If you want to change your 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 your state, it 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.
In this article, we’ll discuss what the certificate of conversion is, and also what you can do in states that don’t allow statutory conversions.
The statutory conversion is a relatively recent development for American businesses, and it’s still only available in 35 states. This process has some variance from state to state, but in general, it starts 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, you’ll need to provide the company’s stockholders with the plan so they can vote on it, while in an LLC, you just need a majority of the company’s owners to approve the plan.
The next step is to draft and file the certificate of conversion. You will also need to prepare and file the formation documents for the business entity you wish to convert to — the articles of organization for an LLC, or the articles of incorporation for a corporation. Finally, you’ll need to formally dissolve your original business entity, and your statutory conversion is complete.
The exact information needed to complete the certificate of conversion can vary depending on which state you’re converting an entity in, but generally speaking, you’ll need to provide the Secretary of State with the following information:
If you operate a business in a state that doesn’t provide entrepreneurs with the option for statutory conversion, you’ll need to either perform 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, your business owners will need to voluntarily and formally trade in their ownership in your previous entity for ownership shares in the new entity. Finally, you’ll need to draft and file a document usually called a certificate of merger with your Secretary of State to officially merge the two companies.
The other option is to perform a nonstatutory conversion. Much like the statutory merger, this 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 you should almost certainly hire a lawyer if you need to use this method. Fortunately, it’s rarely a necessity anymore.
If this process sounds like more of a hassle than you’re willing to take on, or if you would rather have the peace of mind that each step was completed correctly by a professional, you do have some options. You could hire a business attorney to convert your business entity, although this is an extremely expensive route that could see your expenses climb into the thousands of dollars.
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 service. Take a look at a few of our favorite options:
All told, the certificate of conversion is a simple document that allows you to convert your business from one entity type to another. The real complicating factor is whether or not your state allows for a statutory conversion, which is the process that requires a certificate of conversion.
If you would rather hire someone to draft and file your certificate of conversion, you can hire Swyft Filings, LegalZoom, or BizFilings. These are all reputable companies that we wouldn’t hesitate to recommend, and you can trust them to convert your business to a different entity type with minimal hassle for you.
We hope this article helped you enhance your understanding of the certificate of conversion!
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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