How to Convert a Delaware Corporation From a C Corp to an S Corp
Converting from a Delaware C Corporation to an S Corporation is an easy process. It is simply making a tax election on how you want your corporation to be taxed. It will eliminate the double taxation of taxing both the corporation and the shareholders. Once you have determined that an S Corporation is the right plan for your company it is only a matter of filing the forms with the IRS.
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Instructions
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Determine if you qualify. In order to be an S Corporation in Delaware you must have under 100 shareholders, all shareholders must be individuals and they must be legal residents of the United States. Some banks and insurance companies will not qualify.
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Hold a corporate meeting and vote to convert to an S Corporation. Document the meeting minutes.
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File IRS Form 2553. It requires basic information on the company, along with the shareholders information. It will require all shareholders' social security numbers, number of shares they own and their signatures. Keep a copy of the form and submit the original to the IRS.
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Distribute IRS K-1 schedules. This is a schedule that will be included with your IRS 1120s annual tax return filing. These are prepared for each shareholder by the person preparing your tax filings. They can also be found on the IRS website. They show the shareholders' ownership percentage and their profit for that tax year. This will be used when the shareholders' file their individual tax returns.
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Tips & Warnings
There can be tax consequences when converting your corporation. Seek the advice of a tax accountant.
