. Depending on your state’s laws, your conversion may require additional approvals from your state’s board of directors. In some states, a majority vote is required for board approval. In California, a conversion may require a unanimous vote. In other states, a conversion may require the consent of shareholders or other third parties.

The IRS views certain conversions as tax-free reorganizations.

If you have decided to convert your corporation to an LLC, consult an attorney and an accountant for further advice. Depending on your state’s laws, a conversion may require additional filings, including tax returns. You may also face additional taxes and penalties, so it is important to understand all your options. You may also find it beneficial to retain the LLC structure and only change the corporation’s tax status.

The conversion of a C corporation to an LLC is generally beneficial in some situations, but can be detrimental in others. In these cases, you may be subject to double taxation or a hefty tax bill. Similarly, converting your LLC to a corporation can cause substantial taxable gains, which can trigger personal income tax bills. An attorney should be consulted for advice on all tax implications. You may also find it helpful to hire an independent valuation firm to review your business’s assets and liabilities and provide support to the IRS.

Whether you are an individual or a business, a corporate conversion may be an effective way to reorganize in a new state. However, you should consult an attorney, accountant and tax professional to ensure that you understand the tax implications and that the conversion will be beneficial for your business. If you are considering a conversion, contact an attorney at The McGuire Law Firm to discuss your options.