Switching from LLC to a S-Corp or C-corp need ADVICE

Discussion in 'Business Operations' started by AdvLandscapeLLC, Nov 29, 2013.

  1. AdvLandscapeLLC

    AdvLandscapeLLC LawnSite Senior Member
    Posts: 568

    Hey guys, has anyone ever gone through the process of switching from an LLC to an S-Corp or C-corp. Reason behind doing this is to more easily build business credit and to keep personal debt to credit ratios from interacting and having an effect on business finances. Anyone have any advice on this process or has gone through it.
     
  2. GreenI.A.

    GreenI.A. LawnSite Silver Member
    Posts: 2,132

    I went from LLC to S-corp. Every guy on here has a different reason for why they chose their business entity type. Take what advice you get here with a grain of salt. One guy is going to tell you that it won't matter, because in his person case it didn't. When another will swear you need to make the change because that's what his CPA told him. As someone who is about to finish a Master's in Accounting, the best advice I can give you is to talk to a CPA and go the particulars for you business and personal accounting.

    One thing I will ask is how big is you business and how long has it been around? Have you begun to build credit under the company name yet? Do you have a duns#? Do you have trade references for credit yet? If so, are those references currently reporting to credit burrows or do they just do small in house credit?

    The reason I ask this, even if your an s/c corp, you will more than likely be signing personal guarantees on loans until the company credit can fully stand on its own.
     
  3. stang2244

    stang2244 LawnSite Senior Member
    Posts: 250

    I switched to an S corp a few years back. At this point I still have to sign a personal guarantee on things. Biggest benefit was the tax savings on the "pass thru" revenue(amount over my salary that I "take home"). I only pay income tax on that amount instead of the self employment tax AND income tax.
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  4. GreenI.A.

    GreenI.A. LawnSite Silver Member
    Posts: 2,132

    Stang- that is the big reason why I did it as well
     
  5. Efficiency

    Efficiency LawnSite Bronze Member
    from zone 6
    Posts: 1,537

    Ask your accountants to file with the IRS a form to elect to be taxed as an s Corp while remaining an llc. You will get a new ein but that's about it. We did it this way.
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  6. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 874

    Just had the "personal guarantee" conversation with my banker. Was told that they always require them when loaning to privately held companies.
     
  7. AdvLandscapeLLC

    AdvLandscapeLLC LawnSite Senior Member
    Posts: 568

    Thanks for the help guys, when you do these personal guarantees does it effect your personal debt to credit ratios? Its just I cant figure out how these smaller companies finance all this equipment its very frustrating. I pay a ton in rental costs every year and my payments on a loan would be half to a quarter of that.
     
  8. snomaha

    snomaha LawnSite Senior Member
    from midwest
    Posts: 874

    My experience - I have never had any of my business personal guarantees show up on my personal credit score.

    We have a Dunn & Bradstreet # that is the business equivalent of a personal FICO score.

    Are you renting all your equipment right now? Do you have any credit history with vendors? You can use them as credit references if you have paid your bills on time.
     
  9. GreenI.A.

    GreenI.A. LawnSite Silver Member
    Posts: 2,132

    Personal guarantees work similarly to co-signing a loan for a friend. Some creditors won't report it to your personal credit others will.

    Here's my experience of who reports the personal guerentee to the credit burrows
    Sunbelt - did not report on personal
    Bank of America (line of credit) - reported
    Bank of America (auto loans) - reported
     

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