How To Convert Your Business Entity Type

Updated June 20, 2023
Travis Crabtree
Written byTravis Crabtree
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Not a lot is certain in business, but one thing that is certain is that business is constantly changing. Sometimes these changes might result in the need for you to convert your business from one type to another.

Read on to learn more about the conversion process and things you’ll need to consider before converting your business entity.

What is a business conversion?

Converting a business structure simply means changing a business’s structure from one type of business entity to a different one. For example, if you were currently operating your business as a limited liability company (“LLC”), the conversion process would allow you to transform your company into a C corporation. You wouldn’t need to close your business in order to re-incorporate a new business, starting a completely new organization.

To complete a business conversion, you will need to file the request in your state of business according to their requirements.

Why would you convert your business’s structure?

While it may be a relatively uncommon practice, major changes in your company’s operations may necessitate changing your business’s structure. It’s also possible that converting your structure could be financially beneficial, and worth the effort.

For example, the owner of a smaller C corporation (“C corp”) may decide that making the switch to an LLC would be worthwhile, as that change would mean that he or she would qualify for pass-through taxation status. Practically, this means that the new LLC would not be taxed in the same manner as the C corp. The owner of the new LLC would not pay corporate income taxes as was required when the business was a C corp.

LLCs are also occasionally known to restructure themselves as corporations, in order to become eligible for venture capital and to increase the available number of funding options.

Is the business conversion process the same in all states?

Similarly to how business entity filing processes vary by state, as do conversion filings. Each state has there own set of regulations for how a business owner can change their entity type (if at all). In addition to variances by location, the conversion process will also vary according to the type of conversion taking place; for example, an LLC to a corporation or a corporation to an LLC.

Some states do not allow business entity type conversions at all, including:

  • Arizona

  • Mississippi

  • Montana

  • Nebraska

  • New York

  • Vermont

If you need help determining what your options are, contact one of our business conversion specialists.

Things to consider before converting your business

Tax implications of conversion

After a business changes its formal structure, it becomes subject to different taxation requirements. In fact, this is one of the biggest concerns that must be addressed before starting the conversion process. Not only may there be one-time taxes due immediately upon successful conversion, but the long-term and ongoing tax implications placed on your business can be significant as well. Keep in mind that the changes in tax may be either positive or negative. It is strongly advised that you talk with an experienced accountant before committing to any change in your company’s structure.

Restructuring is serious business

Converting to a different type of formal entity may provide your business with a number of financial advantages. Be aware, however, that each state requires you to follow very strict procedures in order to restructure. You must carefully follow these established methods.

It is also advisable that you speak with a tax professional. This will help you come to a detailed understanding of exactly how the change will impact your company’s bottom line.

Variations in the process

The processes required to accomplish conversion vary wildly, depending on a number of factors. Not only does each state have different conversion requirements, but the chosen structures involved in the conversion can create a completely different set of state regulations as well. For example, transitioning from a sole proprietorship to an LLC can be a relatively quick process, while the LLC to C corporation conversion can be lengthy and resource-intensive.

After conversion

Keep in mind that when you change in your company’s structure, you will be required to follow different ongoing compliance requirements as well. This can be especially true if you are converting an LLC into a corporation. Be sure to pay close attention to these changes in order to ensure that your business will be able to keep itself in “good standing” with your state.

And, of course, if you have any questions about compliance, feel free to contact the experienced business professionals here at Swyft!

If conversion is right for your business, Swyft can help.

We know this process may seem overwhelming. That’s why we developed our business conversion service. Let us take care of ensuring compliance with all of the many regulations while you take care of running your business.

The service is designed to help your company complete the formal restructuring process as quickly and efficiently as possible. It includes:

  • A detailed outline of the steps necessary to undergo the conversion

  • The acquisition and preparation of any required state forms

  • The submission of any required forms to the relevant state agency

  • A formal notification regarding the completion of the conversion process, as well as the original copies of any state-handled and approved documents

Let us take the stress out of your business’ entity type conversion, get started here.

Originally published on October 21, 2022, and last edited on June 20, 2023.

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