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  1. #1
    Join Date
    Jan 2010
    Posts
    1

    Default Convert LLC to C Corp

    My question involves business law in the state of: MA

    We are thinking about startup a business to do some engineering research to create some new products in part time base first. We will spend some money to buy necessary materials and devices. So LLC may be good for us to go because we can claim some cost in our tax return.

    But we expect to get VC after about two years hard working. Then we may need to convert to C-corp. We cannot go S-corp because we have a Canadian guy here.

    My questions are:
    1. is LLC a good start point?
    2. how hard to convert LLC to C-corp later? if we ask help from a CPA and a lawer then, the roughly cost range will be thousands or tens of thousands?

    thanks,

  2. #2
    Join Date
    Mar 2009
    Location
    Key West, FL
    Posts
    2,350

    Default Re: Convert LLC to C Corp

    Why bother with an LLC. An LLC is basicly a partnership with third party protection. Conversion to an corporation is an unnecessary step in my view. Personally I would never be involved in an LLC. Read some of the threads on this board and you will learn about some of the nightmares involved in LLCs.

    A C corporation is needed if you want investors and the ability to issue multiple classes of stock, etc. There are limitations on what an S corp can own. Of course, you can always revoke the declaration with the IRS, but that would likely lead to an audit.

    The biggest problem from my perspective is going to the trouble of working out the partner/manager agreements and then after things have changed due to the progress the business makes, then trying to end those agreements and giving out stock in their place. This opens the door to all sorts of conflicts, tons of legal work, etc. I promise you it will be a nightmare.
    And then if the LLC owns any property, it is going to be another pain to transfer the property and any tax liability that might result in moving it from one entity to another. If the LLC has intellectual property, transfering that will be another nightmare.

    Why bother with an LLC in the first place? Seems like a really stupid idea to me. I have formed and operated a number of corporations, all C corps with big boards, and dozens of stockholders, etc. In my case, I seldom put up the majority of the money and to keep control, I keep 55 percent of comon stock and the stockholders get some common but mostly preferred stock which has no voting rights. It has preference for dividends and in a liquidation, etc. so I usually have no problem. To do more than one class of stock, it has to be a C corp.

    Most arguments for S corps have to do with taxation, but that is a hollow argument as there are so many ways around the double taxation issue.

  3. #3
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Convert LLC to C Corp

    If you can't use an S Corporation, due to the foreign partner, and don't want to go with a C Corporation, the LLC would be the most obvious alternative.

    The cost of switching depends upon a great many things, so it's not something we can ballpark based upon a complete absence of information. One potential issue is transferring intellectual property and other valuable assets between entities without triggering any capital gains exposure.

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