If you’re considering moving your business from LLC to Corporation, there are a number of factors to be aware of. Both the process of incorporating and the process of converting structures are costly, time-intensive and highly detailed. As a result, it is usually best to “get it right the first time” when it comes to choosing a business structure. However, there are circumstances under which it makes sense to incorporate as one structure and then convert structure incorporation or re-incorporate as an alternative structure later. This may be the best choice for your business. But it is important to speak with an attorney before you commit converting from LLC to Corporation. It is also a good idea to seek guidance about whether the state you are seeking to incorporate in initially allows for a relatively easy conversion process down the road.
Difference Between LLC and Corporation
If you are thinking about incorporating as a limited liability company then eventually converting to a corporation, it is important that you understand the difference between LLC and Corporations. LLCs and corporations are run very differently, so transitioning between these structures will have a significant impact on your business whenever you make this switch. Under both LLC and corporate structures, you will have access to a liability shield of sorts in regarding your personal assets. You will also have the flexibility to be taxed as an S-corporation or C-corporation with both structures. But as an LLC, your management structure will be relatively flexible and you will not be beholden to shareholders. When converting to a corporation, your management structure will change significantly and you will become beholden to shareholders.
How and Why to Convert an LLC to Corporation
There are numerous reasons why a business owner may wish to convert their company from an LLC to a corporation. This conversion may allow an established business to raise capital through the sale of stock or attract top talent, advisors and investors through the process of granting equity shares. The tax burden placed on corporations may be lower than it would be for LLCs. In addition, this conversion may allow an LLC that has become lucrative and grounded in its vision to transfer more seamlessly into a rigid corporate management structure. One of the reasons why some company founders avoid the corporate structure initially is that they are not attracted to the idea of being immediately beholden to stockholders and placed at the mercy of a corporate board of directors. But once a company is safely “off the ground,” transitioning from LLC to Corporation may make sense.
Consult a Business Formation Lawyer
If you are interested in incorporating a new business or transitioning your existing business, consider reaching out to a business formation lawyer at LawTrades. We have extensive experience aiding both new business owners and startup founders with the legal processes of financing, registration, recruitment, employment, contracts, intellectual property protection, compliance, labor-based immigration and general legal strategy work. We are passionate about helping new businesses succeed with our affordable, effective and efficient approach. Our team would be more than happy to support you as you begin the processes of meeting the legal needs of your new company, so please connect with us today.