Convert an LLC into a Corporation
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.
In this article, we'll cover:
How to Convert Your 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:
- Create corporate bylaws
- Appoint a board of directors and hire corporate officers
- Create a shareholders’ agreement and issue stock certificates
- File Form 8832 with IRS to change your tax election and get a new EIN
- Update or obtain new business licenses
- Update your business bank accounts
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.
Why Convert Your LLC into a Corporation?
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:
Corporations Attract Investors
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?
- Predictable management structure. Because corporations have been around longer than LLCs, corporate management structure is seen as more reliable and stable.
- Stock versus ownership interest. Many investors would rather have stock in a corporation than ownership interest in an LLC. Stock is easier to sell, and investors may pay fewer taxes on stock than they would on income from an LLC.
Corporations Provide Stock Opportunities
In addition to attracting investors, stock corporations have other benefits, such as:
- The ability to sell, gift, and pledge stock. This allows you to transfer stock as needed to make money or spread the wealth.
- Going public. Going through with an initial public offering (IPO) and making your private corporation public can strengthen your company and its financial standing. It raises your company’s profile, diversifies stock ownership, and makes it easier to acquire other companies.
- Employee incentive plans. Offering stock options to your employees as an incentive can be a powerful recruiting tool for attracting talented candidates who, if hired, can strengthen your company from the inside out.
LLC to Corporation Conversion by State
Types of Conversion Permitted
|Alabama||Statutory, Merger, Non-Statutory|
|Alaska||Statutory, Merger, Non-Statutory|
|Arizona||Statutory, Merger, Non-Statutory|
|Arkansas||Statutory, Merger, Non-Statutory|
|California||Statutory, Merger, Non-Statutory|
|Colorado||Statutory, Merger, Non-Statutory|
|Connecticut||Statutory, Merger, Non-Statutory|
|Delaware||Statutory, Merger, Non-Statutory|
|District of Columbia||Statutory, Merger, Non-Statutory|
|Florida||Statutory, Merger, Non-Statutory|
|Georgia||Statutory, Merger, Non-Statutory|
|Hawaii||Statutory, Merger, Non-Statutory|
|Idaho||Statutory, Merger, Non-Statutory|
|Illinois||Statutory, Merger, Non-Statutory|
|Indiana||Statutory, Merger, Non-Statutory|
|Iowa||Statutory, Merger, Non-Statutory|
|Kansas||Statutory, Merger, Non-Statutory|
|Louisiana||Statutory, Merger, Non-Statutory|
|Maine||Statutory, Merger, Non-Statutory|
|Maryland||Statutory, Merger, Non-Statutory|
|Massachusetts||Statutory, Merger, Non-Statutory|
|Michigan||Statutory, Merger, Non-Statutory|
|Minnesota||Statutory, Merger, Non-Statutory|
|Mississippi||Statutory, Merger, Non-Statutory|
|Missouri||Statutory, Merger, Non-Statutory|
|Montana||Statutory, Merger, Non-Statutory|
|Nebraska||Statutory, Merger, Non-Statutory|
|Nevada||Statutory, Merger, Non-Statutory|
|New Hampshire||Merger, Non-Statutory|
|New Jersey||Statutory, Merger, Non-Statutory|
|New Mexico||Statutory, Merger, Non-Statutory|
|New York||Merger, Non-Statutory|
|North Carolina||Statutory, Merger, Non-Statutory|
|North Dakota||Statutory, Merger, Non-Statutory|
|Ohio||Statutory, Merger, Non-Statutory|
|Oklahoma||Statutory, Merger, Non-Statutory|
|Oregon||Statutory, Merger, Non-Statutory|
|Pennsylvania||Statutory, Merger, Non-Statutory|
|Puerto Rico||Statutory, Merger, Non-Statutory|
|Rhode Island||Statutory, Merger, Non-Statutory|
|South Carolina||Statutory, Merger, Non-Statutory|
|South Dakota||Statutory, Merger, Non-Statutory|
|Tennessee||Statutory, Merger, Non-Statutory|
|Texas||Statutory, Merger, Non-Statutory|
|Utah||Statutory, Merger, Non-Statutory|
|Vermont||Statutory, Merger, Non-Statutory|
|Virginia||Statutory, Merger, Non-Statutory|
|Washington||Statutory, Merger, Non-Statutory|
|West Virginia||Merger, Non-Statutory|
|Wisconsin||Statutory, Merger, Non-Statutory|
|Wyoming||Statutory, Merger, Non-Statutory|
LLC to Corporation Conversion FAQs
What’s the difference between statutory and non-statutory conversion for LLC to corporation conversion?
With statutory conversion, you file paperwork with the state to have your LLC converted into a corporation. You don’t need to form a new business entity. In contrast, if you choose non-statutory conversion, you must form a new corporation, liquidate your LLC’s assets and transfer them to the new corporation, and then dissolve your LLC.
What’s the difference between a statutory conversion and a statutory merger for LLC to corporation conversion?
When you perform a statutory conversion, your LLC becomes a corporation. Only one business entity is involved. However, when you complete a statutory merger, two business entities are involved. You file to form a new corporation and then file Articles of Merger to have your LLC absorbed into your new corporation.
Do I need a new EIN if I convert my LLC into a corporation?
Yes, according to IRS guidelines, you’ll need to get a new EIN when you convert from an LLC to a corporation.
Will I need to change the name of my business when I convert from LLC to corporation?
Most states require business entities to identify their business type by including a phrase like “LLC” or “Inc.” If this is the case in your state, you’ll need to change your name to reflect your new entity type (you should be able to do this in your conversion paperwork).
Is conversion a taxable event?
You’ll want to consult a tax professional about your specific circumstances to be sure, but entity conversion is not usually a taxable event. However, you will need to pay taxes on any gains you make through the conversion process.
Can I convert an LLC to an S-Corp?
S-Corp is a tax election and not a business entity type like an LLC or a c-corporation. Both LLCs and corporations can take advantage of s-corp filing status as long as they meet IRS requirements.