What is an LLC?
An LLC, short for Limited Liability Company, is a legally recognized business structure governed by state laws. The regulations for forming and operating an LLC may vary from state to state, so it is essential to consult your state’s specific requirements if you intend to establish one.
The individuals or entities that own an LLC are referred to as members. The ownership of an LLC is generally not restricted in most states, allowing for a diverse range of members, including individuals, corporations, other LLCs, and foreign entities. Moreover, there is no upper limit on the number of members an LLC can have. Additionally, many states allow the formation of “single-member” LLCs, which have only one owner.
Can I Change My LLC to a Corporation?
Yes, it is possible for you to convert your business from an LLC to a corporation. Business owners may find it helpful to work with an experienced business attorney to convert their business structure quickly and correctly.
Before converting your LLC to a corporation, be sure you understand what you’re getting into with the new structure. First, the similarities between the two: Both LLCs and corporations are entities that are separate from their owners, and they do not exist until the owners file formation paperwork. Unlike sole proprietorships and partnerships, these companies can own assets and take on obligations. Corporations and LLCs each offer limited liability protection, which means that the owners are normally not personally responsible for the debts and obligations of the business.
LLCs offer a more flexible management structure than corporations. The LLC owners (known as “members”) manage the company, or they can bring in a third party to handle the day-to-day operations. Your state might require LLCs to file annual reports, but the content of the reports is limited to basic information like the company address and registered agent.
Managing a corporation is more rule-bound. The formalities include the need to hold regular meetings, create minutes, keep records, and submit annual reports. State law might require that corporate annual reports include detailed information about the corporation and its finances, such as the number of shares and capital investments.
When it comes to taxes, LLCs have attractive options that corporations do not enjoy. By default, LLC owners file and pay taxes as a sole proprietorship (for single and husband-wife owners) or partnerships (for multi-owner companies). However, members can file additional paperwork to elect S Corporation or C Corporation tax status (more below). By contrast, a corporation must pay taxes as a C Corporation or an S Corporation. A C Corporation is subject to “double taxation.” The company pays corporate tax on income that comes into the business, and after distributing the profits, the owners and shareholders pay taxes a second time on the same income on their personal tax returns.
If you are interested in converting your business from an LLC to another business structure, reach out to our law firm today. We will explore your options and help you to file the proper paperwork in order to legally convert your business.
Small Business Law Firm in Houston
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