If you have business goals that are not compatible with your LLC structure, then it might be time for you to convert your Wyoming LLC to a Corporation. But before you do this, you need to see what the conversion would do to your business, its tax treatment, and operations. It is quite obvious that when you work on converting an LLC to a corporation, lots of changes are made in the way the company runs. In fact, there is a lot of paperwork involved as well.
Here is all you need to know about how to convert an LLC to a Corporation, and why you should do this.
Converting Wyoming LLC to Corporation
Founders usually believe that it is simpler to start off their company as an LLC, and when the time is right, they can then convert their Wyoming LLC to a Corporation. And there are many times when an LLC usually has to convert into a Corporation for the business to keep growing.
Why convert a Wyoming LLC to Corporation?
One of the main reasons why you might want to convert your Wyoming LLC to a Corporation is – practical reasons. So, if your company is experiencing a lot of growth, you might have to make the conversion. In addition to this, if you are planning to offer stock options to your employees, you will need to convert into a corporation since corporations are the only ones that can offer employees options. And in a corporation, you get much more liability as compared to the LLC. Any of these reasons can be why you decide to convert your Wyoming LLC to a Corporation.
When is the right time to convert your Wyoming LLC to Corporation?
Usually, the decision to convert your Wyoming LLC to a Corporation depends on the investors who want the company to be a corporation before they can invest in the company. Moreover, to make the process easy, founders need to work on it at the right time. So, if founders give time to plan and schedule the conversion before the first of the company’s taxable year, it would reduce the administrative burden for the conversion.
In fact, by doing this, they would avoid the need to file for a final partnership tax return for the part of the year before the conversion and a separate “stub” year return for the corporation for the rest of the year. This, in turn, requires additional accounting work where you will have to find out how much income or loss was made in the year as per the pre- and post-conversion periods. So, the best time to convert your Wyoming LLC to a Corporation is at the beginning of the taxable year. It would save you time, expenses, and administrative tasks.
On the other hand, if the startup is not able to convert at the first date of the entity’s taxable year, then it should consider a date that would be much simpler to track for accounting purposes. For example, it might be much easier for converting the company at the end of the month when the company would have a much better idea of the inventory.
Types of Wyoming Corporation
Not sure about what kind of corporation you should convert your Wyoming LLC to? Well, for this, you need to understand all about both types of corporations. Each of them has been explained below:
#1 Wyoming C Corporation
The main kind of corporation that people tend to choose when they convert from an LLC to a corporation is the C corporation (also known as the corporation). A corporation is a separate entity with a tax status that is also separate from its owners. In short, the existence of a corporation is perpetual. Due to this, the creditors will not be able to attach the shareholders with their non-business assets.
For the incorporation, you will need to file for the Articles of Incorporation. And you will have to take care of all the other legal things such as conducting at least two meetings every year. One meeting is for the shareholders and one is for the directors. These two meetings can take place on the same day and just a few minutes apart. Furthermore, the shareholders need to elect a board of directors who will run the business for them. Although this is important, a corporation can have a single shareholder and a single director.
A corporation is taxed just like a person. So, the tax for the company is paid only when it has paid all its expenses. And the tax of the business can be reduced by paying the owners a salary, which is a business expense and can be tax-deductible. The corporation has to pay tax on its profits and shareholders have to pay tax on their dividends. Moreover, the shareholders are not allowed to claim a loss on their tax dividends. A great advantage that the corporation has is to sell or transfer shares. So, if a shareholder dies, the corporation would still be existent. If you are planning to make the company go public, this is the best choice for you.
#2 Wyoming S Corporation
The S corporation does have a lot of the same benefits as the C corporation, just that it comes with a special tax designation. Under this, the income and expenses of the corporation are ignored at the corporate level. So, in an S corporation, the shareholders pay the taxes on their own personal income tax return and claim all the losses of the corporation on it too. And just like the C corporation, the owners can be paid salaries in an S corporation to minimize costs.
For the S corporations, the number of shareholders cannot be more than 75 and all have to be US citizens. Moreover, the fiscal year of this entity has to end on 31st December. The record-keeping requirements are usually low but they still have to be maintained. Let us take an example and say you and I found an S corporation. In this case, we can have a partnership or an LLC where we each put in 50% of the capital. Nevertheless, we can agree to allocate income 80%/20% because you work full time for the business and I only part-time.
In an S corporation, payroll rules must be followed if the owner is to take a salary. If a partner takes payment for his services, he does so as a draw and thus avoids payroll reporting requirements.
Pros and Cons of Converting a Wyoming LLC to Corporation
There are many great benefits that come when you are about to convert your Wyoming LLC to a Corporation. So, the advantages of converting LLC to a corporation in Wyoming include:
- In a corporation, the shares of a corporate stock can easily be transferred through a pledge, as a gift, or by selling them. Along with this, the transfer of stock does not affect the separate legal status of the corporation.
- The management structure is well-established in a corporation.
- It is easier to raise capital in a corporation.
- You can implement employee incentive plans in corporations and can easily deduct the health insurance and fringe benefits.
Disadvantages of Converting
On the other hand, there are disadvantages to this as well. One of the biggest ones is that a corporation is subjected to double taxation. This means that both the shareholder and the company have to pay taxes on their profits. Nevertheless, if you convert your Wyoming LLC to an S corporation, then you will be able to avoid this. But converting your business to an S corporation would mean that you would not be able to have many shareholders and turn into a public company without converting to an C corporation. Additionally, the cost of certain maintenance items usually increases in a corporate structure. The management structure in a corporation is less flexible. And it is much more complex to operate.
How Do You Convert an LLC Into a Corporation?
Now that you know all about the two types of corporations, it is time to move ahead and talk about how to convert LLC to Corporation. There are three kinds of conversions possible:
#1 Statutory Conversion
Wyoming has statutes in place to allow a quick-status conversion that is simple to follow as well. All you need to do is fill out the forms for your company and add in the details like the – company name, EIN, address, and registered agent’s information. Once done, submit the form to the secretary of state.
#2 Statutory Merger
The next process is where you merge your existing LLC into a new corporation. Here are the steps:
- Create a new corporation.
- Take a vote among the LLC members approving the change from members to stockholders.
- Change membership rights to agreed shares in the corporation.
- File a certificate of merger and other required documents with the secretary of state.
#3 Nonstatutory Conversion
The last method that you can use to convert your Wyoming LLC to a Corporation is the most expensive and difficult one. It includes asset liquidation and dissolution of the existing company to create a new one. The new corporation absorbs all the liabilities and assets.
Steps to Convert Wyoming LLC to Corporation
Along with the state legal filings and the actions that are needed for the conversion, there are other third-party actions that must be taken into consideration in preparation for and in connection with the conversion. Among these are the following:
- Get approval from LLC members – You have to first get approval from the existing members of your LLC for business entity conversion in Wyoming.
- File a conversion statement and articles of incorporation – Pursuant to WY Stat § 17-29-1009 and WY Stat § 17-26-101, conversion of LLC to corp in Wyoming will require you to file the Articles of Incorporation pursuant to WY Stat § 17-16-202.
You will also need to file the following along with the Articles of Incorporation:
- A statement underlining the fact that your LLC is being converted to a corporation
- The former name or name of the limited liability company
- The state and date of the organization or LLC formation
- A statement confirming that this Wyoming entity conversion has been adopted through the unanimous vote of all the members. If the votes are less than unanimous then you will have to mention the percentage or number required for approving this Wyoming business conversion and also mention the number of member votes that were for as well as against conversion.
- The filing fee of $100 along with the application
Need Any Assistance in Converting Your Wyoming LLC to Corporation?
Even though the process to convert a Wyoming LLC to a Corporation can be quite simple, there are many things that need to be taken into consideration. More importantly, each step has to be followed properly to avoid any mistakes. Because making a mistake can end up costing you a lot. If you are looking for a way and help in the conversion of your LLC into a Corporation, IncParadise can help you with it. Contact us to know more and to get the Wyoming conversion statement for the conversion process!