Certificate of Conversion Definition

If a business owner wants to change their business entity type — say, from a limited liability company (LLC) to a corporation or vice versa — the easiest way to do this is to perform a statutory conversion.

This is a process that involves preparing and filing a document usually known as the “Certificate of Conversion,” although depending on the state, this form may have a different name.

However, statutory conversions aren’t allowed in every state, as there are some states that require entrepreneurs to take different and more complicated measures to convert their businesses. This article will discuss what the Certificate of Conversion is and what options entrepreneurs have if their state doesn’t allow for statutory conversions.

What is statutory conversion?

The statutory conversion is a relatively recent development for American businesses, and it’s still not available in several states. This process varies from state to state, but generally, it begins with the company’s ownership group agreeing to convert the business entity type and drafting a conversion plan.

Then, those owners need to hold a vote to approve the conversion. In a corporation, this means the company’s stockholders need to meet and vote on the plan. Meanwhile, in an LLC, a majority of the company’s owners need to approve the plan.

The next step is to draft and file the certificate of conversion. A business owner (or their representative) will also need to prepare and file the formation documents for the business entity the company wishes to convert to — the Articles of Organization for an LLC, or the Articles of Incorporation for a corporation. Finally, the business will need to dissolve its original business entity to complete the conversion process.

What information is required in a Certificate of Conversion?

The exact information needed to complete the Certificate of Conversion can vary depending on the state where the conversion occurs. But generally speaking, entrepreneurs will be asked to provide their Secretary of State with the following information:

• The name of the entity
• The type of entity the business is converting from
• The jurisdiction where the business is located
• The mailing address of the business
• The name and address of the registered agent (For more information, please see the what is a registered agent page)
• The entity type the company is converting into
• The results of the company’s voting process
• Signature of the company’s authorized person

How can someone convert their entity if statutory conversion isn’t allowed?

If a business operates in a state that doesn’t provide entrepreneurs with the option for statutory conversion, it needs to perform either a statutory merger or a nonstatutory conversion. The statutory merger starts with the formation of a brand-new business entity, followed by a vote to approve a merger between your existing entity and the new one.

Then, the business owners need to voluntarily and formally exchange their ownership in the previous entity for ownership shares in the new entity. Finally, the business owner needs to draft and file a document, usually called a Certificate of Merger, with the Secretary of State to officially merge the two companies.

The other option is to perform a nonstatutory conversion. Much like the statutory merger, this process starts with the formation of a new business entity. The other steps are fairly similar as well: there’s a transfer of assets, a transfer of ownership, and a dissolution of the original entity.

However, while these steps are automatic transfers with a statutory merger, that isn’t the case with a nonstatutory conversion. Each step requires a separate exchange agreement, which can be rather complicated to draw up. Nonstatutory conversions should not be handled with the DIY route, and business owners would be wisest to hire a lawyer if they need to use this method. Fortunately, it’s rarely a necessity anymore.

Can someone hire a service to file their Certificate of Conversion for them?

To many entrepreneurs, the conversion process can seem like more of a hassle than they’d like to undertake. Other entrepreneurs might just want the peace of mind that comes with hiring a professional. There are options, too. To start, an entrepreneur could hire a business attorney to convert the entity, although this is an extremely expensive route.

Another option is to hire a business services company. While there aren’t nearly as many options as there are for forming an LLC or corporation, there are still several reputable companies offering business conversion services. Take a look at a few well-known options:

• Swyft Filings: Swyft Filings doesn’t publish their price point for this service, but they do complete every step of the conversion process on behalf of their clients. When they’re finished, they’ll upload all of the relevant documents to a convenient online dashboard. It’s also worth noting that Swyft Filings receives spectacular customer feedback.
• LegalZoom: LegalZoom is perhaps the best-known company in the business services industry, and while their pricing is a bit higher than some competitors, they’re still a strong option. LegalZoom covers this service with a 100% satisfaction guarantee that ensures customers will receive a full refund if they’re unhappy with the service for any reason.
• BizFilings: Another solid choice for this service is BizFilings. While their pricing varies depending on the state where the conversion occurs, BizFilings provides strong services at reasonable rates.

In Conclusion

All told, the Certificate of Conversion is a simple document that allows a business owner to convert their business from one entity type to another. The real complicating factor is whether or not the state allows for a statutory conversion, which is the process that requires a Certificate of Conversion. For business owners who don’t want to complete this step themselves, hiring an attorney or business service company can make this process easier.