To understand how to convert an S to a C corporation, you’ll have to know which essential steps to follow. It’s a pretty quick process, as long as you complete all the necessary paperwork.
To understand how to convert an S corporation to a C corporation, you’ll have to know which essential steps to follow. It’s a pretty quick process, as long as you complete all the necessary paperwork. It can be a long-term decision, so make sure you really want to convert before you begin the proceedings.
How to Convert an S to a C Corporation
You can voluntarily change from an S corporation to a C corporation anytime you wish. If you want the change to take effect on the first day of your corporation’s taxable year, you must revoke your S corporation election by the 15th day of the third month of that tax year.
Once your shareholders agree to the change, it’s a relatively quick process to convert. It typically takes less than a month to finalize everything.
The IRS doesn’t have a standard form to complete to change your company’s tax status. You’ll take the following steps to convert to a C corporation.
- File a “Revocation of S Corporation Status” document: You’ll file this with the IRS Service Center where you filed for S-election. In the document, you’ll provide information on the corporation’s name, the tax ID number, and the number of outstanding shares.
- Complete and sign the document: The statement should be completed and signed by whoever is authorized to sign your corporate tax returns; this is normally the president or one of the corporate officers.
- Include a statement of consent: This should be signed by any shareholders who own more than 50 percent stock in the company. This includes nonvoting shares.
Make a copy of any paperwork for your own records and store them with your tax documents.
Before you make any changes to your business’s tax status, you might want to consult with a tax professional since they can provide expert advice.
Reasons to Convert an S Corporation to a C Corporation
Business owners may choose to change their tax status if their companies no longer meet the requirements to be an S corporation, as outlined by the IRS. You must give all shareholders adequate notice of your intention to change. They must be given the opportunity to attend a meeting to consent to the change.
Other reasons a business owner may want to make this change is to give the corporation an opportunity to have a fiscal year, allowing for tax planning by juggling profits from the corporation to the shareholders and back again when tax time is here.