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Reasons to change an LLC into an S corporation

On Behalf of | Mar 1, 2024 | Business Law

Business owners typically look for any means of gaining an advantage in the market. One area where this could be possible is in changing the business structure.

Naturally, the simplicity of a limited liability company makes it the ideal option for most small and mid-sized businesses. However, there are circumstances where an S corporation can provide benefits to growing firms.

Adding to credibility and reputation

A PwC report finds that trust makes consumers 91% more likely to buy from a company. Changing an LLC to an S corp can boost a business’s credibility because it signals growth and stability.

An S corp structure implies that the company is serious about its operations and aims for expansion. Potential partners and customers may view incorporated firms as more established and trustworthy entities. This shift can also enhance the perception of professionalism and long-term commitment in certain markets.

Additionally, S corps often have stricter compliance requirements. This can indicate that the business is diligent about following regulations and maintaining transparency.

This credibility can also draw in investors. S corps often seem more established and trustworthy to investors compared to LLCs. They have stricter rules to follow, which can make investors feel safer about investing. By becoming an S corp, a business can signal to investors that it is ready to take things to the next level, making it more appealing for them to invest their money.

Simplifying the transfer of ownership

Switching from an LLC to an S corp can make it easier to transfer ownership. S corps have clearer rules for buying and selling ownership shares. This means the process is simpler to understand for both sellers and buyers.

With structured procedures in place, S corps can reduce confusion and disagreements during ownership changes. This can make transferring ownership smoother and less complex for all parties.

An S corp is not for everyone, and there are other ways to incorporate it as well. Still, forward-thinking entrepreneurs should periodically review when switching to this type of entity can yield benefits for their organizations.