Full question:
I have been advised my my CPA to change my S-Corp to an LLC. The state of Kansas does not provide for conversion. What pitfalls are there to know about when dissolving a corporation and refiling as an LLC?
- Category: Corporations
- Subcategory: Corporate Dissolution
- Date:
- State: Kansas
Answer:
Your tax advisor would be the best resource for you regarding some of the potential pitfalls involved with changing your business from a s corporation to a LLC.
Converting to a LLC may result in significant tax liability to the shareholders of the former S-Corp. The IRS may treat any conversion as a liquidation of the S-Corp. for federal income tax purposes. So, if the assets of the S-Corp. have increased in value during the existence of the business, the increase will be taxable to the shareholders - most likely as capital gains.
Similarly, if the company has only one owner (member), there could be tax consequences.
Because a single-owner LLC is treated as a sole proprietorship for tax purposes, income will be reported on Schedule C of the individual owner's federal tax return, rather than on Schedule E for an S-Corp.
But as far as the state is concerned, since there is no coversion process in Kansas, the corporation would have to be dissolved and the new LLC created. Both processes are relatively simple and uncomplicated.
The issues to remember with dissolution may involve making sure creditors and/or debtors are notified and that any outstanding claims or debts have been resolved.
Here are USLegalforms we offer the services of preparing and filing dissolution and formation paperwork for business entities in Kansas. Please see the link below if you are in need of some assistance.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
