How to Convert an S Corporation

Contributor

By Joseph Nicholson
eHow Contributing Writer

Article Rating: (0 Ratings)

Convert an S Corporation

Electing to be a Subchapter S corporation has its benefits, but there's a time when a business will want to convert to a C corporation. This happens when the company wants to enlarge its shareholder base, such as if it were going public, or issue different types of shares, among other reasons. It's relatively easy to convert an S corporation by revoking the S corp. election, but the process is detailed and must be followed precisely.

How to Consolidate Business Debt
Consolidating business debt requires first cutting spending, increasing income, making a list of how much … More
How to Negotiate a Corporate Bankruptcy Plan
Negotiate a corporate bankruptcy plan by identifying the assets as well as the liabilities of the company … More
Types of Corporate Bankruptcy
A corporation files for bankruptcy when it cannot continue operations because of financial issues. Two typ… More
Business Debt Relief Options
All business have debt from time to time, but when that debt becomes more than the business can handle, wh… More
How to Terminate an Employee
Handling an employee termination can be a scary and emotional event. Unfortunately, sometimes it is neces… More
Office Organization Techniques
A cluttered office can cause confusion and halt productivity. By cultivating good organizational skills, y… More
What are Corporate Mergers?
Corporate mergers happen when one business merges or combines with another corporation. Find out how corpo… More
How to Establish Corporate Credit Lines
Establishing corporate credit lines requires starting small with gas cards and working up towards business… More
How to Write a Corporate History
Writing a corporate history is an important business tool. Frequently, potential clients will base their d… More
About Corporate Social Investment Strategy
Corporate social investment involves more than simply writing checks to charities. Companies interested in… More
How to Organize a Corporate Retreat
Establishing better working relationships within an office environment sometimes calls for moving everyone… More
About Corporate Tax Credits
Corporations are discrete legal entities with unique tax laws and regulations. Unlike other business stru… More
How to Obtain a Commercial Lease After Filing for Bankruptcy
Bankruptcy isn't the end of the world, and it's possible for small businesspeople to recover and re-establ… More
What Is Adequate Protection in Bankruptcy?
Adequate protection in bankruptcy is a combination of constitutional and pragmatic issues. The term adequa… More
How to Convert an S Corporation
Electing to be a Subchapter S corporation has its benefits, but there's a time when a business will want t… More

Difficulty: Moderate

Instructions

Step 1

Write a letter. There is no form to revoke a Subchapter S election, but it can be done by sending a letter to the IRS. The letter must include the name of the S corp., its tax ID number, and a clear statement that the owners of the company revoke the election of Subchapter S status. It must also state the number of shares of stock issued and outstanding at the time of revocation.
Step 2

Get shareholder approval. By law, more than half of the shares must consent to the revocation. A detailed statement of consent must be attached to the statement of revocation letter, or incorporated into that document. For each shareholder consenting to the revocation, the name, address, taxpayer identification (Social Security) number, number of shares of stock owned, and date of acquisition of stock must be included. The date on which the shareholder's taxable year ends, which primarily applies to corporate shareholders, must also be stated. Consenting shareholders must sign under penalty of perjury, which can be done with the use of a notary public.
Step 3

Mail on time. To be effective in the current tax year, the revocation must be filed on or before the 15th day of the third month of the year. Revocations made after that date take effect on January 1 of the following year.

Tips & Warnings

Mail your Subchapter S revocation package to the same IRS service center that received your original Subchapter S election.
Revocation of Subchapter S election can only occur if the company has not been filing as a C corp., and the owners have been reporting the company's income on their individual tax returns. If this is not the case, the tax returns will have to be amended before Subchapter S status can be revoked successfully.