There are several reasons why a business may want to change its entity.
Maybe your small business is growing and you’re adding employees.
Or maybe you need liability protection.
Or maybe changing your business entity is a smarter tax move for you.
Whatever the reason, it might be best to consult with a legal or tax professional to be sure that you have all the information to make the right decision.
Sole Proprietorship to LLC or Partnership
Sole proprietorship is the simplest of all business structures. You don’t have to register to become a sole proprietorship — just start conducting business.
Moving from this type of entity to an LLC or a Partnership is a little more involved. Here are the main things you’ll need to do:
- Register your business as an LLC or partnership
- Create appropriate documents for running your business
- LLCs will need an operating agreement
- Partnerships will need a partnership agreement
Sole Proprietorship to Corporation
The process of moving from a sole proprietorship to a corporation is similar to moving to an LLC, but adds a few more responsibilities.
- Register your business as a corporation
- Create appropriate documents for running your business
- Designate shareholders and officers
- Create corporate bylaws, conduct shareholder meetings and other tasks
Sole Proprietorship to S-Corporation
Forming an S-Corporation from a Sole Proprietorship is the same process as above, but with one more step.
- Form a corporation (see steps above)
- Request to elect S-corp status from the IRS at the appropriate time
LLC or Partnership to Corporation or S-Corp
Moving from an LLC to a corporation can be done a number of different ways, depending on the reason for the change. With the probability of this change being a bit more complex, we highly recommend involving a legal and tax professional to assist you in the process.
We’ve listed a few options below:
- If taxes are the primary reason for the change, the LLC may choose to be taxed as a corporation or s-corporation without changing entities
- LLC can be dissolved and form a separate corporation
- LLC can become a subsidiary to a new corporation
