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Converting your limited liability company (LLC) to a corporation is a big step. But businesses change and converting to a new business structure might be the best choice for your company. Delaware's laws provide a process for converting your LLC to a corporation. The procedure might vary depending on your specific situation. But you can generally follow this guidance to convert your business. (For additional information, read our overview on converting an LLC to a corporation or S corporation.)
In Delaware, you can convert your LLC to a corporation in at least two different ways:
(There also is a third option, referred to as "consolidation," but it's similar to a merger and need not concern us here.)
Statutory conversions involve a much simpler process than mergers. Because Delaware recognizes LLC-to-corporation conversions, it's best to use the statutory conversion process laid out in Delaware's business laws.
To convert your Delaware LLC to a Delaware corporation by statutory conversion, you need to:
Key elements of the conversion procedure are laid out in the following section of Delaware law: Del. Code tit. 8, § 9-265 (2023).
Unlike other states, Delaware has few steps to convert your LLC to a corporation.
In addition to Delaware's corporation laws, you'll need to comply with your LLC operating agreement. Your agreement might contain rules and procedures for converting your LLC to another entity. For instance, your agreement could provide a procedure to convert the owners' membership shares into corporate shares.
Your operating agreement should comply with Delaware law. Where your operating agreement is silent on conversion procedures, Delaware's default rules for converting your LLC will apply.
To convert your LLC, you'll need to prepare a certificate of conversion as well as a certificate of incorporation. (Unlike some other states, Delaware law doesn't explicitly require that you also create a so-called plan of conversion, which often provides more detail about the conversion process.) The certificate of conversion must include the following information:
(Del. Code tit. 8, § 9-265(c) (2023).)
As mentioned above, apart from the certificate of conversion you'll also need to prepare a certificate of incorporation. The certificate of incorporation can be relatively simple. At a minimum, it should include:
(Del. Code tit. 8, § 1-102 (2023).)
While the certificate of conversion and certificate of incorporation can appear simple to complete, converting your particular business could involve unexpected complications. So, it's generally a good idea to seek the assistance of an attorney.
The LLC members will need to vote to approve the conversion. Delaware's LLC laws don't require you to notify LLC members about a meeting to approve a conversion. However, you may find that you're required to do so under your operating agreement. (Del. Code tit. 6, § 18-302 (2023).)
Delaware's LLC laws also don't explicitly say what proportion of LLC members must vote in favor of the conversion in order for it to be legally approved. If your articles of organization or operating agreement provide a minimum voting requirement, you should follow that rule. If you have any questions about what's needed, you should consider consulting with a Delaware business lawyer.
Once your conversion has been approved, you'll need to file the certificate of conversion and certificate of incorporation with the Department of Corporations. Delaware provides a single document containing a cover sheet, certificate of conversion, and certificate of incorporation that you can complete and mail to the Division of Corporations.
As of 2023, the filing fee for a one-page certificate of conversion is $164, the filing fee for a one-page certificate of incorporation is $89, and the fee for any additional pages for either document is $9.
When you convert your LLC to a corporation, generally everything associated with your LLC will transfer to the new corporation as if the conversion didn't occur.
Specifically, the following that once existed under the LLC will now continue under the corporation:
(Del. Code tit. 8, § 9-265 (2023).)
For example, if a creditor has a claim against your LLC, that same creditor will have the same claim against your new corporation. Or, if your LLC owns equipment, your new corporation will now own that personal property.
Apart from the above steps, you'll also need to take care of all the tasks normally associated with creating and maintaining a new corporation, such as:
It's important that you follow all of these required formalities in order to ensure that your business continues to have limited liability and can take advantage of various tax benefits.
One other step in the conversion process is to make sure that no business contracts—such as loan agreements, commercial lease agreements, and licenses and permits—will be affected by your business's entity change.
Tax Considerations and Converting to an S CorporationIf you only want to convert your LLC to a corporation for tax purposes—instead of being taxed as a partnership—you only need to file IRS Form 8832. There's no need to convert your LLC to a corporation.
If you'd like to convert your LLC to an S corporation instead of a regular C corporation, then you can elect S corporation tax status. To convert to an S corporation, you file IRS Form 2553 at the federal level.
The specific tax consequences for LLC-to-corporation conversions vary from one case to the next. Because the tax consequences can sometimes be significant, you should consult with a tax adviser before undertaking any conversion.
When considering whether to convert your LLC to a corporation, make sure you understand the differences between the business structures and how the conversion will affect your business. While Delaware's conversion process is relatively simple compared to other states, it's important that you do the conversion process correctly. If you need legal assistance with converting your LLC or complying with the Delaware General Corporation Law, you should talk to a business attorney.
For a more complete discussion of the steps involved in forming a corporation, consult Incorporate Your Business: A Step-by-Step Guide to Forming a Corporation in Any State, by Anthony Mancuso (Nolo).