How to Change From a Corporation to LLC

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The Board Room (Image: Microsoft Clip Art)

To change from a corporation to a limited liability company (LLC), the corporation has to be dissolved and an LLC organized as if the previous company never existed. The challenging part of the the transition is dissolving the corporation without paying a huge income tax liability. An attorney and accountant should be consulted for options to reduce the tax load. Income tax will be levied against the stockholders on remaining profits and asset values. Even though the corporation owners can reinvest their profit shares in the new LLC, they will still have to pay income tax.

Required tasks for forming the LLC are very similar to those executed in organizing the corporation.

Choose a name. It is possible in some states to transfer the corporation name to the LLC; but an attorney should help steer you through the process. Some states require that "LLC" be written behind the company name whenever it is used.

If a different name is chosen for the LLC, then a search should be made to ensure that no one else is using the same or similar name. This can usually be done at the secretary of state's office; in some states this can be done at a county clerk's office.

Once a name is chosen, register it with a secretary of state or county clerk.

Prepare an operating agreement to establish rules on profit-sharing, ownership, responsibilities and ownership changes. An operating agreement is similar to corporate by-laws. Operating agreements are not required in every state, but they help reduce liability and can facilitate smoother operation of a company.

Write articles of organization and file them with the secretary of state. A filing fee will be assessed and varies from state to state.

Check with city, county and state offices to see if any permits or licenses are required. These requirements should be similar to those needed for your corporation.

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