There are three ways to convert your LLC into a corporation: statutory conversion, statutory merger, and non-statutory conversion. While statutory conversion is the simplest method, not all states allow this approach. We’ll review each conversion type, plus how to inform the IRS of your entity conversion. Additionally, we’ll go over common reasons for converting an LLC into a corporation.
The three methods for converting your LLC into a corporation are statutory conversion, statutory merger, and non-statutory conversion. Before you begin any conversion proceedings, you’ll need to hold a meeting of your LLC members to approve the conversion and make arrangements for the conversion process.
Statutory Conversion is a streamlined process that allows you to change your business entity type from LLC to corporation by filing the appropriate paperwork with the state. Typically, you’ll need to file Articles of Conversion and pay a fee. You also need to submit a plan of conversion that details how your assets and ownership interest will be redistributed and Articles of Incorporation. Once your filing is accepted and you’ve completed all required steps, your LLC will be a corporation.
Statutory Merger is an option in some states that don’t permit statutory conversion. To perform a statutory merger, you’ll form a new corporation by filing Articles of Incorporation with the state, listing your LLC members as shareholders. Then, you’ll need to submit Articles of Merger, which will allow your LLC and its assets to be absorbed by your corporation (you may also need to include a plan of merger). Depending on the state, you may also need to file to dissolve your LLC.
Non-Statutory Conversion is possible in all states. For non-statutory conversion, you’ll form a new corporation and issue shares to your LLC members. Then you’ll transfer all of your LLC’s assets to your corporation on your own. After the transfer is completed, you must file to dissolve your LLC. This process is the most complicated because it involves asset liquidation and sales on the part of your LLC, followed by purchase on the part of your corporation.
As a part of forming a new corporation, you’ll also need to:
Converting from an LLC to a corporation is complicated, regardless of which conversion method you use. Seek assistance from your attorney and accountant to ensure that you’re in compliance with all state and federal laws.
LLC owners often convert their businesses into corporations to accommodate or encourage business growth. While LLCs are a popular choice for new business owners, LLC members may find themselves limited by the ownership structure of an LLC, which doesn’t allow for the sale of company stock. Corporations can provide owners, investors, and even employees with more opportunities for financial gain. Here’s why you may want to convert your LLC into a corporation:
Many private investors, such as venture capitalists, prefer to give funds to corporations. Why does converting from an LLC to a corporation make investing more enticing?
In addition to attracting investors, stock corporations have other benefits, such as:
Types of Conversion Permitted