Ehson Salaami ⋅ La Jolla, CA Salaami Firm ⋅ 5 years experience

Converting from one entity to another can be done! Here's a good article providing more information on that process in California: http://www.nolo.com/legal-encyclopedia/converting-llc-corporation-s-corporation-california.html

In response to your additional questions:

In California, a Close Corporation is a corporation that has 35 or less shareholders and has only one class of stock.

S Corp: This is a common reference made when a corporation makes an IRS election (form 2553) to have its income passed through directly to the shareholders to be taxed for federal tax purposes. The corporation has further restrictions on who can be a shareholder and you're limited to 100 with only one class of stock.

Which structure is the best for you to form? I would consult with your CPA and an attorney. Many considerations come into play here, including the amount of revenue you are generating or will be generating, the types of investors/shareholders you want to have (restrictions apply), and the level of formalities you wish to follow (Close corps/S Corps can have less formality than C Corps).

For a general discussion about business structure, you can check out the information we have listed here about business law: http://www.salaamifirm.com/business-law/

Jeff Rodriguez ⋅ King George, VA U.S. Marine Corps, Sergeant ⋅ 12 years served

Thank you all for your contributions, it is greatly appreciated.

James Herring ⋅ Advance, NC Microsoft ⋅ 20 years experience

I would definitely do a Corp. The reason most of us setup as LLC is for that Limited Liability - in other words they can come after business assets but the line stops there. With Sole Proprietor and Partnerships in most places you and the business have no distinction and you could lose everything in the event of a lawsuit. There are some tax implications to consider as how you're designated will treat your income/finances differently and Corp may be the most expensive but it's usually the IRS which will determine how you file. Might be worth talking to a tax attorney or a SBA representative - they sometimes have contact information at the VA.

Karan Khanna ⋅ Newport Coast, CA Saber corp ⋅ 20 years experience

Agree with Jay. S corp is the way to go

Patrick Gray ⋅ Fort Mill, SC IBM ⋅ 14 years experience

Jeff,

I've never heard of a "Close Corporation" but my former business was an S-Corp (incorporated in Delaware and registered as a foreign corp in various states). State law varies, but I believe the S-Corp is more of a tax treatment, while the legal structure is still that of a corporation. Be aware that there are some administrative requirements for an S-Corp (you need to hold and document an annual meeting, even if it's just with you) but it's not that bad. I was essentially the sole 100% stockholder in my S-Corp, so all income flowed to my personal tax return at the end of the year.

Nice thing about S is that you can drop the S designation and convert back to a C-corp if you need to at some point.

Jeff Rodriguez ⋅ King George, VA U.S. Marine Corps, Sergeant ⋅ 12 years served

Jay, Thank you for taking the time in replying to my question. The motivation to change my LLC to a Corporation is basically a requirement. In California, the Bureau of Security and Investigative Services, BSIS licenses and regulates security companies. BSIS requires that a licensed security company in California, which is considered a Private Patrol Operator or PPO, have a structured entity of a Corporation (Sole proprietor and Partnerships are acceptable too). Unfortunately for me an LLC is not. (This is a mistake I can now advise others not to make). I hope that clarifies my need to become a Corporation.

With that said I am looking for suggestions and/or insight on the entity options between General Stock Corporation and Close Corporation. Additionally, I am needing some insight on whether a Close Corporation can file as an S-Corp on taxes. Thank you for your time and look forward to reading all replies.

Jay Lightfoot ⋅ Herndon, VA ⋅ 20 years experience

To get a good answer here you need to disclose your motivations to change what you have. I do not know the laws in CA although in many places an LLC with proper supporting docs (and the correct IRS option) is a viable path for the short and long term. In what areas do you see the LLC structure failing you?