Converting to an LLC - Explained
Changing Business Entities
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What is Converting a business entity to an LLC?
Converting from one business entity to another varies in complexity based upon the original type of entity.
The first step is forming a new LLC. Forming an LLC as a sole proprietorship is extremely simple.
Next, the assets of the sole proprietorship simply need to be transferred to the new LLC entity. The question becomes how to get the assets out of the old entity and into the new LLC.
How to Convert a Partnership to an LLC?
Converting from a partnership to an LLC is also relatively simple. There are several options for funding the LLC.
One option is liquidating the partnership interest of each partner and then having the partners donate the assets to the LLC.
Another option is simply having each partner donate her interest to the LLC and then liquidating the partnership.
Both options have varying tax repercussions.
When converting from a corporate entity to a partnership, avoiding negative tax repercussions and accounting for the change in entity form can be very complicated.
The process generally requires that the corporation be liquidated. This can give rise to very negative tax consequences for the shareholders.
In any event, an S-Corporation cannot be donated to a business entity. This will destroy the S-election status.
A C-corporation can be held by an LLC, but the double tax structure for the C-corporation causes this arrangement to lose the benefits of LLC status.
The tax aspects of converting entity forms are discussed further in other material.
- Business Entities (Intro)
- Why is studying business entities important?
- Considerations When Forming a Business Entity
- Holistic (Detailed) Overview of Setting Up a Business Entity
- What are Business Entities?
- What is a Closely-held vs Publicly-held Business?
What are the main types of business entity?
- What are the primary characteristics of business entities?
- What is Maintenance of a business entity?
- What is Control of a business entity?
- What is Compensation of business owners?
- What is Taxation of a business entity?
- What is Sales & Use tax?
- What are payroll and self-employment taxes?
- What are the major characteristics of a Sole proprietorship?
- Uniform Partnership Act
- Uniform Limited Partnership Act
- Partnership Agreement
- At-Will Partnerships
- Responsibilities of Partners to the Partnership
- Silent Partner
- Funding the Partnership
- How are Partners Compensated
- Splitting Equity in an Industrial Partnership
- What are the main characteristics of a Limited liability partnership?
- What are the main characteristics of a Limited liability company?
- Forming an LLC
- Articles of Organization
- Operating Agreement or LLC Agreement
- Why You Need an LLC Agreement
- LLC Compensation of Members
- LLC Taxation
- Converting to an LLC
- What are the main characteristics of a Corporation
- Articles of Incorporation
- What to include in the Articles of Incorporation
- Corporate Bylaws
- Exiting the Corporation
- Dissenter's Rights
- What are the requirements to be an S Corporation?
- Non-Profit Organization
- NonProfit Business Entities
- Private Foundation
- A Detailed Explanation of the Sole Proprietorship
- Taxation of Sole Proprietorship
- A Detailed Explanation of the General Partnership
- 50/50 Partnerships: Never a Good Idea
- Publicly-Traded Partnerships
- A Detailed Explanation of the Limited Liability Company
- A Detailed Explanation of the Corporation
- Keepwell Agreement (Letter of Comfort)
- Personal Service Corporation Definition
- A Detailed Explanation of the Non-Profit Entity
- Public Limited Company (UK)