Many Limited Liability Companies (LLCs) will realize that they’d like to convert their business structure to a C Corporation because they want venture investment. When they ask their lawyer to do the conversion, founders often don’t really understand what this will mean in terms of cost and time, or know what the actual documents look like. I’m here to demystify this process. I’ll use the example of converting a Delaware LLC to a Delaware C Corporation. However, it’s important to note that the process for conversion varies by state and may involve tax issues.
Some things to know about the process:
- It’s easy. The documents required for the conversion are straightforward.
- It’s quick. It generally takes about two to three days for the state of Delaware to process the paperwork.
- It’s pretty cheap. For instance, in Delaware, the filing fee for an LLC to C Corporation conversion usually costs less than $300.
I’ve seen a whole lot of LLC to C Corporation conversions, and if your company is like most, the conversion process explained below is what your lawyer will probably do.
The Conversion Process
1. Generate LLC Consent and Agreement and Plan of Conversion
The lawyer will draw up a Consent of the LLC members approving the conversion of the LLC into a C Corporation.
Something important to note for conversions is that C Corporations have shares and LLCs have “units.”
If the LLC granted units, your lawyer may draw up an Agreement and Plan of Conversion that lays out how those units (example: 250 units granted to founders) are being converted to shares in the new corporation (example: founders now get 250,000 shares in the company).
2. File two documents with the State of Delaware Division of Corporations
The following two documents are prepared and then filed with Delaware:
- Certificate of Conversion from a Delaware or Non-Delaware Limited Liability Company to a Delaware Corporation
- Delaware Certificate of Incorporation
When submitting the documents to Delaware, most people choose the expedited filing option, which gets the job done in about two to three days. The price can vary based on the number of pages, but when I checked pricing in mid-2017, the base filing cost was around $260. It’ll probably creep up to about $300 if you have a few more pages than usual in your documents. Current prices are available on the Delaware Division of Corporations website. Even with the slowest filing option I’ve never seen the conversion filing take more than three weeks.
3. Generate and finalize corporation documents
- Sole incorporator consent
All C Corporations have bylaws, so this is one of the documents that will need to be generated when you convert your company from an LLC to a C Corporation. You’ll also need a sole incorporator consent for setting up the Board of Directors.
Alternatives to Conversion
Shutting down your company is also an option. Instead of converting, you could shut down the old LLC and start up a new Delaware C Corporation. Talk it over with your lawyer, and know that conversion isn’t the only path—you have options.
Hopefully this will help you manage the process and make sure that it doesn’t creep over months and into the thousands of dollars. Good luck!