Delaware LLC Conversion: Everything You Need to Know
Delaware LLC conversion is possible, even if you're currently an S corporation. 3 min read
Delaware's Conversion Statute
If you are currently a corporation that has considered converting to an LLC, you will be happy to know that there is a new, simplified process to do so. All you need to do is complete a few simples forms and then file with the Secretary of State. This is what's referred to as "statutory conversion."
After this process is complete, all of your assets and liabilities will be transferred to your new LLC. Best of all, unlike other types of conversion, you will not need to form a separate LLC prior to conversion. Within the state of Delaware, you also do not need to dissolve your corporation. Instead, the corporation will continue to exist in the form of an LLC.
Before your corporation can convert into an LLC, all shareholders must approve before any paperwork is filed with the Secretary of State. In most cases, a majority vote will lead to approval. To verify, please refer to your articles of incorporation.
The first step will be to file a Certificate of Conversion Form, including your Certificate of Incorporation. Once you have completed this task and paid all associated fees, you must then file the Texas Certificate of Conversion. Please ensure that you have included all relevant information, including filed franchise tax reports and proof of all paid franchise taxes.
To submit your Texas Certificate of Conversion, know that there is a $300 flat fee.
Certificates Needed for Corporation Conversion to LLC
When completing your certificate of conversion, you will need to include basic information about your new LLC. This will include the name and address of this new entity, as well as your LLC's registered agent. If you do not yet have one, this is something you'll need to consider.
You can obtain blank templates in PDF form from the Delaware Secretary of State. The Certificate of Formation and Certificate of Conversion forms may seem straightforward, but you should expect some possible complications. This is why legal assistance is often recommended during this transition.
Additional Steps in the Conversion from Corp to LLC
Aside from the steps mentioned above, you will also need to address the following tasks when forming and running a new LLC:
- Drafting an operating agreement for your LLC — which may require legal counsel.
- Notifying all suppliers, clients, and customers regarding your new LLC status.
- Holding a manager or member meeting to discuss all related changes. Keep records of this meeting.
- Separating all personal and business finances.
- Using the LLC's official name on all business documents.
- Paying annual taxes in Delaware based on your LLC's profits.
Following all formalities will be critical in maintaining your limited liability status.
What Information Is Needed for the Certificate of Conversion?
When converting to an LLC, the Certificate of Conversion will include the following information:
- The date and location regarding when and where the entity was first created.
- The name and type of entity prior to filing LLC conversion.
- The future effective date of an LLC.
Questions to Answer Before Conversion
If you have ANY questions or concerns, now is the time to ask. Before you seek conversion, make sure you have a thorough understanding of what is required of you. To guide you, here are some of the questions you need to ask yourself and, if required, your attorney.
- Within the state in question, what are the rules around conversion? For example, would you be able to complete a statutory conversion or would you need to do a merger?
- Under the state's rules, what is required for approval? Do all shareholders need to approve? Do two-thirds of shareholders need to approve? This will vary from state to state.
- What specific documentation is required and what should be included in this paperwork?
- Will the company's existing capital require tax counsel? Will the company take a hit in regard to phantom stock?
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