How to convert an LLC into a C Corp in 2023

How to convert an LLC into a C Corp in 2023

In this article, we will show you step by step what you need to do to convert an LLC into a C Corp. We will also answer frequently asked questions.

Let’s get started.

Methods for Converting an LLC to a C Corp

1. Statutory Conversion

The most common, easy, and fast way to convert an LLC into a C Corporation is through a statutory conversion.

With this type of conversion, you can transfer the assets and liabilities of your LLC to a C Corp. The best part is that you don’t have to dissolve the company to make the transfer.

What happens to the members?

They automatically become shareholders of the corporation, and their assets and liabilities become the property of this business structure.

The steps to follow for the conversion with this method are:

  1. You must draft a conversion plan and obtain the approval of all members of the company.
  2. Then, you need to file a certificate of conversion (in some states called Articles of Conversion) with the state where you registered your Limited Liability Company. It’s important to note that filing this document incurs a cost, and the amount varies depending on the state.
  3. Finally, you must file the last important documents, such as the LLC’s certificate of formation and other documents.

 

This method of conversion may not be available in your state. That’s why there are other alternatives.

2. Statutory Merger

This form of conversion works for companies registered in countries where the previous solution is not available.

It involves a slightly more complicated solution, primarily involving the creation of an independent entity under the legal structure of a corporation (where LLC members become shareholders).

After creating the independent entity, it can merge with the C Corp. This way, the LLC disappears.

So, to perform a statutory merger, you need to:

  1. Create the independent entity (as mentioned above).
  2. Design a merger plan and obtain approval and signatures from each member.
  3. Exchange the LLC for shares of the new C Corporation.
  4. File a certificate of merger in the state where the company was registered.
  5. Lastly, you must file a formal dissolution of your LLC.

3. Non-Statutory Conversion

The last option is a more expensive and complex form of conversion, and although we do not recommend it, it works as follows:

There is a direct transfer of the assets and debts of the LLC to the new C Corp. For this solution, you will need specific legal advice (due to the number of agreements that need to be made with the members).

To perform a Non-Statutory Conversion, you must:

  • Create a new entity under the legal form of a C Corporation.
  • Perform a direct transfer of all the assets and debts of the LLC to the new C Corp.
  • Formalize an agreement for the exchange of LLC interests for shares in the new corporation.
  • Formally liquidate and dissolve the LLC.

 

As mentioned earlier, this is a more costly and complicated solution, so we recommend considering the first two options.

Is a new EIN required when converting an LLC to a C Corporation?

You will only be required to obtain a new EIN if you meet any of the following statements:

  • You change to a partnership or a sole proprietorship.
  • You are a subsidiary of a corporation that uses the EIN of the parent, or you become a subsidiary of a corporation.
  • Your corporation receives a new charter from the secretary of state.
  • Your corporation was created following a statutory merger.

You won’t need a new EIN if you meet any of the following statements:

  • You are a division of a corporation.
  • The corporate name or location of your business changes.
  • Your corporation elects to be taxed as an S Corp.
  • The reorganization of a corporation only changes identity or location.
  • The surviving corporation uses the existing EIN after a corporate merger.

What to do after converting your LLC to a C Corporation?

After you’ve successfully converted and your company has become a C Corp, you should do the following:

  • Apply for a new EIN (Employee Identification Number).
  • Schedule shareholder and board meetings.
  • Make an election to decide who will be the officers and directors.
  • File new Articles of Organization.
  • Issue stock certificates.
  • Create bylaws for the C Corp.

Need help converting to a corporation?

At Rex Legal, we can assist you in the entire process of converting your LLC into a corporation.

Just contact us, and we will take care of the paperwork and all the legal procedures involved in the transfer.

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