It can be a rather easy process to convert from a C company to an LLC if you are currently one. It does necessitate certain legal and financial considerations, though. An explanation of how to transition from a C Corp to an LLC is provided below:
Consult an attorney as a first step
The best course of action is to speak with a company law expert before making any modifications. They may give you advice on the legal ramifications of changing the form of your company, including the tax ramifications, liability safeguards, and compliance needs.
You have shareholders who own a portion of the business as a C corporation. You’ll need to get their consent in order to switch to an LLC. Either a majority vote or written approval can accomplish this.
Step 3: Submit Articles of Incorporation You must submit articles of organization with the state where your business is located once you get shareholder approval. Your LLC is formally established by this document, which also contains details on the company’s name, location, and members’ names.
Step 4: Obtain the Required Licenses and Permits You could require permits and licenses to run an LLC, depending on your area and industry. A business license, tax permits, and licenses for particular industries can all be examples of this.
The proprietors (or shareholders) of a C company are not regarded as independent contractors. Rather, they receive payment in the form of salaries, bonuses, and dividends. Dividends are taxed at the corporation tax rate whereas salaries and bonuses are subject to the individual income tax rate.
The C Corp tax rate is constant at 21% in 2020. Given that the tax rate was as high as 35% before to the Tax Cuts and Jobs Act of 2017, this represents a significant drop from prior years.
The particular requirements and objectives of your company will determine whether an LLC or a C corporation is the best option. C corporations give more opportunity for expansion and access to financing, whilst LLCs offer more flexibility in management and tax structure. You may make the greatest choice for your business by seeking advice from a business attorney and accountant.
No, a C corporation’s owners (or shareholders) are not regarded as independent contractors. They are paid salaries, bonuses, and dividends since they are regarded as company employees. They must pay payroll taxes and other employment taxes because they are considered employees.