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TexLaw, Attorney
Category: Business Law
Satisfied Customers: 4430
Experience:  Internationational Commercial Attorney
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I am a principal and shareholder in a small business that is

Resolved Question:

I am a principal and shareholder in a small business that is a C Corp. I believe we would be better off changing to an S Corp or LLC for when we want to sell our assets and retire.

How do I get started making that change and do you recommend S Corp or LLC?
Submitted: 3 years ago.
Category: Business Law
Expert:  TexLaw replied 3 years ago.

Thank you for your question.

To determine whether a change of form or an S Corporation designation are recommended, I need to first make sure that you understand some basics.

An S corporation designation is simply an election that a business entity makes with the IRS which allows pass through taxation. In other words, an S corp election allows a corporation (or other incorporated business entity) to be taxed like a partnership. In other words, the corporate income is not taxed at the corporate level, but is taxed on the individual shareholders as individual income. Where a corporation only has a few shareholders, this is advisable.

A limited liability corporation (LLC) is a corporate form which allows for a corporate shield for the owners without some of the corporate formalities involved with an INC and also allows pass through taxation (like an S Corp). However, an LLC may never be taken public. Thus, if this is an eventual goal of the corporation, then it is not recommended.

In your situation, you want to eventually sell your assets and retire, and thus are inquiring into whether either of these forms are recommended.

How many shareholders are there in the corporation other than you?

Do you wish for the corporation to be resolved?

What kind of assets are we talking about?

I look forward to hearing back from you.

Customer: replied 3 years ago.

Thanks for the info. I do understand the S corp and LLC organizations. In fact we ahve 2 other businesses that are structured as LLC. We structured the main business in 1995 as a C Corp with the desire to go public and we were on the road when 9/11 attacks stopped our growth and our invesor got nervous. We had 50 stores nationally and growing but hey were akll in start up and did not survive without the additional capital.

Our comapny is a south east custom installation business making 2.5-3 M annually. We have 5 shareholders not evenly divided. Four of us work in the business and one is a divorced spouse. Our assetts include securioty monitoring contacts, a condo in a resort area, trucks, tools, hugh high end custorer list, brand name, etc. We have put out some feelers and think we could get about $1m for the assets. In the Atlanta market we are in the top 3 in recognition and revenue and many of our competitors went out of business in the past 4 years. With the economy hopefully growuing again, we hope to push revenues to $10 and be able to sell the assets for much more than the $1m. I am 61 and the other major dhare holder who I starte the business with is 56. We would like to make a final push for 3-7 years and sell.

Given our experience in making a few small acquisitions (failing business like ours) over the past 3 years, I am sure when we sell it will be an asset sale not a company/stock sale.

Expert:  TexLaw replied 3 years ago.
Thank you for your reply.

Changing a C Corp to an LLC in Georgia requires that the C Corp be dissolved. This in turn can have expensive tax consequences that make the potential tax advantages of the LLC in regard to an asset sale.

Thus, I would recommend changing to an S-Corp. It is much easier and less expensive. The steps in conversion can be found here:

Please let me know if there are any further questions on this subject.

TexLaw and other Business Law Specialists are ready to help you
Customer: replied 3 years ago.
I have a quick follow up question. If we change to an S Corp, must we distrubute profits or can they be retained in the company? If we distribute, must we distribute to all share holders equally per share?
Expert:  TexLaw replied 3 years ago.
Thank you for your response. The S corp does not have to distribute profits.

The distributions paid out must be paid out in proportion with the share distributions. If everyone has equal shares, then the distribution will be equal. A distribution is classified as a dividend.
TexLaw and other Business Law Specialists are ready to help you