How Do I Change My S Corp to an LLC?
Changing your S Corp to an LLC takes shareholder approval, state filings, and a few IRS steps. Here's a clear, step-by-step guide to the conversion process.
Bizee Editorial Staff
Editorial Team
Introduction
Changing an S Corp to an LLC means getting shareholder approval, filing conversion or dissolution paperwork with your state, forming a new LLC, and notifying the IRS. The process varies by state, but the core steps are consistent. Plan for several weeks from start to finish, and talk to a tax professional before you begin — the tax consequences are real.
Why convert an S Corp to an LLC?
Most business owners convert an S Corp to an LLC because they want more flexibility — in ownership structure, profit distribution, or how the business is taxed. S Corporations come with strict eligibility rules: no more than 100 shareholders, only one class of stock, and shareholders must be U.S. citizens or residents. An LLC has none of those restrictions.
Plus, an LLC lets members split profits however they agree, not just in proportion to ownership percentage. That matters when partners contribute differently to the business and want the operating agreement to reflect that. The management structure is also more flexible — LLCs don't require a board of directors or formal officer roles.
- No shareholder eligibility restrictions — foreign investors and other entities can be members
- Profit and loss can be allocated however members agree, not just by ownership share
- No requirement for a board of directors or formal corporate officer structure
- More options for how the business is taxed going forward
What happens to your S Corp tax status
When you convert an S Corp to an LLC, the S corporation election terminates automatically. S Corp status is only available to corporations — once the entity becomes an LLC, the IRS no longer recognizes it as an S Corp. You don't need to file a separate form to end the S election; it ends when the conversion is complete.
After conversion, the LLC defaults to partnership taxation for a multi-member LLC, or disregarded entity taxation for a single-member LLC. If you want a different tax classification — things like C Corporation treatment — you'd file Form 8832 with the IRS to make that election. A tax professional can help you figure out which classification makes sense for your situation.
One thing that catches people off guard: the conversion can trigger tax consequences at the shareholder level, including recognition of built-in gains or changes to basis. Talk to a tax professional before you file anything — the IRS rules here are detailed and the stakes are real.
How to change your S Corp to an LLC: step by step
The conversion process has 5 core steps. Some states allow a direct statutory conversion — one filing that changes the entity type. Others require you to dissolve the S Corp and form a new LLC separately. Check with your Secretary of State's office to find out which path your state allows.
Step 1: Get shareholder approval
Before any paperwork is filed, the shareholders need to vote to approve the conversion. Review your corporate bylaws — they'll specify the required vote threshold. Document the vote in formal meeting minutes and keep those records. This step protects you if the conversion is ever questioned.
Step 2: Draft a plan of conversion
A plan of conversion is a written document that outlines how the S Corp's assets, liabilities, and ownership interests will transfer to the new LLC. It also describes how existing shareholders will become LLC members. Some states require this document as part of the statutory conversion filing. Even where it's not required, having one in writing protects everyone involved.
Step 3: File with your state
If your state allows statutory conversion, file a Certificate of Conversion (sometimes called Articles of Conversion) with the Secretary of State. You'll also file Articles of Organization for the new LLC at the same time. If your state doesn't allow statutory conversion, you'll dissolve the S Corp first and then form the LLC as a separate step — covered in the next section.
Step 4: Notify the IRS
The S Corp election terminates automatically when the conversion is complete — no separate IRS form is required to end it. However, if you want the LLC to be taxed differently than the default (partnership for multi-member, disregarded entity for single-member), file Form 8832 to elect a new tax classification. The LLC will also need its own Employer Identification Number (EIN) if the entity structure changes in a way that requires a new one — check with the IRS or a tax professional to confirm.
Step 5: Update business records and accounts
Once the state approves the conversion, update your business bank accounts, contracts, licenses, and permits to reflect the new LLC name and entity type. Draft an operating agreement for the LLC — this document governs how the business runs, how profits are distributed, and how members can exit. It's not always required by state law, but it's worth having.
Dissolving your S Corp vs. statutory conversion
Not every state allows a direct statutory conversion from a corporation to an LLC. If yours doesn't, you'll need to dissolve the S Corp and form a new LLC — two separate processes that happen in sequence.
Dissolving the S Corp means filing Articles of Dissolution with the Secretary of State, settling any outstanding debts and liabilities, distributing remaining assets to shareholders, and filing a final tax return for the corporation. After dissolution is complete, you form the LLC from scratch — filing Articles of Organization, getting a new EIN if required, and drafting an operating agreement.
The dissolution route takes longer and involves more paperwork than a statutory conversion. It also has different tax implications — asset transfers during dissolution can trigger gain recognition at the shareholder level. A tax professional can walk you through what to expect before you start.
What to do after the conversion
After the state approves your conversion and the IRS has been notified, there are a few practical items to close out. Most of them are straightforward, but skipping them can create problems down the road.
- Update your business bank accounts and any payment processors to reflect the new entity type
- Notify vendors, clients, and partners of the name or entity change if it affects existing contracts
- Update business licenses and permits at the state and local level
- File a final S Corp tax return for the year of conversion
- Confirm whether the LLC needs a new EIN or can retain the existing one
- Draft or finalize the LLC operating agreement
The operating agreement is worth spending time on. It's the document that governs how your LLC runs — profit splits, decision-making authority, what happens if a member wants to leave. Getting it right at the start is a lot easier than fixing it after a dispute.
FAQ
Yes. You can convert an S Corp to an LLC, but the process depends on your state. Some states allow a direct statutory conversion — one filing that changes the entity type. Others require you to dissolve the S Corp and form a new LLC separately. Either way, the S Corp's tax election terminates automatically when the conversion is complete.
The core steps are: get shareholder approval, draft a plan of conversion, file the required paperwork with your Secretary of State, notify the IRS, and update your business records. If your state allows statutory conversion, you can do this in a single filing. If not, you'll dissolve the S Corp first and then form the LLC as a separate step. Talk to a tax professional before you start — the tax consequences vary depending on how the conversion is structured.
It depends on your state. States that allow statutory conversion make the process more straightforward — one set of filings, one approval. States that require dissolution and re-formation involve more steps and more time. The legal paperwork is manageable, but the tax side is where things get complicated. Built-in gains, shareholder basis, and the timing of the final S Corp return all need attention. Most business owners work with a tax professional for this one.
It terminates automatically. S Corp status is only available to corporations — once the entity becomes an LLC, the IRS no longer treats it as an S Corp. You don't need to file a separate form to end the election. After conversion, the LLC defaults to partnership taxation (multi-member) or disregarded entity taxation (single-member). If you want a different classification, file Form 8832 with the IRS.
It depends on how the conversion is structured. If the LLC is treated as a continuation of the S Corp under a statutory conversion, you may be able to keep the existing EIN. If the S Corp is dissolved and a new LLC is formed, the new entity generally needs its own EIN. Check with the IRS or a tax professional to confirm which applies to your situation before you file.
The tax consequences depend on how the conversion happens and what assets the S Corp holds. In some cases, the conversion is treated as a liquidation of the corporation, which can trigger gain recognition at the shareholder level — meaning shareholders could owe taxes on the difference between their basis and the fair market value of assets transferred. A tax professional can help you figure out the exposure before you start.
Yes. California allows statutory conversion from a corporation to an LLC. You'd file a Certificate of Conversion and Articles of Organization with the California Secretary of State. California also has its own tax rules that apply to LLCs — including an $800 annual minimum franchise tax — so review those with a tax professional before converting. The process is doable, but California has a few requirements that catch people off guard.
