Statutory Conversion Definition

The limited liability company (LLC) and the corporation are both formal business entities with plenty of their own advantages and disadvantages. When an entrepreneur first starts a business, they might feel certain that one or the other is the perfect fit. But later on, that same entrepreneur could realize that they’d rather have a corporation or an LLC instead. In that case, they’d need to convert their business entity.

There are a few different ways to convert a business, but the top recommended one is usually the statutory conversion. But what is the statutory conversion, and why is it the preferred method for business conversions? This guide breaks down the essential facts about the statutory conversion.

What is a statutory conversion?

The statutory conversion is the simplest way to convert a business from one entity type to another. Statutory conversions were introduced into the American business world fairly recently, and as such, they’re 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, the board needs to provide the company’s stockholders with the plan so they can vote on it, while in an LLC, the company just needs a majority of the owners to approve the plan.

The next step is to draft and file the certificate of conversion. The exact information needed to complete the certificate of conversion can vary depending on which state the business is converting in, but generally speaking, the business needs to provide the 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
• The entity type the business is converting into
• The results of the company’s voting process
• Signature of the company’s authorized person

Someone also needs to prepare and file the formation documents for the business entity the company will convert into — the articles of organization for an LLC, or the articles of incorporation for a corporation. Finally, they’ll need to formally dissolve the original business entity, and the statutory conversion is complete.

Related:

Conversion Definition

Statutory Agent Definition

What are the other methods to convert a business entity?

The statutory merger is no longer the most popular method for converting one type of business to another, but it is still used frequently in a handful of states. The statutory merger starts with the formation of a brand-new business entity, followed by a vote to approve a merger between the existing entity and the new one.

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

There is also a third method called the non-statutory conversion, which is hardly ever used these days (check out the non-statutory conversion definition). In general, the non-statutory conversion is similar to the statutory merger, but while each step in the statutory merger is a relatively seamless and automatic process, with a non-statutory conversion, each step needs separate transfer documents. Learn more about the statutory merger definition here.

See also: Statutory Merger vs. Statutory Conversion

Can a business owner hire a service to convert their entity?

A business conversion is a complicated process, so it’s understandable that some business owners might not want to tackle this themselves. Maybe they don’t have time, or they just want to have the peace of mind that every step is completed correctly. These entrepreneurs might decide to hire a business attorney to convert their business entity, but that’s an expensive option that can cost 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 services. Take a look at a few of the top options:

• Swyft Filings: Swyft Filings has a great price point for this service, and they’ll complete every step of the process on the company’s behalf. 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 has historically been a bit higher than Swyft Filings, they’re still a strong option. LegalZoom covers this service with a 100% satisfaction guarantee that ensures customers receive a full refund if they’re unhappy with their service for any reason.
• BizFilings: Another solid choice for this service is BizFilings. While their pricing does vary depending on which state the conversion is occurring in, BizFilings reliably provides strong services at reasonable rates.

In Conclusion

The statutory conversion is by far the easiest and most popular way to convert one entity type to another, but it’s still not available in all 50 states. Therefore, business owners who operate in one of the 15 states that don’t allow statutory conversions will need to do a statutory merger instead.

If either process gets overwhelming, small business owners should keep in mind that there are reputable companies that can help them out with the conversion process.