Changing Your LLC to an S Corp: A Step-by-Step Guide

If you run a small business and have an LLC, you might be thinking about switching to a S corporation. The primary cause of this is that S corporations provide tax benefits that LLCs do not. Business owners can pass through business revenue, losses, deductions, and credits on their personal tax returns by using S corporations. As a result, only the shareholders are responsible for paying federal income taxes on behalf of the company. There are, however, a few crucial factors you should be aware of before making the change.

Make sure you first satisfy the IRS standards for a S corporation. You must only have 100 shareholders who are either citizens of or residents of the United States in order to be eligible. There can only be one class of stock, thus all shareholders must have the same benefits and rights. Last but not least, your company must be set up as a domestic corporation or LLC.

Once you’ve established that your company satisfies these criteria, you must submit Form 2553 to the IRS. This form informs the IRS of your decision to elect S company taxation. Form 2553 must be submitted at any time during the tax year prior to the tax year in which the election is to take effect, but no later than 2 months and 15 days after the start of that tax year.

You must inform your state of the change in your business structure in addition to completing Form 2553. Depending on the state where your company is based, there are several procedures for achieving this. For instance, you must submit a Certificate of Conversion to the Secretary of State’s office in Rhode Island. This form must be submitted online via the state’s business portal along with a $50 filing fee.

The tax ID number for your company and any required licenses and permissions must also be updated. You could also need to revise the contracts that govern your company, like the shareholder agreement or operating agreement. To be sure you’ve followed all the necessary steps and that your firm is set up legally, it’s a good idea to speak with a lawyer or tax expert.

Depending on your company’s needs and objectives, you should decide whether to set up an LLC or run a sole proprietorship. The simplest and most affordable business structure is a sole proprietorship, but it has no liability protection. This means that your personal assets are at danger if your company is sued or you accrue debt. In contrast, an LLC provides limited liability protection by separating your personal assets from the obligations of your company. Additionally, an LLC allows for many owners and provides additional tax flexibility.

Depending on the kind of business structure you select, Rhode Island’s business registration fees change. For instance, as of 2021, filing an LLC’s articles of organization costs $150, and filing a domestic business corporation’s articles of incorporation costs $230. Additionally, there are annual report costs that must be paid in order to keep your company in good standing.

You must submit a trademark application to the United States Patent and Trademark Office (USPTO) in order to register a company name as a trademark. A description of your products or services, a sample of your mark, and a filing fee must all be included with the application. It’s a good idea to carry out a thorough trademark search before filing to make sure your selected name is available and does not conflict with any already registered trademarks.

Do you also require a registered agent in Rhode Island? Yes, a registered agent is a requirement for all firms in Rhode Island. A registered agent is a person or corporation chosen to take legal notices on the company’s behalf. In order to receive legal notices, the registered agent must have a physical address in Rhode Island and be accessible during regular business hours.