How to Change From an LLP to an S Corp

A business owner can decide to change the way a business is organized at any time. However, the way the business is taxed will determine whether the business can simply convert to a different entity type by filing some paperwork with the state where it is organized or whether it has to go through the formality of dissolving one entity and reforming as another. A limited liability partnership (LLP) can change to an S corporation, but it must dissolve the partnership and sell the LLP's assets to a newly formed corporation in exchange for stock.

• 1

  Form a new corporation. Visit the business division of the website for the secretary of state (or comparable state agency) where you want to incorporate. The website will contain all of the information needed to form a new corporation by filing articles of incorporation. Download the state's articles of incorporation template and fill it out with the basic business information requested, which will include the name of the business, the name and address of a registered agent, the number and value of the initial authorized shares of stock, and the name and signature of the person preparing the form. File the form with the state according to the instructions with the appropriate filing fee.

• 2

  Contribute all assets and liabilities of the partnership to the corporation in exchange for stock in the corporation. Hold a meeting of the LLP's partners and vote to dissolve the partnership and sell the assets to a newly formed corporation. Establish ownership percentages and distribute stock in the corporation to the partners accordingly.

• 3

  Dissolve the partnership. Close out all accounts in the partnership's name. File the partnership's final tax returns with the IRS and with the state, marking the "final return" box on both. File dissolution paperwork with the state by again visiting the business division of the secretary of state's website and downloading the template for the dissolution of an LLP.

• 4

  Obtain a new employer identification number (EIN). The IRS does not allow the transfer of an EIN from a partnership entity to a corporation. Visit the IRS website and apply for a new EIN electronically by following the links. When the form asks what type of entity the business has adopted, select "Corporation."

• 5

  File Form 2553, "Election by a Small Business Corporation" with the IRS to elect Subchapter S tax status for the new corporation. Making an S corporation election requires the consent of all the shareholders. There are also strict statutory requirements regarding who can own stock in an S corporation and the type of stock that can be issued. Review the instructions carefully and make sure the corporation is in compliance with the requirements. The election form requires the signature of all shareholders under penalties of perjury. After the IRS approves the election, contact the state tax authority and file paperwork to make a similar election for state taxes, if necessary.