Convert an S Corporation Into a C Corporation

Converting an S corporation into a C corporation may seem daunting, but it is a reasonably straightforward process.

If you're considering making the switch, it's essential to understand the critical differences between the two types of corporations and why you might want to convert.

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Differences Between an S Corporation and a C Corporation

First, let's define what we mean by an S corporation and a C corporation.

An S corporation is a type of corporation that is taxed similarly to a partnership or sole proprietorship. This means the business's income and losses are passed through to the shareholders and reported on their individual tax returns.

A C corporation, on the other hand, is taxed as its own separate entity. This means that the business pays its own taxes on any income it generates, and the shareholders pay taxes on any dividends they receive.

Reasons to Convert an S Corporation Into a C Corporation

The Process of Converting from an S Corporation to a C Corporation

Now that you understand the key differences between S and C corporations, let's talk about how to convert from one to the other. The process is relatively simple, but there are a few steps you'll need to take:

Check if You are Eligible for the Conversion

In order to convert from an S corporation to a C corporation, your business must meet specific criteria. For example, the business must be a domestic corporation and it cannot have more than 100 shareholders. Additionally, it must have only one class of stock.

File Form 2553

To convert from an S corporation to a C corporation, you will need to file Form 2553 with the Internal Revenue Service (IRS). This form is used to elect S corporation status, so you'll need to revoke that election if you're converting from an S corporation to a C corporation.

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File Form 8832: Entity Classification Election

Form 8832 is required for the business to change its tax classification as a C corporation.

File Articles of Incorporation

In order to officially become a C corporation, you will need to file articles of incorporation with your state's business registration office.

Adopt a New Set of Bylaws

Once you are a C corporation, it is necessary to adopt a new set of bylaws that adhere to the regulations of a C corporation.

Notify Shareholders

Finally, you will need to notify your shareholders of the conversion and allow them to vote on the matter.

A Simple Conversion

Converting an S corporation into a C corporation is a relatively simple process. Still, it's essential to understand the critical differences between the two types of corporations and why you might want to switch.

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If you're considering converting, it's a good idea to talk to an accountant or attorney to make sure it makes sense for your business. With proper planning and preparation, the process can go smoothly.