How to Change Your Business Structure: Converting an LLC to S-Corp or C-Corp
Oct 31, 2025
If you started your business as an LLC, you probably chose it for its flexibility and simple setup. But as your company grows, you might be wondering whether switching to an S-Corp or C-Corp could lower your taxes or make it easier to attract investors.
Changing your business structure is possible—and often beneficial—but it involves specific legal and tax steps. This guide explains exactly how to convert an LLC to an S-Corp or C-Corp, who qualifies, what forms you’ll need, and how the change affects your taxes and compliance.
Understanding the Difference: LLC vs. S-Corp vs. C-Corp
Before you make any changes, it’s important to understand how each structure works.
Structure | Taxation | Ownership Rules | Best For |
LLC | Pass-through (profits taxed once on owner’s return) | Flexible ownership | Small businesses, freelancers |
S-Corp | Pass-through, but owners can save on self-employment taxes | ≤100 U.S. shareholders, one stock class | Small to medium businesses with steady profit |
C-Corp | Separate taxable entity (double taxation possible) | Unlimited shareholders, multiple stock classes | Startups, investors, or companies planning to go public |
An S-Corp isn’t a new business entity—it’s a tax election you make with the IRS. A C-Corp, on the other hand, is a separate legal structure that requires forming a new corporation under state law.
Before You Convert: Check Eligibility and Timing
Not every LLC qualifies to become an S-Corp. To file for S-Corp election, your business must:
Be a domestic entity.
Have 100 or fewer shareholders.
Have only one class of stock.
Have shareholders who are U.S. citizens or residents.
Not be a financial institution or insurance company.
If your business doesn’t meet these rules, you may need to convert to a C-Corp instead.
Timing matters. To make your S-Corp election effective for a given tax year, you must file IRS Form 2553 by the 15th day of the third month of that tax year (usually March 15 for calendar-year businesses). Missing this deadline means the election will take effect the following year.
Not sure if your business should convert yet? Our LLC vs. S-Corp basics guide can help you evaluate whether it’s the right time to switch.
How to Convert an LLC to an S-Corp (Step-by-Step)
Here’s how to legally and correctly convert an LLC to an S-Corp:
Decide that S-Corp is right for you. This means planning for paying yourself a salary, handling payroll-tax issues, and accepting more formal corporate governance. (See the pros & cons later.)
Check state law to see if your LLC must convert to a corporation first. Many states require the LLC to convert into a corporation and then file the S-election.
Draft a plan of conversion (if required) — obtain member approvals in your operating agreement or state statute.
File the state conversion documents (e.g., Certificate of Conversion + Articles of Incorporation) if your state requires converting the LLC to a corporation.
Issue shares, adopt bylaws, form board (if required)—imitate a standard corporation’s governance framework.
File Form 2553 with the IRS to elect S-corporation tax status. Make sure all shareholders sign and you meet the timeline.
Update payroll/accounting systems: As an S-Corp you must pay owner-employees a reasonable salary, with payroll taxes, and then can distribute profits.
Communicate the change: Update bank accounts, contracts, vendor/customer records, and licenses to reflect the new entity name/structure. Get all paperwork in order.
Maintain compliance: Hold meetings, maintain minutes, follow bylaws, keep governance records—since S-corps are under more scrutiny.
How to Convert an LLC to a C-Corp (Step-by-Step)
If your long-term goals include raising venture capital, issuing stock, or going public, you might prefer a C-Corp structure. Here’s how to make that change.
Decide that C-Corp is the right structure. This may be because you expect outside investment, you want multiple classes of stock, or you’re planning for a large sale or public offering.
Check whether statutory conversion is allowed in your state. Many states permit an LLC to convert directly into a corporation, others require creating a new corporation and merging or transferring assets.
Draft the conversion/merger plan and obtain member approvals. Include asset/liability transfers, equity conversion, and timing.
File state paperwork:
Create corporate governance structure: Adopt bylaws, appoint board of directors, issue stock certificates to owners based on their equity interest.
Transfer assets, contracts, licenses, liabilities from the LLC to the new C-Corp entity (or have the corporation succeed to them via merger).
Obtain or confirm EIN/tax status: If statutory conversion keeps the same entity and EIN, fine; if you form a new corporation or merge, you may need a new EIN.
Update operations: Move bank accounts, vendor contracts, payroll, employee stock option plans (if any), and tax registrations to the C-Corp.
Maintain corporate formalities: Meetings, board resolutions, minutes, shareholder records — being a C-Corp means stricter governance.
Important tax note: A conversion to C-Corp is more complex and may trigger tax events (assets appreciated, liabilities exceeding basis) if not structured correctly.
But the rewards: A C-Corp opens up major options — multiple stock classes, big-capital-raise potential, and eligibility for QSBS (Qualified Small Business Stock) tax breaks.
Tax and Compliance Requirements After Conversion
For S-Corp
Once converted and the S-election accepted, the business files Form 1120-S (U.S. Income Tax Return for an S Corporation).
Shareholders receive Schedule K-1s showing their share of profits/losses.
Owner-employees must be paid a “reasonable salary” subject to payroll (Social Security/Medicare) taxes; distributions beyond salary may avoid some payroll tax but must be properly documented.
Corporate governance must be maintained: board meetings, minutes, bylaws, separate bank accounts — failure could risk losing the S status or inviting IRS scrutiny.
For C-Corp
The company will file Form 1120 (U.S. Corporation Income Tax Return) each year.
Corporate profits are taxed at the entity level; then shareholders are taxed on dividends — the “double taxation” effect.
If you issue multiple classes of stock, this is allowed. You may plan for stock-option grants, ESOPs, investor exits, QSBS gains (gain exclusion under Section 1202) if you qualify.
Corporate formalities and state compliance matter a lot more: state franchise taxes, securities law, board and shareholder records, stock transfers.
Common Compliance Points
EIN and tax classification: If you convert via statutory method, sometimes the same EIN remains; if you form a new corporation or merge, you likely need a new EIN.
Licenses, permits, contracts: Update your business name/entity type with local agencies, vendors, customers, bank, insurance. Failure to update can cause liability issues.
Operating agreement and bylaws: The old LLC operating agreement may no longer apply; you need corporate bylaws and shareholder agreements.
Membership/share structure: Clear documentation of who owns what, and equity conversion from the LLC membership interest to corporate stock must be handled carefully. Mistakes here can lead to disputes or tax traps.
Common Mistakes to Avoid
Missing IRS deadlines for Form 2553.
Ignoring state conversion requirements or using the wrong form.
Forgetting to update licenses, contracts, and EIN records.
Failing to pay yourself a reasonable salary as an S-Corp owner.
Overlooking documentation, like bylaws, shareholder agreements, and meeting minutes.
These mistakes can lead to penalties, loss of S-Corp status, or even IRS audits—so take your time and, when in doubt, get professional help.
Conclusion: Choose the Right Structure for Growth
Switching from an LLC to an S-Corp or C-Corp can bring real benefits—lower taxes, easier investment options, and stronger legal protection. But it also comes with new responsibilities for payroll, documentation, and compliance.
If you’re not sure which route fits your goals:
Choose S-Corp for tax efficiency and flexibility.
Choose C-Corp if you plan to raise funds, issue stock, or expand nationwide.
Always consult a CPA or business attorney before filing your conversion paperwork. A short consultation can save you costly mistakes down the road.
Business Structure Change Checklist
Here’s a quick recap before you file:
Confirm eligibility and conversion type (S-Corp vs. C-Corp)
File state conversion or formation documents
Submit IRS Form 2553 (for S-Corp)
Create bylaws and issue stock certificates
Update EIN, licenses, and banking information
Set up payroll and recordkeeping systems
Consult your CPA or tax advisor
Frequently Asked Questions
Is it worth converting LLC to S-Corp?
Yes—if your business earns consistent profits (typically $40,000+), an S-Corp can help reduce self-employment taxes while keeping pass-through taxation.
Can I change my LLC to an S-Corp later?
Yes, you can elect S-Corp status anytime as long as your LLC meets eligibility requirements and you file Form 2553 by the IRS deadline.
How long does it take to convert an LLC to an S-Corp?
The IRS usually processes Form 2553 within 60–90 days. Some states may have additional filing steps that extend the timeline.
What happens to my EIN when I change from LLC to S-Corp?
If you only change your tax classification (LLC to S-Corp), you typically keep your existing EIN. If you create a new C-Corp, you’ll need to apply for a new one.
Do I need a new business license if I change from LLC to corporation?
Usually yes. Once your entity type changes, you should update or reapply for your business license to reflect your new corporate status.
How do I file taxes after converting my LLC to an S-Corp?
You’ll start filing Form 1120-S for the corporation and issue Schedule K-1s to shareholders showing their share of profits or losses.
What state-specific rules should I check before converting an LLC?
Check whether your state allows statutory conversion (a direct change) or requires forming a new corporation. States like Delaware and Texas allow direct conversions, while others—like California—require dissolving the LLC and forming a new corporation.
How does converting affect taxes for single-member LLCs?
A single-member LLC taxed as an S-Corp can reduce self-employment taxes by splitting income between a salary and dividends. However, this adds payroll filing requirements and stricter recordkeeping.
How to prepare operating agreements and corporate bylaws after conversion?
Once converted, your LLC Operating Agreement is replaced by Corporate Bylaws. The bylaws should outline roles of officers, voting rights, meeting procedures, and stock issuance. You can adapt parts of your LLC agreement, but it must meet corporate governance standards.
What are the tax benefits of switching to an S-corp?
Key benefits include avoiding self-employment tax on distributions beyond salary, and treating profits as pass-through income rather than corporate profit taxed at entity level.