How to Convert Wisconsin Corporation to LLC | The Ultimate Guide

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Convert Wisconsin Corporation to LLC

When it comes to business structures, corporations and limited liability companies (LLCs) are two of the most popular options in Wisconsin. Each business structure has advantages and disadvantages, so business owners must choose the best fit for their needs. There may come a time when a corporation realizes that converting to an LLC would be more beneficial. This comprehensive guide will walk you through Converting Wisconsin Corporation to an LLC, discussing the reasons for conversion, the steps involved, and any potential challenges you may face.

Webinarcare Editorial Team will help you easily understand the conversion process, so you must be guided by all the factors gathered in this article.

How to Convert Wisconsin Corporation to an LLC

Understanding Corporation and LLC in Wisconsin

Understanding the differences between corporations and LLCs in Wisconsin is essential for aspiring business owners and entrepreneurs. Both business structures offer distinct advantages and disadvantages, and comprehending their characteristics is crucial in making informed decisions.

Corporation

A corporation is a legal entity separate from its owners, known as shareholders or stockholders. It provides limited liability protection to its owners, meaning shareholders’ personal assets are typically shielded from company debts or liabilities. Corporations in Wisconsin have the advantage of being able to issue stock to raise capital, making them an attractive choice for businesses seeking significant investment opportunities. However, corporations also come with additional formalities, such as regular shareholder meetings and extensive record-keeping requirements.

Limited Liability Company (LLC)

A limited liability company (LLC) is a flexible business structure that combines the advantages of both corporations and partnerships. LLCs offer limited liability protection to their owners, called members, shielding their personal assets from business debts or lawsuits. Unlike corporations, LLCs do not require as many formalities as regular meetings or extensive record-keeping. This aspect makes LLCs more suitable for small businesses or entrepreneurs who prefer a less burdensome administrative and compliance structure.

Understanding the distinctions between corporations and LLCs is crucial to determine which structure aligns best with your business goals, resources, and needs in Wisconsin. By evaluating liability protection, taxation, ownership structure, and operational flexibility, entrepreneurs can make confident decisions when establishing their business entity in Wisconsin.

It is suggested that you speak with a legal professional before you begin converting your Wisconsin corporation to an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in Wisconsin.

– WEBINARCARE EDITORIAL TEAM

How to Convert Wisconsin Corporation to an LLC

Converting a corporation to an LLC in Wisconsin involves several steps, which may vary depending on Wisconsin laws and regulations. Here is an outline of the steps required to convert Wisconsin corporation to an LLC:

Step 1: Research and Understand the Conversion Process

Before embarking on the conversion process, it’s crucial to research and understands the specific requirements and steps involved in converting a corporation to an LLC in Wisconsin. Familiarizing yourself with the relevant state laws, regulations, and necessary forms or filings will help ensure a smooth transition. 

The Wisconsin Secretary of State will often have valuable information about the conversion process, including required forms, fees, and filing procedures. Look for sections related to business entity conversions and corporation dissolution. In converting to an LLC, hiring an LLC Service in Wisconsin is best since it provides guidance and assistance.

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Step 2: Obtain Shareholder Approval

The second step in converting Wisconsin corporation to an LLC is obtaining approval from the corporation’s shareholders. This typically involves holding a shareholder meeting and voting on a resolution to approve the conversion. Be sure to review the corporation’s bylaws to ensure that the proper procedures are followed.

Step 3: Prepare and File a Plan of Conversion

Wisconsin requires that a Plan of Conversion be prepared and filed with the Wisconsin Secretary of State. This document outlines the terms and conditions of the conversion, including the name and structure of the new LLC, the conversion’s effective date, and any other relevant information. 

In terms of naming your Wisconsin LLC, you must adhere to the following when choosing your LLC’s name:

  • The name must include “Limited Liability Company,” “LLC,” or “L.L.C.“
  • The name cannot include words or phrases that imply the company is engaged in activities it is not authorized to conduct.
  • The name must be distinct from other registered businesses in Wisconsin.

In Wisconsin, if you do not wish to file your LLC right away but want to hold the name that you have decided on, then you can reserve your LLC name for 120 days. You must file a name reservation application with the Wisconsin Secretary of State to keep the name. 

You can register your business under a different legal name if your preferred name isn’t available. Once you have chosen a name, you can submit an application for Wisconsin DBA (doing business as). In this manner, you can choose any name you desire for your business. A DBA allows a company to operate under the name of the person or entity who owns it. If you have decided to file for a DBA, you can file it in two methods, by mail and in person.

However, before filing a DBA, you should know that you need to renew your DBA every ten years, which costs $15.

Be sure to review Wisconsin’s specific requirements for a Plan of Conversion, Or you can hire the Best Wisconsin Registered Agent Services for easier processing. 

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Step 4: File Articles of Organization for the New Wisconsin LLC

Along with the Plan of Conversion, you must file the Articles of Organization in Wisconsin for your new LLC. This document establishes the new LLC that includes information such as the LLC’s name, Registered Agent, and management structure. 

For your LLC name, you must check the availability of your desired LLC name by searching the Wisconsin Department of Financial Institutions‘s website.

Regarding your Registered Agent, he must receive and forward legal and tax documents on behalf of your LLC, such as service of process, state tax notification, and filing Annual Report. Your Registered Agent must have a physical address in Wisconsin and be available during regular business hours. The cost of Registered Agent in Wisconsin ranges from $50 – $150.

With all of the information included in the Articles of Organization, you must pay the filing fee of $130, which you can pay with the Wisconsin Secretary of State.

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Step 5: Prepare the Operating Agreement

While not always required by state law, it’s a good idea to draft an operating agreement for the new Wisconsin LLC. This document outlines the LLC members’ roles, responsibilities, ownership percentages, and other important operational details.

The operating agreement should include the following:

  • The roles and responsibilities of members and managers
  • The process for admitting or removing members
  • The allocation of profits and losses among members
  • The procedure for making major decisions
  • The process for dissolving the LLC

Step 6: Notify Creditors and Other Interested Parties

Inform creditors, vendors, and other interested parties of the Wisconsin corporation’s conversion to an LLC. This can help ensure a smooth transition and maintain good relationships with those involved in your business.

Step 7: Update Tax Information

After converting to an LLC, you must update your tax information with the Internal Revenue Service (IRS) and the Wisconsin Department of Revenue. This includes obtaining a new Employer Identification Number (EIN) for the LLC and updating any tax accounts or registrations.

To obtain an EIN for your Wisconsin LLC, you can apply online on the IRS website, by mail, or by fax. The online application process is the fastest and most convenient method, as you will receive your EIN immediately upon completing the application. There is no fee to obtain an EIN.

The application of an EIN in Wisconsin can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that the Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

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As an LLC in Wisconsin, your business may be subject to various state taxes and licenses, depending on the nature of your operations. Common taxes and licenses include:

  • Sales Tax: If your LLC sells taxable goods or services, register for Wisconsin sales tax permit and collect sales tax from your customers.
  • Employer Taxes: If your LLC has employees, you may be required to register for Wisconsin unemployment insurance and workers’ compensation coverage.

To ensure you comply with all applicable Wisconsin tax and licensing requirements, you can check out the Wisconsin Department of Revenue and Wisconsin Small Business Taxes for more information.

Step 8: Update Licenses and Permits

Depending on the nature of your Wisconsin business, you may need to update or obtain new licenses and permits for your LLC. Check with the appropriate local, state, and federal agencies to ensure your LLC complies with all necessary regulations.

Reasons for Converting Wisconsin Corporation to an LLC

When considering the conversion of a corporation to a limited liability company (LLC) in Wisconsin, it is essential to understand the potential advantages that this change in business structure may provide. Here are some common reasons for converting Wisconsin corporation to an LLC:

  • Tax Flexibility: One of the primary reasons Wisconsin business owners opt to convert their corporation to an LLC is the tax benefits. While corporations are subject to double taxation, where the company’s income and the shareholder’s dividends are taxed, LLCs are considered pass-through entities. This means the business’s income passes through to the owners’ personal tax returns, avoiding double taxation.
  • Simplified Management Structure: Another advantage of an LLC over a corporation is its simplified management structure. Wisconsin Corporations have a more complex structure with shareholders, Three directors, and officers, while an LLC is managed by its members or designated managers. This can make decision-making and operations more straightforward for small businesses.
  • Reduced Administrative Requirements: Wisconsin LLCs generally have fewer administrative requirements than corporations, such as lower Annual Report fees and less stringent record-keeping rules. This can save Wisconsin business owners time and money, allowing them to focus more on growing their businesses.
  • Personal Asset Protection: Both corporations and LLCs offer limited liability protection, meaning the business’s debts and liabilities are separate from the owner’s personal assets. However, some business owners may prefer an LLC’s specific liability protections over a corporation.

Challenges and Considerations

When converting a corporation to an LLC in Wisconsin, it is essential to consider the potential challenges and implications of the conversion process. Here are some challenges and considerations to keep in mind:

  • Tax Implications: Although converting Wisconsin corporation to an LLC can offer tax benefits, it’s essential to consider the potential tax implications of the conversion. In some cases, the IRS may treat the conversion as a taxable event, which could result in additional taxes being owed. Consult with a tax professional to understand the tax implications of converting your corporation to an LLC in Wisconsin.
  • Legal and Financial Advice: Converting Wisconsin corporation to an LLC can be a complex process, and it’s essential to seek legal and financial advice to ensure that the conversion is done correctly in the business’s best interests.
  • Timing: Converting Wisconsin corporation to an LLC can take time, particularly if there are regulatory approvals or other requirements to be met. Be prepared for the conversion process to take several weeks or even months to complete.

Benefits of Converting Wisconsin Corporation to an LLC

Converting a corporation to a limited liability company (LLC) can benefit business owners. These advantages can include:

  • Tax Flexibility: One of the primary benefits of converting Wisconsin corporation to an LLC is the potential tax advantages. While corporations are subject to double taxation (the company’s income and the shareholder’s dividends are taxed), LLCs are generally considered pass-through entities for tax purposes. This means the business income passes through to the owners’ personal tax returns, avoiding double taxation.
  • Personal Asset Protection: Both corporations and LLCs offer limited liability protection, meaning the business’s debts and liabilities are separate from the owner’s personal assets. However, some business owners may prefer the specific liability protections provided by an LLC over a corporation, depending on the nature of their business and the potential risks involved.
  • Increased Flexibility in Profit Distribution: Unlike Wisconsin corporations, which typically distribute profits according to the percentage of shares owned, LLCs can offer more flexibility in profit distribution among members. This can be particularly advantageous for businesses with multiple owners who contribute differently to the company’s success.
  • Potential for Easier Transfer of Ownership: Depending on the specific rules and regulations in Wisconsin, transferring ownership of an LLC may be easier than transferring ownership of a corporation. This is an important consideration for business owners who plan to sell or transfer their business.

While the benefits of converting Wisconsin corporation to an LLC can be significant, it’s essential to carefully consider the potential challenges and implications of the conversion process.

FAQs

What is a Wisconsin corporation?
A Wisconsin corporation is a business entity organized and registered in Wisconsin that is separate and distinct from its owners.
What is a limited liability company in Wisconsin?
A limited liability company (LLC) is a flexible business structure that protects the personal assets of its owners (members) from the debts and liabilities of the company.
Can a Wisconsin corporation convert to an LLC?
Yes, a Wisconsin corporation can convert to an LLC by filing Articles of Organization with the Wisconsin Department of Financial Institutions (DFI) and completing the required paperwork.
What are the reasons for a corporation to convert to an LLC in Wisconsin?
Reasons for a corporation to convert to an LLC in Wisconsin can include simplifying tax filings, reducing paperwork, and limiting personal liability.
What is the process for converting a corporation to an LLC in Wisconsin?
The process for converting a corporation to an LLC in Wisconsin involves filing Articles of Organization with the DFI, completing required paperwork, and distributing assets to shareholders or members.
Do I need to notify the State of Wisconsin when converting from a corporation to an LLC?
Yes, you must notify the State of Wisconsin of the conversion from a Wisconsin corporation to an LLC by filing Articles of Organization with the DFI.
Is there a fee to convert a corporation to an LLC in Wisconsin?
Yes, there is a fee to convert a corporation to an LLC in Wisconsin. The current fee schedule can be found on the Wisconsin DFI website.
Are there tax implications for converting a Wisconsin corporation to an LLC?
Yes, there can be tax implications for converting a Wisconsin corporation to an LLC. Consult with a tax professional for guidance.
How long does it take to convert a Wisconsin corporation to an LLC?
The timeframe for converting a Wisconsin corporation to an LLC varies based on individual circumstances and processing times of the DFI.
What happens to the assets of a Wisconsin corporation when it converts to an LLC?
The assets of a Wisconsin corporation are distributed to shareholders or members when it converts to an LLC.
Can shareholders become members in the new LLC after a corporation is converted?
Yes, shareholders can become members of the new LLC after a corporation is converted.
Do I need to amend the articles of organization when converting a corporation to an LLC in Wisconsin?
Yes, you must complete an amendment to the articles of organization when converting a corporation to an LLC in Wisconsin.
What is a registered agent?
A registered agent is a person or company designated by a business to receive important legal and tax documents on their behalf.
Does a registered agent need to be designated for the newly formed LLC when converting a corporation?
Yes, a registered agent must be designated for the newly formed LLC when converting a corporation in Wisconsin.
Can I change the name of the business when converting from a corporation to an LLC in Wisconsin?
Yes, you can change the name of the business when converting from a corporation to an LLC in Wisconsin by selecting a new name in the Articles of Organization.
Are there any restrictions on the business name when converting a corporation to an LLC in Wisconsin?
Yes, the chosen name of the business when converting a corporation to an LLC in Wisconsin must be unique and available to use.
Do I need to notify my shareholders when converting a Wisconsin corporation to an LLC?
Yes, shareholders must be notified when converting a Wisconsin corporation to an LLC.
Can I draft an Operating Agreement for the LLC when converting an existing corporation in Wisconsin?
Yes, an Operating Agreement can be drafted for the LLC when converting an existing corporation in Wisconsin.
Does the LLC need a federal Employer Identification Number (EIN) when formed from a Wisconsin corporation?
Yes, an LLC in Wisconsin formed from a corporation need a federal Employer Identification Number (EIN).
Will the company’s tax ID number change when converting a corporation to an LLC in Wisconsin?
Yes, the tax ID number will change as a new entity is formed when a corporation is converted to an LLC in Wisconsin.
Can the LLC be treated as an S-Corp for tax purposes in Wisconsin?
Yes, an LLC in Wisconsin can choose to be treated as an S-Corp for tax purposes.
Can a foreign corporation convert to an LLC in Wisconsin?
Yes, a foreign corporation can convert to an LLC in Wisconsin by satisfying the state’s conversion requirements.
Do I need to draft new bylaws when changing a Wisconsin corporation to an LLC?
No, a LLC will use an Operating Agreement rather than bylaws.
Can the company convert back to a Wisconsin corporation after forming an LLC?
Yes, the company can convert back to a Wisconsin corporation from an LLC if desired.
Do I need to register for a new state registration for the LLC in Wisconsin?
No, the company will keep its registration number after converting to an LLC.
Can a corporation convert to a series LLC in Wisconsin?
Yes, a corporation can convert to a series LLC in Wisconsin.
How is ownership of an LLC structured differently from a Wisconsin corporation?
An LLC is generally structured through member ownership while in contrast, a corporation is generally structured through stock ownership.
What happens to the stockholders’ rights and responsibilities when converting to an LLC?
Stockholders’ rights and responsibilities will convert to determine the rights as members in an LLC.
What is the process for converting a Wisconsin corporation to a limited liability company?
The process involves filing a conversion document with the Wisconsin Department of Financial Institutions.
Why would a corporation want to convert to an LLC in Wisconsin?
An LLC offers more flexibility in terms of management and tax options than a corporation in Wisconsin.
Are there any significant tax advantages in converting a Wisconsin corporation to an LLC?
There can be tax advantages in terms of avoiding double taxation at both the corporate and individual level, but it is important to consult with a tax professional.
What are the benefits of an LLC over a corporation in Wisconsin?
An LLC has more flexibility in terms of management structure, profit distribution, and tax options.
Will converting a Wisconsin corporation to an LLC change the legal name of the business?
No, the legal name of the business can remain the same after conversion.
How can I be sure that a Wisconsin LLC is the right choice for my business?
A consultation with a legal and financial professional is recommended to determine the best structure for your business in Wisconsin.
Can a corporation in Wisconsin continue to operate while the conversion process is underway?
Yes, a corporation can continue to operate during the conversion process.
Is the process for converting a Wisconsin corporation to an LLC time-consuming?
The process can take a few weeks to complete in Wisconsin, but it is relatively straightforward.
Can a Wisconsin LLC have only one member?
Yes, a Wisconsin LLC can have just one member.
Do I need a new EIN when converting a Wisconsin corporation to an LLC?
Yes, a new EIN is required for the LLC in Wisconsin.
Are there any fees associated with converting a Wisconsin corporation to an LLC?
Yes, there is a filing fee that must be paid to the Wisconsin Department of Financial Institutions.
Is there a minimum number of shareholders required for a Wisconsin corporation to convert to an LLC?
No, there is no minimum number of shareholders required to convert to an LLC in Wisconsin.
Can a Wisconsin LLC have foreign owners?
Yes, a Wisconsin LLC can have foreign owners.
Can a Wisconsin LLC be taxed as an S corporation?
Yes, a Wisconsin LLC can choose to be taxed as an S corporation.
Does a Wisconsin LLC offer liability protection?
Yes, a Wisconsin LLC offers liability protection for members.
Can a Wisconsin corporation convert to a single-member LLC?
Yes, a Wisconsin corporation can convert to a single-member LLC.
Is operating an LLC in Wisconsin less complicated than operating a corporation in Wisconsin?
Yes, LLCs generally have fewer restrictions and formalities to follow in Wisconsin than corporations.
How can I dissolve my Wisconsin corporation after converting to an LLC?
A corporation can be dissolved by filing articles of dissolution with the Wisconsin Department of Financial Institutions.
Can an LLC be created for tax purposes only in Wisconsin?
No, an LLC must have a legitimate business purpose for formation in Wisconsin.
Can a Wisconsin LLC have different classes of ownership interests?
Yes, a Wisconsin LLC can have different classes of ownership interests.
Will employees and vendors need to be informed of the Wisconsin corporation’s change to an LLC?
Yes, employees and vendors should be informed of any significant changes to the structure of a business in Wisconsin.
Can a Wisconsin LLC issue shares of stock?
No, a Wisconsin LLC does not issue shares of stock like a corporation.
How long does the filing process for the Wisconsin LLC conversion typically take?
The filing process can take several weeks to complete in Wisconsin.
Can a Wisconsin LLC be a non-profit organization?
Yes, a Wisconsin LLC can be a non-profit organization.
What are the reporting requirements for a Wisconsin LLC?
A Wisconsin LLC is required to file annual reports with the Department of Financial Institutions.
Can a foreign corporation operating in Wisconsin convert to an LLC in Wisconsin?
Yes, a foreign corporation operating in Wisconsin can convert to an LLC.
Are LLCs in Wisconsin required to hold annual meetings like corporations?
No, LLCs in Wisconsin are not required to hold annual meetings like corporations.
Is a Wisconsin LLC suitable for any type of business?
A Wisconsin LLC can be suitable for many different types of businesses, but a consultation with a legal and financial professional is recommended to determine the best structure for your business in Wisconsin.

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Conclusion

Converting Wisconsin corporation to an LLC can offer significant benefits for your business, including tax flexibility, simplified management, and reduced administrative requirements. However, it’s essential to carefully consider the potential challenges and implications of the conversion process. Following the steps outlined in this guide and seeking professional advice, you can successfully convert your corporation to an LLC and position your business for continued success.

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