Converting from a C Corporation to an S Corporation

Businesses in the U.S. have all sorts of options when it comes to structure. They can be set up as a sole proprietorship, a general partnership, a limited partnership, a limited liability partnership (LLP), limited liability limited partnership (LLLP), a limited liability company (LLC) … it becomes a real alphabet soup after a while.

Two common classifications for incorporated companies are a C corporation and an S corporation, also called a subchapter S corporation. The main difference between the two is that a C corporation pays state and federal taxes on its earned income and shareholders are taxed on earned dividends. This is called double-taxation. An S corporation pays no income taxes. Instead, the owners of the business, the shareholders, pay taxes on the company’s profit.

Without getting too deeply into the tax codes, if your business is structured as a C corporation, you may find you can realize significant tax savings by converting to S corporation status. To convert from a C corporation

to an S corporation, you’ll have to file a Form 2553 with the IRS. (Always discuss these things with your tax advisor first — they can help you avoid the common pitfalls of C corporation to S corporation conversion.) One of the things they’ll consider if the transition gets the go-ahead is the value of your business. It’s very important that a thorough business appraisal be conducted prior to restructuring in order to determine the value of the corporation’s stock, assets, and goodwill.

EquipNet is happy to perform your business appraisal for you. An EquipNet Certified Business Appraisal means

that the appraisal is USPAP compliant, as well as meeting the standards of the Society of Business Analysts (SBA). Our business valuation experts hold multiple credentials and have performed business appraisals for almost every industry. Contact us today!

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