Convert S-corp to LLC

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Before creating an S Corp, you will need to decide what type of S Corp you want to be.  If you do not have employees and if your business does not distribute or sell goods in the United States, opening an S Corp may be easy for you. If you do have employees, an S corp may still be the best route for you to take; however, you will probably have to commit to formally processing payroll for yourself and your employees. In addition, you may wish to have your S Corp attorney review a copy of your prior year income tax return to determine the best possible entity structure for you, whether it should be an S corporation or an LLC taxed as an S Corporation.

If you already have an existing business and still want to create an S Corp, you are on the right track because S corporations must have previously been either an LLC or a C Corporation. The S election must first be formed by a Small Business Corporation, that is, an LLC or C Corporation. That existing entity must meet the following qualifications:

  • Be a domestic corporation (LLC or C corp)
  • Have only allowable shareholders
    • Individuals, certain trusts, and estates and
    • No partnerships, corporations or non-resident alien shareholders
  • No more than 100 shareholders
  • Only one class of stock
  • Not be an ineligible corporation 
  • Have filed for S corp status with the IRS

With the S Corporation election, you get the best of both worlds. The S corporation retains the limited liability of the C Corporation while the income is taxed to the shareholders only and not at the corporate level.  Here are some benefits of forming an S Corp:

  • limited liability (personal assets of individuals are shielded from corporate debts).
  • ease of transferability (can easily transfer stock from one shareholder to another).
  • easier to handle payroll taxes for employees (most can save on self-employment taxes when they pay themselves a “reasonable” salary from the S corp. If your LLC was formed in New Jersey, you can convert it into an S Corporation by filing the appropriate documents with the Secretary of State. The name of the specific form that must be filed in New Jersey is the “Statement of Conversion.” You must file Form SS-4 (Application for Employer Identification Number) with the federal government as well.   .

Stages of opening an S Corp in New Jersey

The main procedural steps to for creating an S Corp include:

  • Create S Corp by first obtaining either your Certificate of Organization or Certificate of Incorporation from your LLC or C Corp. There is a fee.
  • Obtain an EIN Letter from the Internal Revenue Service by filing an SS-4. All valid S corps must have an EIN letter. 
  • Elect S Corp status by filing the federal Form 2553 with the IRS. 
  • Read New Jersey S Corp instructions for the Form 2553 and file a NJ S Corp election using the online SCORP application.
  • File the NJ S Corp registration through the NJ Division of Revenue and obtain a registered Agent.
  • Retain an attorney to draft your Operating Agreement.

What Documents Do You Need?

You will need your Certificate of Organization or Certificate of Incorporation, A copy of your Employer Identification Number (EIN) letter from the IRS, and a Form 2553. You will have to register your S Corp through the state tax department of NJ. In addition, a copy of your prior year income tax return should help your lawyer determine how to proceed.  

How an S Corp Lawyer Can Help 

If you need help on how to open an S-Corp in New Jersey, please contact our experienced lawyers. We can help you speed up the process. 

An experienced S-Corp law firm can provide you with the legal guidance needed to start your company off on a successful footing. New Jersey is one of many states that allows for businesses operating as corporations to form under this type of business structure. 

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