Does your business run as a Limited Liability Corporation (LLC)? If it does, it might be time to change its designation into a corporation. Converting LLC to C Corp in Delaware is a lot easier nowadays because of our corporate processing services.
Converting LLC to C Corp Delaware as Your Business Expands
If you are expanding your business in Delaware, converting to a C Corp might be the right move for your company. The state offers an attractive backdrop for such a conversion. Before dealing with the pros and cons, it is vital to understand the key differences between an LLC and a C Corporation.
LLC
It offers limited liability protection for its owners. In that case, members or owners have flexibility in management and they also enjoy pass-through taxation. Members can report their share of profits and losses on their personal tax returns.
C Corporation
It is a separate legal entity with tax liability. Just like an LLC, it also offers limited liability protection to shareholders. But that’s not all. It also has the ability to issue different classes of stock and potential access to broader funding opportunities.
Pros of Converting from LLC to a C Corp
Access to Capital
C corporations have the advantage of being able to issue various classes of stock, including preferred stock. As a result, it can attract different types of investors and help in fundraising.
Potential for Growth
The structure of a C Corp may be more appealing to venture capitalists, institutional investors, and potential acquirers. It could pave the way for future growth and expansion.
Global Attractiveness
C Corp has greater international recognition. It is also viewed as a more established and credible entity. This is advantageous for businesses with global ambitions.
Employers Benefits
Another advantage is that it offers a wide range of employee benefits, like stock options and various retirement plants, which can help attract and retain top talent.
Reduced Self-Employment Tax
LLC members are subject to self-employment taxes. However C Corporation shareholders are not subject to these taxes on their dividend income.
Are there Cons When Converting to a C Corp?
Double Taxation
This is one of the drawbacks of this structure. The corporation is taxed on its profits. Shareholders are also taxed on any dividends received. It can result in higher overall tax liability.
Complexity
C Corporations are subject to more administrative formalities, like holding regular shareholder meetings. Shareholders are also required to maintain detailed records and adhere to corporate governance requirements.
Limited Flexibility
It is true that C Corps offers advantages in raising capital. However, it has less flexibility in profit distribution and ownership structure compared to LLCs.
Costs
Converting to a C Corp and maintaining its structure can involve additional costs. These would include legal and accounting fees and potential compliance costs.
How to Decide?
Deciding to convert to C Corp requires a thorough analysis of your business’s future needs. If you need further guidance or you wish to obtain the forms required for converting LLC to C Corp in Delaware, you may use our corporate processing service. Ask us how.
