March 27, 2015

It’s very popular for business owners to operate under the structure of an S corporation. This allows business owners to generally avoid “double taxation” that could impact owners of C corporations. Operating as an S corp may help a business owner avoid self-employment taxes typically affecting LLCs that choose to be taxed as partnerships.

Even though dividends from S corps are not calculated in terms of self-employment taxes and provide more income tax benefits for this reason, they don’t provide the kind of asset protection that a business owner might prefer. 

Stock linked to C corps and S corps can be exposed to risk in the form of judgment creditors. If there are major assets inside your S corp, there may be benefits to converting to an LLC to protect them. Whereas an S corp has stockholders, an LLC is limited to members. So long as the LLC documents are drafted in the right way and you have more than one member, a judgment creditor should not be able to access assets inside the company.

If you own an S corporation and are weighing the benefits of converting, communicate with an business protection planning specialist to determine how your state laws view this. In many cases, statutes will allow for this conversion for long that the ownership of the LLC is identical to the previous structure.

Contact our office to learn more about to advantages associated with converting your business type- you can schedule an appointment by emailing info@lawesq.net.