Converting LLC to C Corp Delaware
Converting LLC to C Corp Delaware is used by business owners to change the structures of a business.4 min read
Updated June 28, 2020:
Converting LLC to C Corp Delaware is used by business owners to change the structures of a business. It's important to know the necessary steps in this type of conversion so that your business does not run afoul of the law.
Steps to Convert an LLC to C Corp
The following are steps involved in converting an LLC into a C Corp
- The first step is to make sure that the laws that will be used in administering the organization post-conversion allow for a conversion of the business into a C Corp.
- Produce LLC Consent and Agreement as well as a Plan of Conversion. You can hire an attorney to prepare a Consent of the members of the LLC which permits the transformation of the LLC into a C Corporation.
- Confirm the capitalization of the business before and after conversion.
- Confirm the pre-conversion valuation of the LLC and audit the capital account.
What Information Can Be Found in a Conversion Plan?
If units were granted by the LLC, your attorney might draft an Agreement and Plan of Conversion that details the process for converting the units into shares after conversion into a C Corp.
You also need to prepare and file some documents with the Delaware Division of Corporations including:
- Certificate of Conversion from a Delaware or Non-Delaware Limited Liability Company to a Delaware Corporation
- Delaware Certificate of Incorporation
How Long Does the Filing of Registration Take?
If you choose the expedited option, the registration should take between two and three days.
How Much Does the Registration Cost?
The price depends on the number of pages. The standard filing cost for 2019 was $260, and it may be as high as $300 if the number of pages you are filing is more than what the base price covers. You can check the current price on the website of the Delaware Division of Corporations.
Is It Difficult to Convert an LLC to a C Corp?
Converting an LLC to C Corp is easy. The process is fast, and the required paperwork for the conversion is easy to understand. Typically, the state of Delaware will process the paperwork within three days. It's also affordable as it generally costs less than $300 to convert an LLC to a C Corporation in Delaware.
Why Do LLCs Convert to C Corp?
The main reason why most LLCs convert to C Corporation is to attract venture investment.
What Can Be an Alternative to Converting an LLC to C Corp?
If you don't want to convert to a C Corp, you can decide to wind down the business and start a new Delaware Corporation. Discuss the issue with your attorney to assess the merits of the two options.
What Are the Costs Involved When Converting an LLC to C Corp?
The following provides details of the paperwork and fees required for converting an LLC to C Corp
- Certificate of Conversion (DE): $164
- Certificate of Incorporation: About $89 (minimum)
- Certificate of Conversion (MI): $35
- Certificate of Authority (MI): $60
- Certificate of Good Standing: $50
- Certified Delaware Agent: About $50/yr.
- Delaware Franchise Tax: About $350/yr.
The filing fee for Certificate of Incorporation depends on the number of authorized stocks in the corporation, except where you choose a law par value. The Delaware Secretary of state collects the fees.
How Long Does the Conversion Process Take?
It takes about two weeks to process a Certificate of Conversion and a Certificate of Incorporation in Delaware. However, you can opt for expedited processing for an additional fee ($100 for Certificate of Incorporation and $200 for Certificate of Conversion).
Is a Certificate of Authority Required When Converting to a C Corp?
The business has to file for a Certificate of Authority if the post-conversion C Corp intends to operate in the state of Michigan. To obtain a Certificate of Authority, the entity must also apply for a certificate of good standing under Delaware law and jurisdiction.
Do You Need to Determine the Amount of Total Stock to Authorize When Converting to a C Corp?
Yes, you need to determine the total number of authorized stock and its par value.
What Are the Factors Considered When Converting from LLC to C Corp?
The two important factors to consider during conversions include:
- How to prevent the conversion process from being taxed, and
- How to ensure that the ownership equity of members in the LLC is equivalent to the value of the shares distributed to them when it becomes a C Corp.
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