When forming a company, one question an entrepreneur spends a lot of time thinking about it what legal entity they should choose. Smart Business Network contributor Mark Klimek says that filing an LLC will give the company the flexibility it may need further down the road.
But even with careful planning, as a company expands, it may outgrow the original plans of its owner – who will want to convert the business into another type of entity. But converting the entity can be either more or less complicated – depending on what format it was incorporated as.
Converting an LLC or S corporation can often be done without any major tax complications, Klimek writes. But to perform the process the opposite way – turning a C corporation into an LLC – generally ends up being a taxable conversion.
That flexibility is probably one of the reasons that many more small business owners are choosing to start companies using an LLC format. A recent report in the Fordham Journal of Corporate and Financial Law found that the formation rate of new LLCs was more than double that of traditional corporations.
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