Can I Convert a Corporation to an LLC?
Throughout the course of a corporation’s existence, it is not uncommon to make changes to the company name, stock structure, Registered Agent or other information listed on the original Certificate of Incorporation.
In addition, for various business or tax reasons, a Delaware corporation may determine to convert to a Delaware LLC. The filing is typically done when the entity has determined there is no need to issue shares of stock in order to raise capital.
The LLC structure eliminates the Board of Directors, officers and shareholders as well as all the internal meeting and reporting requirements for each of those, which makes an LLC very easy to operate and maintain.
The Delaware LLC structure is also more flexible than a corporation, as an LLC Operating Agreement may contain provisions and terms that would not be permissible in the context of a Delaware corporation.
The corporate laws of Delaware allow a corporation to convert to an LLC with relative ease. The Delaware General Corporation Law states:
“[a]ny other entity may convert to a domestic limited liability company by complying with subsection (h) of this section and filing in the office of the Secretary of State.”
- § 18-214 Conversion of certain entities to a limited liability company
Under Delaware law, this statutory conversion means that the assets and liabilities of the corporation are transferred over to the new entity because the corporation simply becomes the LLC.
In addition, any legal claims against the former corporation remain valid against the resulting LLC. There is no need to terminate the existence of the corporation; rather, the corporation simply rolls over into the new entity, i.e., the LLC.
Contracts agreed to by the corporation remain in force to the LLC without reissuing them.
Converting a corporation to an LLC requires a two-part filing composed of a Certificate of Conversion (effecting the conversion) and a Certificate of Formation (memorializing the new LLC formation).
A Certificate of Conversion is filed to change from one entity type to another with the state of Delaware’s Division of Corporations. The Certificate of Conversion filed with the state must contain the following information:
- The original corporation’s name
- The original jurisdiction of formation for the corporation (whether Delaware or another state) and the original date of incorporation
- The name of the new LLC mentioned in the contemporaneously filed Certificate of Formation
The Certificate of Formation filed with the Certificate of Conversion formalizes the new entity. This Certificate must have the following information listed:
- The name of the new Delaware LLC
- The name and address of the Delaware Registered Agent
The last step of the process requires that the converting corporation pay the Delaware Franchise Tax as well as the annual report for the corporation; these must accompany the conversion filing for the current and following years that the Franchise Taxes are due.
Once the Certificate of Conversion and the Certificate of Formation are executed, the Delaware Franchise Taxes are paid and the annual report completed, the filing can be submitted to the state of Delaware.
The state of Delaware will approve the filing by affixing a time-date stamp to the documents. Once the filings are completed, the former corporation becomes a valid Delaware LLC with a legal existence.
In previous years, the former corporation’s annual report was required to include the following:
- The corporation’s principal place of business
- The names and addresses of all directors
- The name and address of one officer
- Authorization to file the annual report by a director or officer
- Gross assets and issued shares if the corporation had more than 10,000 shares of authorized stock
However, in the entity’s new form of LLC, the year after the conversion to an LLC, it will no longer be required to file an annual report. The LLC‘s annual filing with the state of Delaware will require only a $300 Franchise Tax payment due by June 1. No other annual report is required.
Keep in mind, converting from a corporation to an LLC can have significant tax consequences, which should be discussed with an accountant or a tax attorney.
Feel free to reach out to our knowledgeable staff with any questions about the conversion process. We are here to assist you with all your Delaware business organization needs and questions.
*Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc.
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There are 3 comments left for Can I Convert a Corporation to an LLC?
ERNESTO ROXAS said: Monday, July 26, 2021We established Fragrance USA Inc located in New Jersey. We filled it in Delaware. I would like to convert it to LLC. Is that possible?
HBS Staff replied: Monday, July 26, 2021Hi Ernesto,
We will have a member of our sales team reach out to you via email. Thank you!
Raymond Ng said: Wednesday, January 6, 2021Hi HBS, Happy New Year! Can you advise : How to convert by Delaware Inc. into a 501 [3] C non-profit ? Thank you. Cheers, Raymond
HBS Staff replied: Wednesday, January 6, 2021We would be happy to help you file the appropriate paperwork, but clients typically work with their tax professional since to go over that and the tax ramifications and requirements.
Matgarita said: Monday, May 14, 2018Hello, if I convert a Corporation to an LLC, what is going on with 1000000 stock shares of my Corporation? Can I keep the company' shareholders in my new LLC? Please could you answer this question?
HBS Staff replied: Tuesday, May 15, 2018Hello. Your entity will no longer have shares if it's converted to an LLC. Most owners work with an attorney to handle the internal transfer of equity or ownership.