How to Convert C-Corp to LLC

Some business owners choose conversion from a C-Corp to an LLC to simplify operations, reduce formalities, or take advantage of pass-through taxation. In this article, we explain what the conversion entails, the potential benefits and drawbacks, and the proper legal steps to ensure compliance with both state and federal requirements.

TL;DR

• Converting from a C-Corp to an LLC can help avoid double taxation and simplify operations.
• There are three ways to make the switch: statutory conversion, statutory merger, or non-statutory (manual) conversion.
• The process and complexity depend on the laws of your state and the tax implications can be significant.
• You may need to dissolve the corporation and create a new LLC, or you might be able to convert it directly.

Why You Might Need to Change Your Business Entity

There’s no one-size-fits-all answer when it comes to legal structures. Many businesses start as C-Corps, especially those planning to raise venture capital. But what made sense early on might now feel like overkill, especially if your company is staying small, self-sustainable, or focuses on long-term profitability. If you’re wondering whether you chose the right structure in the first place, check out our article on LLC vs C-Corp: Which is Right for Your Business?

So, below are the most common reasons founders consider making the switch.

Avoiding Double Taxation and Improving Tax Efficiency

C-Corps are taxed twice: first on corporate income, and again when profits are distributed to shareholders as dividends. That’s fine if you’re reinvesting all your revenue or planning for big equity rounds.

But for profitable businesses that pay out earnings or single-owner companies, the tax hit can be frustrating. LLCs avoid this by using pass-through taxation. Business profits flow directly to members and are taxed once, on their individual returns. For many bootstrapped or profitable companies, this structure just makes more sense financially.

Reducing Compliance and Governance Overhead

Running a C-Corp involves a lot of formalities: board meetings, shareholder resolutions, annual minutes, and more, even if there’s only one owner. LLCs are much more flexible. There are no strict requirements around governance, and you’re not bound to corporate formalities unless you choose to be. This makes day-to-day operations easier and removes a layer of administrative friction.

Greater Flexibility in Management and Profit-Sharing

C-Corps have a rigid structure: shareholders, directors, officers. You can’t easily change how profits are distributed unless you’re issuing dividends.

LLCs let you manage things more freely. You can structure ownership however you like, create custom rules in your operating agreement, and divide profits based on actual contribution or agreement, not just equity percentage.

This flexibility is especially helpful for small teams, co-founders, or companies that want to operate more like a partnership.

3 Ways to Convert Your Company From a C-Corp to an LLC

Statutory Conversion

This is the most straightforward option, but only available in certain states like Delaware, Texas, and California.

You file a Certificate of Conversion and Articles of Organization for the new LLC. Your C-Corp legally becomes an LLC in one move, keeping the same name, assets, contracts, and liabilities. There’s no need to dissolve the old company or form a new one from scratch. This is usually the cleanest method, but check if your domicile state supports it.

Statutory Merger

If your state doesn’t allow direct conversion, you can form an LLC, then merge the C-Corp into it. This means the LLC becomes the surviving entity, and the C-Corp ceases to exist. Assets and obligations transfer automatically. This option may still requires obtaining a new EIN and amending contracts. It’s a bit more complex than a direct conversion but is available in more jurisdictions, such as Nevada, New York, and Maryland.

Non-Statutory Conversion

This is the most manual option, but it works in any state. You’ll need to:

• Form a new LLC
• Transfer all assets and liabilities from the C-Corp to the LLC
• Cancel licenses and accounts tied to the C-Corp
• Dissolve the C-Corp formally
• Obtaining a new EIN

Such approach can be practical in certain situations. For example, if you relocate to another state, you may prefer to close your existing entity and form a new company directly in your new home state. Another common scenario is when someone initially sets up a company, for example, in Delaware, later obtains a green card, and realizes that maintaining a this C-Corp with a foreign qualification in their state of residence no longer makes sense — so they choose to start fresh with a new local LLC.

This route takes more time and paperwork and may trigger tax consequences if structured careless, but it’s a viable path if the other two are not available.